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Operator: Good day, and welcome to Cherry Hill Mortgage Investment Corporation's Third Quarter 2025 Conference Call. [indiscernible] I would now like to turn the call over to Garrett Edson of ICR. Please go ahead. Garrett Edson: We'd like to thank you for joining us today for Cherry Hill Mortgage Investment Corporation's Third Quarter 2025 Conference Call. In advance of this call, we issued a press release that was distributed earlier this afternoon. That press release and our third quarter 2025 investor presentation have been posted to the Investor Relations section of our website at www.chmireit.com. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ from those discussed today. Examples of forward-looking statements include those related to interest income, financial guidance, IRRs, future expected cash flows as well as prepayment and recapture rates, delinquencies and non-GAAP financial measures such as earnings available for distribution or EAD and comprehensive income. Forward-looking statements represent management's current estimates, and Cherry Hill assumes no obligation to update any forward-looking statements in the future. We encourage listeners to review the more detailed discussions related to these forward-looking statements contained in the company's filings with the SEC and the definitions contained in the financial presentations available on the company's website. Today's conference call is hosted by Jay Lown, President and CEO; Julian Evans, the Chief Investment Officer; and Apeksha Patel, the Chief Financial Officer. Now I will turn the call over to Jay. Jeffrey Lown: Thanks, Garrett, and welcome to our third quarter 2025 earnings call. The third quarter saw a continued reduction in overall macro volatility as we moved into the fall with tariff concerns mostly fading into the background and investors accepting the new normal. As the quarter progressed, it became clear that the Fed would proceed with rate cuts given economic indicators, and they did exactly that in both September and last week. Rates were mostly contained quarter-over-quarter with the 10-year yield ending marginally lower at 4.15%. Specific to Cherry Hill, portfolio components such as mortgages, swaps, futures and MSRs performed well in the quarter, though lower coupon mortgages outperformed higher coupons due to lower rates and investors' growing demand for duration. With the Fed in easing mode, leading to higher prepayment speed expectations for high coupon mortgages, we shifted our RMBS portfolio in the quarter to benefit from the lower interest rate environment and stand positioned to benefit from lower funding costs and improved portfolio performance. Our MSR portfolio has a weighted average note rate of 3.5%, well below current mortgage rates and continues to perform well. For the third quarter, we generated GAAP net income applicable to common stockholders of $0.05 per diluted share. Book value per common share finished the quarter at $3.36 compared to $3.34 on June 30. On an NAV basis, which includes preferred stock and prior to any ATM capital raised in the quarter, NAV was up approximately $1.1 million or 0.5% relative to June 30. Financial leverage at the end of the quarter remained consistent at 5.3x as we continue to stay prudently levered. We ended the quarter with $55 million of unrestricted cash, maintaining a solid liquidity profile. In September, our Board of Directors made the strategic decision to adjust our dividend to $0.10 per share. We believe the realignment is more sustainable and in line with the company's earnings power. As we mentioned on our last call, we entered into a strategic partnership and investment with Real Genius LLC, a Florida-based digital mortgage technology company earlier this year. As a reminder, Real Genius has developed a proprietary direct-to-consumer platform, offering an efficient fully online mortgage experience, including instant prequalification, automated document process and real-time loan tracking, all of which is supported by their custom-built point-of-sale system. We are seeing positive momentum from that partnership as Real Genius' growth trajectory and stabilization progresses in line with our expectations. With 30-year mortgage rates hovering around 6%, we are optimistic that the reduction in mortgage rates may facilitate an acceleration in Real Genius' growth as more homebuyers and homeowners look to purchase homes or refinance. Looking ahead, we will continue to seek out investment opportunities we believe would be accretive to our business. We are monitoring the economic environment closely and are focused on thoughtfully growing the company while maintaining strong liquidity and prudent leverage. With that, I'll turn the call over to Julian, who will cover more details regarding our investment portfolio and its performance over the third quarter. Julian Evans: Thank you, Jay. Mortgage spread tightening drove performance in the third quarter. Reduced tariff rhetoric, a few announced preliminary tariff deals as well as declining rate volatility and the assumption that the Fed would initiate and continue easing monetary policy based upon weaker employment data helped to define mortgage performance over the quarter. As the market grew more comfortable with the potential Fed easing, mortgage spreads ground tighter. And as dollar prices rose, the expectations for faster prepayment speeds grew for higher coupon mortgages, limiting their performance. Higher coupon dollar prices became capped as interest rates moved lower and spreads tightened. As a result, investors' desire for lower coupon mortgages and duration needs became apparent. Investors were chasing the par coupon mortgage as interest rates moved lower. Throughout the quarter, we adjusted our portfolio positioning to benefit from ongoing spread tightening and declining interest rates. At quarter end, our MSR portfolio had a UPB of $16.2 billion and a market value of approximately $219 million. The MSR and related net assets represented approximately 41% of our equity capital and approximately 22% of our investable assets, excluding cash at quarter end. Meanwhile, our RMBS portfolio accounted for approximately 39% of our equity capital. As a percentage of investable assets, the RMBS portfolio represented approximately 78%, excluding cash at quarter end. Our MSR portfolio's net CPR averaged approximately 5.9% for the third quarter, pretty much comparable with the previous quarter. The portfolio's recapture rate remained de minimis as the incentive to refinance continues to be minimal for this portfolio given the portfolio's loan rate. We continue to expect a low recapture rate and a relatively low net CPR in the near term given our MSR portfolio's characteristics. Like the MSR, the RMBS portfolio prepayment speeds held steady at 6.1% CPR for the 3-month period ended September. We do expect agency prepayment speeds to increase with current mortgage rates ranging between 5.75% and 6.25%, especially for higher coupon mortgages. Our portfolio is not comprised of a large portion of higher coupon specified pools. Most of the higher coupon positioning is represented by TBA positioning. The larger spec pool positioning starts at the 5.5% coupon where the underlying collateral typically has a 650 loan rate, which will be impacted by the recent lower mortgage rates. The initial impact should be limited as the mortgage universe is only approximately 19% refinanceable at the current mortgage rate levels. But as the Fed continues to ease monetary policy, we are monitoring a mortgage rate of 5.5%. At 5.5% mortgage rate, the refinanceable universe increases to approximately 30%. As of September 30, the RMBS portfolio inclusive of TBAs stood at approximately $782 million compared to $756 million at the previous quarter end as we modestly shifted our RMBS positioning towards lower middle of the coupon stack mortgages versus higher coupon mortgages. For the third quarter, our RMBS net interest spread was approximately 2.87%, higher than the previous quarter as increased asset purchases more than offset higher interest expenses. Overall, our hedge strategy remains largely intact. We will continue to use a combination of swaps, TBA securities and treasury futures to hedge the portfolio. During the quarter, the hedge portfolio changed marginally because more positioning changes were made to the RMBS portfolio. As we close out the year, we will continue to proactively manage our portfolio and adjust our overall capital structure to add value for shareholders through improved performance and earnings. I will now turn the call over to Apeksha for a third quarter financial discussion. Apeksha Patel: Thank you, Julian. GAAP net income applicable to common stockholders for the third quarter was $2 million or $0.05 per weighted average diluted share outstanding during the quarter, while comprehensive income attributable to common stockholders, which includes the mark-to-market of our available-for-sale RMBS, was $4.5 million or $0.12 per weighted average diluted share. Our earnings available for distribution or EAD attributable to common stockholders were $3.3 million or $0.09 per share. Our book value per common share as of September 30, 2025, was $3.36 compared to book value of $3.34 as of June 30, 2025. We used a variety of derivative instruments to mitigate the effects of increases in interest rates on a portion of our future repurchase borrowings. At the end of the third quarter, we held interest rate swaps, TBAs and treasury futures, all of which had a combined notional amount of approximately $435 million. You can see more details regarding our hedging strategy in our 10-Q as well as our third quarter presentation. For GAAP purposes, we have not elected to apply hedge accounting for our interest rate derivatives. And as a result, we record the change in estimated fair value as a component of the net gain or loss on interest rate derivatives. Operating expenses were $3.8 million for the quarter. On September 15, 2025, our Board of Directors declared a dividend of $0.10 per common share for the third quarter of 2025, which was paid in cash on October 31, 2025. We also declared a dividend of $0.5125 per share on our 8.2% Series A cumulative redeemable preferred stock and a dividend of $0.6523 on our 8.25% Series B fixed to floating rate cumulative redeemable preferred stock, both of which were paid on October 15, 2025. At this time, we will open up the call for questions. Operator? Operator: And our first question comes from Timothy D'Agostino with B. Riley Securities. Timothy D'Agostino: Just one quick question for me. Regarding the Real Genius acquisition -- or partnership, sorry, was that more opportunistic? Or could we see more partnerships like that in the future? Jeffrey Lown: So I'm not really prepared to forecast, but to the extent that we see things that are interesting that are accretive, sure, we'll look at them. This was a long time in the making for this investment. And broadly speaking, we're really happy with how it's progressing. But to the extent that we find opportunities that fit within the skill set of people here, we'll absolutely look at them. Operator: Our next question comes from Mikhail Goberman with Citizens. Mikhail Goberman: If I could pick your brain about just your thoughts on expenses going forward. I'm looking at G&A plus comp. It looks like it was about a 12.5% sequential rise. Is there a sort of run rate that you guys are targeting going forward? Is there a seasonality to that combined number? Apeksha Patel: Mikhail, it's Apeksha Yes, their G&A and comp and benefits were both up this quarter, and that is mostly due to changes in personnel that we had during the second quarter and the third quarter of the year as well as professional fees that related to those changes. Going forward, we do anticipate those costs going down, especially with having a new in-house GC now. As of this point, though, it's difficult for us to quantify exactly what that would be, but we are anticipating them going down. Mikhail Goberman: Great. And the sequential rise in servicing costs, what was driving that there? Jeffrey Lown: That was essentially part of the deboarding fee that got reimbursed in Q2. So it's not a typical ongoing expense. And that was something that in Q2 lowered the expense. Q3, we didn't have it, of course, because we didn't have the deboarding again. And so you saw that quarter-over-quarter change, but Q3 is more similar to our ongoing run rate. Mikhail Goberman: Great. And if I can get one more in there. I think you know what it's going to be. Any update on the current book value? Jeffrey Lown: The usual. I turn it over to Apeksha. Apeksha Patel: We're seeing our October 31 book value per share up about 1.2% from September 30. And obviously, that's before any fourth quarter dividend accrual as the Board has not yet met to approve it. Operator: I'm showing no further questions. At this time, I'd like to turn the call back over to Jay Lown for closing remarks. Jeffrey Lown: Thank you. Thanks for attending our third quarter 2025 earnings call, and we look forward to updating you on our year-end results in the first quarter of 2026. Have a good evening. Operator: This does conclude the call. You may now disconnect. Good day.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Lassonde Industries 2025 Third Quarter Earnings Conference Call. The corporation's press release reporting its financial results was published yesterday after market close. It can be found on its website at lassonde.com, along with the MD&A and financial statements. These documents are available on SEDAR+ as well. A presentation supporting this conference call was also posted on the website. [Operator Instructions] Before turning to management's prerecorded remarks, please be advised that this conference call will contain forward statements that are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. Please refer to the forward-looking statements section of the MD&A for further information. Also note that all figures expressed on today's call are in Canadian dollars unless otherwise stated and that most amounts have been rounded to ease the presentation. Finally, be advised that the presentation will refer to non-IFRS measures or ratios mostly to ease comparability between periods. Reconciliations to IFRS measures are provided in the appendix to the presentation and in the corporation's MD&A. I would like to remind everyone that this conference call is being recorded on Friday, November 7, 2025. I will now turn the conference over to Vincent Timpano, Chief Executive Officer. Vincent Timpano: Good morning, ladies and gentlemen. I'm here with Eric Gemme, Chief Financial Officer of Lassonde Industries. Thank you for joining us for this discussion of the financial and operating results for our third quarter ended September 27, 2025. Now please turn to Slide 4. Lassonde delivered another solid performance in the third quarter, which is a testament to its ability to meet customer and consumer needs through its broad and diverse product portfolio and through a continued commitment to service excellence. Sales increased 8.3% to $724 million. As anticipated, sales growth was less than in previous periods as we lap the Summer Garden acquisition and the commissioning of the North Carolina single-serve line partway through the quarter and as we face some industry-wide demand-related headwinds. Still, we grew our sales in each business unit and generated an increase of nearly 23% in operating profit. These achievements mainly reflect strong execution on pricing as well as a better sales mix within our private label offering. Now let's turn to Slide 5 for a closer look at operations, beginning with U.S. Beverage activities. Lassonde maintained its market position in the third quarter. While the overall category was down low single digits as consumer spending reflects weaker confidence given the current macroeconomic context, volume for U.S. brands remained relatively steady and our private label volume contracted slightly. Our performance was also consistent with what we've seen in the market with competitor brands outperforming private label due to a temporary price gap contraction earlier this year as we led with pricing in response to apple and other commodity inflation and tariffs. With this said, we are now seeing branded competitors implement pricing actions, which we believe should restore normal price gaps and support private label category performance. Our business is well positioned to benefit from a shift back to private label as consumers increasingly seek value in these uncertain economic times. In the quarter, we also successfully completed the installation of production assets being relocated from a U.S. co-packer to our North Carolina facility, and we're in the process of ramping up operations. These assets represent our first ever in-house juice box production in the United States, which should improve reliability and reduce cost in servicing U.S. customers. We also expect to unlock additional volume for both U.S. branded and private label products by improving capacity and throughput on the assets. As for the construction of a new facility in New Jersey, I am pleased to report that we have broken ground following the reception of permitting during the quarter. The project remains on schedule and on budget with a phased transfer of the existing production activities from the current facility beginning in late 2026 and to be completed in 2027. Turning to Slide 6. Our Canadian beverage activities continued to gain market share, outpacing the category with overall market contraction remaining consistent with prior quarters in the mid-single-digit range. Our performance was driven by solid promotional support for our national brands, new distribution gains, mainly in the chilled category and a continued buy Canadian sentiment, which we continue to support with our Canadian to the core campaign through in-store merchandising. We also benefited from a favorable shift in the composition of our private label sales mix. Our focus on innovation to reduce commodity exposure also continues to generate positive results, mainly with Nectars and drinks as well as through new distribution in the chilled category. Moving on to Food Service on Slide 7. Our Food service activities had a solid quarter with once again double-digit sales increase over last year. Growth was driven by volume gains with broadline distributors in the U.S. and by improved penetration of national accounts in Canada. As for our new bag-in-a-box aseptic packaging line, our focus is on developing customized formulas for new accounts. Following positive response, we are now making solid progress in our discussions with customers and are engaging in bids. We see strong potential in this market given the uniqueness and value add of our offering with convenient dispensing and bulk aseptic packaging. As we've noted in past remarks, food service is a significant growth opportunity as we estimate it represents roughly half of consumer spending on food and beverages, whereas our split between retail and food service has historically been around 90-10. Now let's turn to Specialty Food on Slide 8. In the third quarter, we sustained our integration efforts within our North American Specialty Food network with the objective of capturing additional efficiencies and synergies. As an example, after reviewing our manufacturing processes and installing new equipment at our Ohio plant to eliminate a bottleneck, we achieved increased throughput. Summer Garden contributed sales of $48.1 million for the full quarter versus $26.7 million over 7 weeks last year. Its EBITDA margin reached 16%, reflecting seasonal volume fluctuations and the timing of promotional activities. EBITDA margin for the first 9 months of 2025 remained robust, approaching 21%. Summer Garden's focus also remains on finalizing its consumer-focused brand strategy, addressing opportunities to expand brand distribution and launch new innovation. As for legacy operations, overall volume held relatively steady and profitability continued to grow with sustained momentum in the glass jar sauce category. Finally, we continue to refine our strategy to drive sustainable and profitable growth within the specialty food market while enhancing service for our U.S. customers. We remain excited about the long-term growth potential of this segment, supported by ongoing initiatives to fortify our capabilities across both operations. I now turn the call over to Eric for a review of quarter 2 results. Eric? Eric Gemme: Thank you, Vince. Good morning, everyone. Let's turn to Slide 9 for our third quarter sales, which amounted to $724 million, up 8.3% versus last year. Excluding Summer Garden and a favorable foreign exchange impact, sales increased 5%, reflecting the favorable impact of pricing adjustments and a positive shift in the private label sales mix in Canada. Moving to Slide 10. Gross profit reached $198 million or 27.3% of sales, up 10% versus $180 million a year ago or 26.9% of sales. Excluding Summer Garden, gross profit dollars increased 4% year-over-year for a gross profit margin of 26.8%, reflecting the favorable impact of selling price adjustment and a positive shift in the sales mix. These factors were partially offset by higher costs for certain inputs such as orange, apple, pineapple concentrates, an increase in certain conversion costs in the U.S., mostly related to the deployment of new assets in North Carolina and to reduce absorption due to lower production volume and the accelerated depreciation expense of certain U.S. assets. SG&A expenses were $140 million, up from $133 million last year. Excluding expenses from Summer Garden, SG&A held steady as increases in certain administrative and selling and marketing expenses, finished goods warehousing costs, mainly in Canada and amortization expenses resulted from the commissioning of the new Canadian ERP were offset by lower transportation costs to deliver products to clients and a decrease in performance-related compensation. Excluding items that impact comparability, adjusted EBITDA increased 25% to $86 million or 11.9% of sales from $69 million or 10.4% of sales last year. Adjusted profit attributable to the corporation shareholder reached $40 million or $5.84 per share, a record level quarterly adjusted EPS, increasing 29% from $31 million or $4.53 per share last year. Turning to working capital on Slide 11. The days of operating working capital ratio stood at 55 days, down from 59 days in quarter 2. This decline was mainly due to an increase in days payable outstanding as we return to normal purchasing patterns. Meanwhile, days of inventory outstanding remained stable at 85 days, which is slightly elevated for third quarter. While the ratio stands above historical range levels of approximately 46 days at the end of the third quarter, our objective is to bring it near the upper limit of the historical range by the end of 2025, given current inventory holding strategies. As a reminder, we may temporarily elect to strategically leverage our balance sheet to secure certain inventory availability and/or lock in costs ahead of anticipated supplier price increases. Now on Slide 12. Operating activities generated $118 million in Q3 of 2025, up from $87 million last year. This improvement is mainly due to higher EBITDA and higher cash generated from working capital, notably through a lower accounts receivable, which normalized following a temporary effect on timing of invoicing due to the earlier rollout of the new Canadian ERP and to lower inventory as significant volume acquired earlier this year are gradually being depleted. These factors were partly offset by a $14.2 million combined increase in interest and income taxes paid. CapEx totaled $35 million in Q3 2025 and $142 million since the beginning of the year. We still expect CapEx to reach up to 7% of sales in 2025, including approximately now USD 57 million for the construction of the New Jersey facility and up to USD 20 million for the redeployment of our juice box lines in North Carolina. Turning to our balance sheet on Slide 13. Lassonde's net debt totaled $550 million at the end of the third quarter, down from $618 million 3 months earlier. The decrease mainly reflects cash flow generated by working capital. As a result, the net debt to adjusted EBITDA ratio improved to 1.7:1 at the end of Q3 2025, compared to 2:1 at the end of the previous quarter. All things being equal, the leverage ratio should range between 2 and 2.5:1 until the end of 2026, but we anticipate being near the lower end of the range. This remains well within our comfort zone of less than 3.25:1. I now turn the call back to Vince for the outlook. Vince? Vincent Timpano: Thank you, Eric. Now please turn to Slide 14 for our sales outlook. As we close out 2025 and despite persistent economic uncertainty, we reiterate our expectations of a sales increase slightly above 10%, excluding currency fluctuations, reflecting a full year contribution from Summer Garden, increased volume, in part supported by our latest marketing campaign, Oasis Supply, intended to build awareness and brand preference for our new chilled distribution, targeted promotional spend and the buy Canadian sentiment. The run rate effect of existing and planned selling price adjustments and volume improvement related to the pace of our U.S. Build Back plan and additional volume available from our single-serve line in North Carolina. Moving to Slide 15. We remain focused on executing our strategic priorities while remaining disciplined and agile in a volatile environment. For U.S. beverage activities, our priorities include continuing our private label volume build back plan, notably by increasing our penetration of existing customers with new products, executing on pricing to offset cost volatility induced by commodities and tariffs while balancing pricing impact on demand elasticity and competitive position versus brands and forging ahead on our new facility construction project to improve capacity and lower cost. For Canadian beverage activities, fortifying our leadership remains our priority through innovation to reduce commodity exposure and ensure active participation in on-trend and growing beverage segments, targeted promotion spending and marketing investments and constant efforts to improve productivity. Our North America Food Service team will continue its push for further expansion in this key market, including through our bag-in-a-box initiative. In Specialty Food, our priorities are continuing to integrate our North American Specialty Food network, expanding core brand distribution through improved positioning, fortifying our commercial capabilities and continuing to refine our strategy to support growth and improve service for our U.S. customers. Turning to Slide 16. The cost of orange juice and concentrates as well as apple and pineapple concentrates are expected to remain volatile through the fourth quarter as are other inputs affected by tariffs. The cost of orange concentrate has remained highly volatile with a sudden and significant decline in the spot price to less than USD 2 per pound solid in recent days on use of lower consumption, combined with a stronger upcoming crop in Brazil. To mitigate volatility, Lassonde follows a hedging policy for a portion of its commodity needs. While this approach provides stability, it can temporarily reduce the benefit of sharp declines in spot prices, particularly when the drop is sudden as seen in the current market. As for apple juice concentrate, inflationary pressures have moderated following a spike in early 2025. Additional pricing adjustments were deployed late in the second quarter, but the delay between cost increases and price adjustments temporarily affected our margins. Availability of pineapple concentrate, an important commodity for Lassonde remains constrained, creating challenges and resulting in lost opportunities this past quarter. This shortage may continue for several months with elevated prices, and we are closely monitoring this impact on input costs and juice blend formulations. In this volatile commodity pricing environment, we remain vigilant in monitoring changes in consumer food habits and demand elasticity for our products. To alleviate these effects, we will continue to bring innovation to market. As for the trade environment, the situation remains uncertain, which is affecting consumer sentiment and spending in both Canada and the United States as seen by ongoing category declines. We continue to actively monitor ongoing developments while ensuring our mitigation measures allow us to maintain a strong competitive position and an optimal cost structure, although the timing, duration and evolution of tariffs may affect these measures. In closing, as shown on Slide 17, we expect our momentum to continue, enabling us to achieve our 2025 financial objectives. We remain focused on executing our strategy, delivering our important investment projects and staying agile in this dynamic environment. Above all, Lassonde's diversified product portfolio, supported by an exceptional team of committed employees represents a key factor in maintaining a strong competitive position in the North America food and beverage market. This concludes our prepared remarks. We are now pleased to answer your questions. Operator: [Operator Instructions] The first question comes from Luke Hannan from Canaccord Genuity. Luke Hannan: My questions are going to be mostly focused on the commodity complex here. You touched on, Vince, that pineapple, there's shortages in the quarter that sounds like it led to lost sales. I don't know if it's possible for you guys to quantify that or dimensionalize that for us, but that would be helpful. And then secondly, I know in the past, and I believe in your MD&A, it still, you talked about apples, apple concentrates, oranges representing 25% of COGS. How material is pineapple relative to your overall cost of sales? Eric Gemme: So look, it's going to be, Eric, taking the answer on this one. So you are correct I pointed out that the key commodities for us are apple and orange representing 25% of sales. We're also a significant player in [indiscernible], but pineapple is not very far. And pineapple is used either as a straight or also part of our blend. And pineapple is also a premium element from a blend perspective. So it affects volume, not dramatically like an orange or an apple could do, but the mix, the quality of the mix of our product is affected, and it was really a question of price of the commodity and availability. So basically, we were not able to ship as many of those juices or juice blends that we would have hoped during the quarter. Luke Hannan: Got it. And then secondly, I mean, it was mentioned, and I know that you guys have talked about this in the past that you typically hedge. So that means the volatility in spot doesn't always flow through your P&L right away. But there has been a relatively sharp decline in orange concentrate specifically more recently. And if I reconcile that with what you guys have talked about with working capital as well, that's declining. But have you given any thought to maybe being a little bit more strategic in hedging more at these lower levels from a spot perspective just to ensure that perhaps you can lock in a relatively healthy margin on at least part of your assortment going into 2026? Eric Gemme: So Luke, again, we are using hedging not as a gamble. So we will remain within our hedging policies and procedure. However, still lot of policy and procedure allow us to be strategic a little bit. So we will hedge. And again, we have our view in terms of where the market is and where it could go. And of course, we're going to -- within the boundary because, again, it's not gambling within the boundary of what we -- our policies, we will take -- try to take advantage of what we believe is favorable cost. But you are correct, and you read as well. We have at the moment because of the sharp and sudden decline in this commodity from a spot price perspective, our hedge positions are, of course, higher. However, from a strategic perspective, we believe that we are very much aligned with our competitor who also hedge because we are not a significant player in the hedge market. We have many other strategic player in there. So I think all of us are pretty much in the same spot. Luke Hannan: Got it. And then I wanted to shift over to -- there was mention about there being a sales mix shift in private label. I believe it was in Canada. Just wanted to know what exactly is driving that? Eric Gemme: Yes. So yes, it's in Canada, it's in private label. So when we talk about mix, it's about the type of cases that we're selling. So we had an elevated level of chilled sales in Canada. So whatever is in the chilled area, so orange or orange brand mainly. Luke Hannan: Okay. Last one for me, and then I'll pass the line as well. You touched on the gaps -- the price gaps between private label and branded now widening. There have been some other competitors, their national brands taking more price of late as well. Can you give us a sense, are those price gaps sort of what you expect? Are they at levels that you would expect to see normally? Is there still more to come on that front? Just give us a sense of where those price gaps stand today. Vincent Timpano: Yes. Luke, let me jump in. It's Vince. What we're seeing is price gaps restore more to normalized levels. So not all the way entirely there, but there was a lag in terms of pricing to the shelf, but we are seeing gaps between brand and private label be restored. The only other thing that I want to reinforce is that we led pricing in the market. That created a temporary gap as brands either followed, but there was a lag in terms of what we saw at the shelf price or there was increased promotional spend. But to answer your question, we are starting to see gaps restore back to normalized levels in the United States. Luke Hannan: Yes. And it sounds like... Eric Gemme: Well, Luke, to be clear, right, this concept is really in the U.S. market, not in Canada. Operator: [Operator Instructions] Our next question is from Martin Landry of Stifel. Martin Landry: My first question is just a follow-up to the last discussion in the U.S. market. So just to understand better, orange concentrate is down significantly on a year-over-year basis, but you're talking about pricing -- putting price increases and you've led with price increases. So are those price increases reflecting the tariff dynamic that is ongoing in the U.S.? Just a bit of clarity there would be helpful. Vincent Timpano: Yes. So there are commodity increases that are built into the price increases. But in addition, and you're accurate in saying that there's also a tariff component there as well. And recall, Martin, that when you're looking at commodities and you're purchasing on a global level, we anticipate that our competitors are in a very similar position, and that's why they're also responding with pricing. Martin Landry: Okay. And can you just remind us what was the magnitude of the prices that you've implemented in the U.S.? And what was the timing of that increase? Eric Gemme: Magnitude, I don't think we are providing that externally. From a timing perspective, it's really second quarter and third quarter. I think now we pretty much were done with these increases. Martin Landry: Okay. All right. And then looking at Q4, in Q3, organically, your sales were up 5% when we exclude the contribution from Summer Garden. So looking at Q4, you will be lapping the Summer Garden acquisition. So is it fair to say that, 5% growth rate organically for Q4, is it a good assumption to use? Could that be replicated? Eric Gemme: So Martin, I will refer you back to our outlook for the full year, where we say it's slightly above 10%. So I'll let you do the math, but you would see that last year, what we reported $738 million on a consolidated basis. If you run the math, I think if you believe that we can make whatever, 10% flat, you would see that's probably a decline versus last year. But if you stretch a little bit your 10%, I think as you get to 12%, you see that it's a slight growth versus last year, but not at the 5% June. Martin Landry: Okay. So then can you help me a little bit understand why you expect your organic growth to decelerate in Q3 versus Q4? Eric Gemme: So Q3, we had the full half of a quarter worth of Summer Garden. We had our Line 5, which is our single-serve line in the U.S. only starting. And right there from a volume and an additional organic growth, you had that those effect in Q3 helping versus Q4, where both elements were there for the [ third ] quarter. Operator: Our next question is from Etienne Larochelle from Desjardins. Etienne Larochelle: First off, I was just wondering if the Buy Canada movement, is it still a tailwind for your Canadian business? Because I feel like it's less -- it gets less topical in the media than a few months ago. So I'm just curious to know if it's still a positive impact on your business or if it's still -- is it slowly fading away? Vincent Timpano: Our views are that the Canadian sentiment remains robust. And there's a component of the performance that we continue to see in the Canadian business that reflects that. I think the important factor, though, is not that it comes at any price, consumers have their limit. And they recognize that at some point, they've got to manage their pocket book. So we're mindful of ensuring that we understand that we've got to continue to do more and not just rely on the Canadian sentiment. But the reality is we've got this as a core competitive advantage within Canada. We are a Quebec-based Canadian company that produces Canadian brands for Canadian consumers. And we're spending a fair bit of time reinforcing and continuing to educate consumers about that very fast. So we had a campaign that we executed early on in the year to reinforce that. We continue to execute it through effective in-store merchandising just to ensure that we're doing what we need to do to remind consumers of the Canadian heritage that it's less on. Etienne Larochelle: Yes, makes sense. And also you completed the relocation of production lines to your North Carolina plant during the quarter. I was just wondering if you could comment on how the ramp-up is going generally, when you expect to reach full production? And maybe any relevant updates on that front would be helpful. Eric Gemme: That project is on scope on budget. So yes, those lines are now starting to produce at the level we were anticipating. So -- but of course, it came in late in the third quarter. So there's absolutely no volume at the moment in there. But remember, it's not new volume, those lines. It's we were moving lines that were existing, and we had to rely. So basically, they had volume in there. So we had to rely in the meantime on co-packers. So don't expect a volume effect from the deployment of those lines. What you should expect is a reinsourcing of those volume and of course, now start benefiting from our cost versus having to use co-packers and not necessarily in the right place in the network. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Vincent Timpano for any closing remarks. Vincent Timpano: Thank you for joining us this morning. We look forward to speaking with you again at our year-end call. Have a great day and a great weekend, everyone. Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Strawberry Fields REIT Q3 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. At this time, I would like to turn the conference over to Mr. Jeff Bajtner, Chief Investment Officer. Sir, please begin. Jeffrey Bajtner: Thank you, and welcome to Strawberry Fields REIT's Q3 2025 Earnings Call. I am the Chief Investment Officer, and joining me today on the call are Moishe Gubin, our Chairman and CEO; and Greg Flamion, our CFO. Yesterday evening, the company issued its Q3 2025 earnings results, which are available on the company's Investor Relations website. Participants should be aware that this call is being recorded, and listeners are advised that any forward-looking statements made on today's call are based on management's current expectations, assumptions and beliefs about Strawberry Fields REIT's business and the environment in which it operates. These statements may include projections regarding future financial performance, dividends, acquisitions, investments, returns, financings and may or may not reference other matters affecting the company's business or the businesses of its tenants, including factors that are beyond its control. Additionally, references will be made during this call to non-GAAP financial results. Investors are encouraged to review these non-GAAP financial measures, as well as the explanation and reconciliation of these measures to the comparable GAAP results included on the non-GAAP measure reconciliation page in our investor presentation. Now on to discussing Strawberry Fields REIT and our Q3 2025 performance. I want to start by sharing some key highlights. During the quarter, the company collected 100% of its contractual rents. As we discussed in last quarter's conference call, on July 1, 2025, the company completed the acquisition of 9 skilled nursing facilities comprised of 686 beds, located in Missouri. The acquisition was for $59 million. On August 5, 2025, the company completed the acquisition for a skilled nursing facility with 80 licensed beds near McLoud, Oklahoma. The acquisition was for $4.25 million. The company funded the acquisition utilizing working capital. The initial annual base rents are $425,000 and are subject to 3% annual rent increases. On August 29, the company completed the acquisition for a health care facility comprised of 108 skilled nursing beds and 16 assisted living beds near Poplar Bluff, Missouri. The acquisition was for $5.3 million. The company funded the acquisition utilizing working capital and the initial annual base rents are $530,000 and subject to 3% annual rent increases. A couple of other items I wanted to mention. During Q3, the Board of Directors approved increasing the dividend to $0.16 a share. This increase represented a 14% increase over previous quarters. Yesterday, the Board of Directors approved the Q4 2024 dividend, which will also be $0.16 a share and will be paid on December 30, to shareholders of record on December 16. On the acquisition front, we continue to see deals coming from around the country. As we have discussed in previous investor presentations, we are a big fan of the master lease structure and currently, 89% of our facilities are in master leases. With our disciplined approach, if there is a deal in an existing state, our current operators are looking to grow, and we can simply add the new facility to an existing master lease. If we were to enter and grow in a new state, we would be looking to acquire a sizable portfolio of at least 500 beds. As a final point, I'd like to point out that Strawberry Fields REIT is currently the closest pure-play skilled nursing REIT in the market with 91.5% of our facilities being skilled nursing facilities. I would now like to have Greg Flamion, our Chief Financial Officer, discuss the quarter end financials. Greg Flamion: Thank you, Jeff, and welcome, everyone, to Strawberry Fields REIT Third Quarter 2025 Earnings Call. Let's begin with the balance sheet. Total assets reached $880 million, which is a 33.1% increase compared to Q3 of 2024. This growth is primarily driven by our acquisition strategy and the successful retenanting of specific leasing. On the liabilities and equity side, we saw increases aligned with our financing activities and some foreign currency exchange losses, which impacted other comprehensive income. Overall, the balance sheet reflects our continued investment in long-term growth. Turning to our income statement. Year-to-date revenue through September was $114.9 million, up $28.3 million versus September of last year. This increase is largely due to the timing and integration of properties acquired over the past year, as well as the retenanting activity that began in January. While revenue is up, we've also seen higher expenses, mostly driven by depreciation, amortization and interest. These higher expenses are a result of the acquisitions discussed earlier in the presentation. Net income year-to-date is $24.5 million or $0.44 a share compared to $19.9 million or $0.40 a share last year. Looking at our quarterly performance, the drivers are similar to our year-to-date results. Revenue increased by $10.2 million, again, due to the acquisitions and lease transitions. Expenses rose as well, driven by higher depreciation, amortization and interest from new assets. Net income for the quarter was $8.8 million or $0.16 a share, up from $6.9 million or $0.14 per share in Q3 2024. To close, I'd like to highlight some key financial metrics. Projected AFFO for 2025 is $72.7 million, a 28.2% increase over the last year with a compound annual growth rate or CAGR of 13.3% since 2020. Adjusted EBITDA is projected at $126.1 million, up 38.9% year-over-year with a 13.6% CAGR. Our net debt-to-asset ratio was 49.2%, maintaining a balanced capital structure. As of September 30, our dividend was $0.16 a share, representing a 5.2% yield. With an AFFO payout ratio of 46.8%, we're delivering strong results while preserving capital for future growth. These results reflect our disciplined execution and commitment to long-term shareholder value. With that, I'll turn it back over to Jeff Bajtner, who will walk us through the portfolio highlights. Jeffrey Bajtner: Thank you, Greg. I'd now like to point out some of the Strawberry Fields REIT's portfolio highlights as of September 30. Currently, the company has 142 facilities. This is comprised of 130 skilled nursing facilities, 10 assisted living facilities and 2 long-term acute care hospitals. These facilities are in 10 states. And as you'll see later on in the presentation, we've got a map showing their locations. In these facilities, we've got 15,542 licensed beds. The company's total asset value at acquisition or its historical cost is $1.1 billion. I would like to point out that this amount reflects facilities which have been bought over the past 20 years. If you were to look at the company's fair market value of these facilities or the portfolio, it would be in excess of this amount. Currently, our portfolio has 17 consultants who advise operators. Our weighted average lease term is 7.3 years. Our tenants continue to do well, which is reflected by the EBITDARM rent coverage of 2.01x. Our net debt to adjusted EBITDA ratio is 5.7x. As I mentioned earlier, we're pleased that we continue to collect 100% of our rent. And as I mentioned earlier in my prepared remarks, the company continues to have a strong pipeline. We're seeing deals from across the country. And at this time, our acquisition pipeline is in excess of $250 million. With that, I'd like to have Moishe Gubin, our Chairman and CEO, continue with the presentation. Moishe Gubin: All right. Thank you, Jeff, and thank you, Greg. Staying on this slide, I would just reiterate what Jeff has said. We've continued to grow, as we'll talk about in a future slide with almost 15,500 -- well, the actual number, 15,542. Of course, we're going to keep growing. On the assets, total assets, we feel that our total assets real true market value is probably closer to $1.6 billion. I would stress potential investors not to really spend time looking at our balance sheet for our equity or our assets because they are net of depreciation, which we rely on, of course, to have the surplus cash that we use to buy more assets. I would move on to the next slide and show you all our growth, super proud. As we said on the previous slides, 13.3% growth rate. It was only 5 years ago that we made $38 million of AFFO, and now we are close to double that in 5 years. That's a good growth rate, what to be proud of. We'll hopefully break $73 million and next year, do even better. On the next slide, this is one that I don't usually really spend too much time on. It's the base rent growth. Obviously, that's going to keep growing as we continue to buy. We're in the business of buying and leasing. We do not give options. So everything you see in looking at straight-line rent should continue to be the same or better going forward. It's very rare that we sell something, even though in third quarter, we actually did sell something. That being said, we'll go on to Slide #8. On Slide #8, this is something that we actually ended the quarter okay, within range of last year. Obviously, with the increased AFFO, we should be trading a lot higher than last year. We're continuously working for the shareholders going to events. This week, we were in Arizona, meeting with new tenants and looking at deals. And like Jeff said, we have a very strong pipeline. Again, our bogey that we're trying to break is 150 million to 160 million in dollar spent a year. As we get bigger, we want to spend more, obviously, but we do our deals exactly the same way. And like we've talked about quarter in, quarter out, year in, year out, we are so disciplined on how we buy things that has to fit or we don't buy it. On Page 9, you see our growth rate. We try to educate the marketplace on -- you take the AFFO share growth of 11.3%, you add that to the dividend yield, and we're steadily bringing a return of 16% to 18% a year. That's going to continue to grow. We've maintained the payout ratio to be below 50%, and we've not been erratic at all with how we've done our dividend. In fact, we've raised our dividend, I think, now already 5x, 6x. And we will continue to do exactly what we're doing, paying out what we're paying, which this quarter, which we just announced, is 100% of our net income. And that leaves us $40 million or so from depreciation of surplus cash to go use to buy more assets. So that's just funding our future growth. I love this. I love this slide. Slide 10. You can see our stock is undervalued. Our AFFO trading multiples on the right side, we are the lowest by far. And I believe our profitability is better than most, if not all, of our peers. That being said, we're going to keep working it. We're going to keep meeting investors. We're going to keep doing what we can. We're going to manage the marketplace, continue. We're going to be doing a capital raise at some point. And when we do that, hopefully, that will help bring in more institutional investors and bring more liquidity to the stock price. On the next slide, Page 11, you can see our payout ratio, like I said, we're at 46.8%. Everybody else is in the 70s or higher. Our dividend yield is middle of the road at 5.2%. I would expect as our profitability grows, that dividend yield will grow. And because every time we raise a $0.01, right, if we're at $0.16, we go to $0.17, that's 1/16. That's close to 10% growth, and that puts the dividend yield at a nicer number, and that should happen. On Slide 12, again, this reflects Jeff's comments about us being the closest pure-play REIT. You see we're still 92% -- almost 92%, and our peers are actually decreasing in percentage. And so again, this is a marketplace, which we never have investor calls, we'd like to say it's relatively bulletproof where the clientele that comes to us, they have to come to -- they have to go to our tenant because they need to be cared for a certain way. And with the baby boomers pushing, which we'll talk about in a future slide, the reality is, is that we think that we're in a good spot because it's a business that's government paid for. So it doesn't -- inflation really doesn't affect it. And we keep going out to giving the story. We feel that the investor public should be happy with us and things should pick up. On Slide 13, you see what our AFFO share growth, the growth rate over the last 5 years. We're at 11.3% as our growth rate. There's only 2 other of our peers that are positive. The other 3 are negative, which basically tells you that what do they do? They don't have enough AFFO to cover their dividends, and they have to sell equity to use the cash to be able to pay dividends. In our case, we're paying dividends, we have twice the amount of money so we can go use to buy more deals so that we break the -- so that we can make the AFFO per share grow because we're not increasing the amount of shares outstanding, but yet we're increasing the amount of money we're making. EBITDARM coverage, we're above 2x is acceptable at any level. And I'm happy with where it is, but it's going to continue to go higher. Now because our investment is formulaic, every time we do a new deal and every deal is priced to 1.25x, we're fighting that EBITDARM coverage because of that, because we're our worst end. We want to grow and everything we bring in is 1.25x, which lowers our EBITDARM coverage. So if we would stop buying, which nobody wants us to do, and we're not going to. But let's say, if we did stop growing, then that EBITDARM coverage would go a lot higher because everybody -- we give it to them and everybody is always trying to improve and succeed. Again, we're only leasing out to seasoned operators that know their marketplaces that are local, and they continue to thrive and do better, and that's why the EBITDARM coverage would go up. Again, the fact that we grow, it makes it go down. Anyway, Slide 14. This used to be one of my favorite slides, not so much anymore. Our debt is below 50% leverage, like we said. And our debt has turned into basically 1/3, 1/3, 1/3 between HUD debt, bond debt, and bank debt. Interesting to note really that out of all of that debt, there's only -- it's the bank debt, which is basically 23% of the debt. That's the only debt that's variable rate. Everything else is with balloons that are at fixed rates. Like we talked about last quarter, the Israeli public on the last raise and there's a lot of demand they -- they wanted to give us. We were oversubscribed by twice 2x, we could have taken even more. So going forward, we have a lot of arrows in our quiver, whatever the word is. We have a lot of different choice on what to do to raise debt. If we need debt, I'd like to see the stock price go up, so that we could also sell equity at some point. But I think debt is cheaper than equity at this point. Next slide, Slide 15. This has become my favorite slide. This is as diversified as we've ever been, and we continue to get diversified where not a single state or a single tenant is over 25%. And in our case, the 25% is the best state, which is Indiana. So we're in 10 states, like Jeff said earlier, and God willing, and like Jeff said earlier, we're only willing to go to new states if it's a sizable portfolio, as we are a fan of the master lease, like he said as well. And so we're looking at other states now, and we're looking to grow our relationships. All of our tenant relationships today are good. Like you said earlier, we're getting 100% of our rents and our relationships with the tenants are good where they're doing well. They're paying the rent. Things seem to be -- the building is being taken care of. So we have the ability to grow in other places, and we're going to try to do that. Slide 16 shows the map. And you could see how we're finding our way left and right. We really like the idea of Southeast, Mississippi, Alabama, Georgia. These are all places we'd like to go. Deals are hard to come by over there. Georgia seems to be picking up that we'll be able to find something in Georgia. Again, pure play, you look at the pie graph on the bottom, you see 91.5% SNF, and that's what we do. So with that, I'd like to turn it over to the operator for questions and comments from our analysts and for those on the call. Operator: [Operator Instructions] Our first question or comment comes from the line of Rob Stevenson from Janney Montgomery Scott. Robert Stevenson: Did I hear correctly that you guys sold something in the third quarter? Moishe Gubin: Yes. We had an outlier in our portfolio, one facility in Michigan, that we owned for over 10 years. So we basically doubled our money on the property to begin with. And it was an outlier. We were never able to grow that region. We wanted -- this is really an asset that's been with us a long, long, long time. And we were never able to grow into a normal master lease where this could have fit into and grow the region. We haven't had good luck buying in Michigan. So we had an opportunity to get out of the asset, the tenant that was there ended up, the math worked itself out where we raised rent elsewhere. So we stayed budget neutral as far as rent being collected or rent being collected and the inverse of that is getting cash out of 10 cap for the portion of rent we're not getting. So yes, so we pared down. That's why we went down from 11 states to 10 states. And we feel good about that transaction. We're usually never a seller. We don't give options to anybody, but this was an asset that really -- we should have moved this asset a long time ago. The operator that was operating it, they were sending in a nurse consultant from Indiana. They were sending in a marketing team from Illinois, and they were really struggling with on the ground. And the facility had good care. I mean the survey results were fine, but they just weren't able to move that building forward, and they were always marginally making like maybe a one coverage, maybe even drop lower. And so finally got an ability to sell it, and they're happy, we're happy. But that's a one-off kind of deal for us, Rob. Robert Stevenson: What were the proceeds from that? How meaningful was that? Moishe Gubin: It's immaterial. We sold it for, I think, $2.6 million or so, and we gave them a note or we took a note at 10% interest, which is our 10% cap. So it's -- and so they have a couple of years to pay it off with a balloon, and they're actually operating well there already. And we're good with this transaction. Robert Stevenson: What do your acquisition pipeline look like today? How are you guys thinking about the end of the year and into '26 at this point? Moishe Gubin: So end of the year at this point, we had a couple of hot deals that would have been great to end the year. We would have to do a capital raise. It would have been a beautiful ending to the year. And now it seems like there's going to be -- we should have some good volume in the first quarter '26. And if '26 will be like '25 and '24, hopefully, we break the $150 million, $200 million mark for next year for growth. Robert Stevenson: The comments around the dividend increase, were you guys at sort of your minimum payout? And was the increase from $0.14 to $0.16 basically something that you had to do? Or is that something that the Board wanted to do at this point in time? Moishe Gubin: Yes, that's a great question. So like we sit here at the Board meeting and we lay out -- I act as -- I'm the CEO. So I sit there and I basically lay out here's the deal for us to stay in REIT compliance to distribute 90%, for us to not be erratic with our dividend, for us to satisfy to move our dividend yield up a little bit and for us to keep the investors happy. We debate the topic. I mean we have the capacity to distribute a lot more, as you know, because our payout ratio is so low. The $0.16 is exactly 100% of our net income for the quarter. The year-end number, when we end the year, there will be an adjustment somewhere that will include a little bit of capital gains, which you have to do 100% of. So when it all comes down to it, the -- they don't get a K-1 to the investors. I forgot the actual tax form that they get. There will be a portion of this that will be like -- that will be a return of capital, which is not taxable actually. Greg Flamion: 1099. Moishe Gubin: It's 1099, but it's not a regular 1099, I don't think, I don't exactly what the form is. But regardless, this -- the conversation in the room is we want to -- we know we're going to move every year because the way our model is, it's status quo and going higher. It's never -- we don't have the choppiness of going up and down. It's flat or higher. So we know that we're going to have at least one raise of a dividend a year, at least that's what we expect. And so we had just raised last quarter to $0.16. We could have made this one $0.17, but we left it at $0.16 for now. We'll see what fourth quarter brings and then either -- and most probably the next bump will probably be either -- probably not be the fourth quarter, probably the first quarter of 2026. But yes, that's basically the conversations that we have in the boardroom about the -- we have a few Board members that want us to distribute more. And I'm basically arguing that we have this 13% -- this 11% to 13% growth rate of AFFO because we're able to take this and spend it and do good with the money and continue the model and grow the model. And so right now, that's the prevailing argument in the boardroom to keep the dividend higher than the requirements and constantly growing annually, at least once a year to go up. And that's basically all the color on that topic, Rob. Robert Stevenson: Can you remind me when the Series D bond matures? I think that's by far and away, your highest cost of debt and when you basically get an opportunity there to refinance that? Moishe Gubin: Yes. We have our bond debt expiring September of '26. On this topic, I guess most people wouldn't air their dirty laundry, but I'm an honest straight-up guy. So one of the flaws of the bond, which we're fixing going forward is that there's a prepayment penalty all the way to the last day of the bond maturity. So we're holding out because the prepayment penalty today because the bond is traded at such a premium because it's such a high coupon, it would cost us way too much money to refinance today. But come September time, there will be a nice savings because we know that our -- we know that we're going to get repriced out probably 3 points lower, maybe give or take, a little higher, a little lower, but we'll save a ton of money going forward, and that reprices in September of '26. Robert Stevenson: So at this point, you think that if you had to access the debt markets today, you're probably pricing somewhere plus or minus around the sub-6%? Moishe Gubin: Yes. Yes, 100%. We know it. It's not even a question. If I want to take the money today, I think it would be maybe sub-6%. It's traded today at -- it was like 5% above par. So they love us. I mean, it's the actual yield. The yield on Series D today is in the 5s. So in theory, if we did a bond to replace it, the pricing would be a little bit higher because we would take 5-year money and because everyone is expecting rates to go down to lock in 5 years, they want to get a little bit of a premium. Actually, I think maybe -- I think what I just told you is right, but I have to think it has to give you the right exact thought, but duration plays a role in the pricing up and down. So this is a short duration today, and that's why its rates a little bit. It's as low as it is. So I guess, yes, that's the story there. The market there loves us. I love the market there. I do still really want to investigate doing similar to like a GMRE, like what their financing look like with BMO and lead and a couple of other guys. And so we're talking to our IPs to see what we can do here. But we're definitely going to keep a bunch of our debt staying in Israel. Operator: Our next question or comment comes from the line of Barry Oxford from Colliers International. Barry Oxford: Just to build on Rob's question regarding the pipeline. It was at $300 million, I think you indicated last quarter, now at $250 million. Is that just more a function of how you define your pipeline, but not necessarily a commentary on what's available out there in the marketplace? Moishe Gubin: Yes. Our -- it's a moving target. Our pipeline -- I mean, I don't know if our competitors or peers use pipeline and stuff that's inked already the deals that are going to close. Our pipeline, we have a high, medium and low on probability of deals getting done. And so we're giving you the overall total pipeline. Again, we're very disciplined in how we buy, as you know. And so for us to -- when we make a deal, that deal almost always closes. So we have to put in there the mix of the stuff that we've given LOIs, as well as things that are in contract. I don't know if that answer. I think that... Greg Flamion: I'd add to that. I mean, it's almost like living and breathing. Every week, it changes. We're constantly going to conferences. We've got people reaching out. And I mean $250 million represents deals that make sense for us, not just deals that are sitting -- I mean, in our e-mails. I mean, what's going into our pipeline is ultimately deals that we believe that if we can get the LOI in and we can get it, I mean, locked up, we could close it. Barry Oxford: Given that your property type is doing very well, it seems to be attracting investor interest. Are you seeing more people showing up at the bidding process? And also, we've seen some REITs trying to add more to their skilled nursing? Moishe Gubin: First of all, I don't know if I agree with you, Barry. The REITs -- I was just with David Sedgwick on Tuesday, who I love, by the way. But they're not -- and a lot of the other guys, they're buying less SNF portfolios today. And it seems like the assisted living product is still the -- for some reason, that's the product of choice by a lot of the peers of ours. I don't like it at all. But no, we're -- it's the same competition that we've had. And for us, like again, our sweet spot -- first of all, people are still willing to make a deal with us because they know we're going to close a deal. And I guess that's the same with our competitors. But the difference between us and the competitors, you don't see the competitors doing these small deals. Like we look at big deals, we look at small deals. On the huge deals, right, CareTrust, Omega and the others are always going to beat us by pricing. It's not even close because they're willing to go 8%, 8.5% cap and we stay at the 10%. And then you have small deals like we've talked about before in the past, like we have an owner-operator kind of deal, and they're willing to overpay because for them, they're going to be the administrator there, their wife could be the dean, right, or it could be their children with them. It's like -- so for them, they don't have they have a different setup on how they operate and where their money is coming from. And if they get a less of a return on their capital, that's okay for them. It becomes a family or a legacy asset. And for us, we have the shareholders to think about, and we just stay within our model. With that, again, we -- that soft spot between -- or that sweet spot for us between, I'd say, $20 million to $50 million deals, that's where we have a good shot at getting those deals. And then we also have these smaller deals that people come to us and just -- they don't even market it. And so that's where our deals come from. Like the last few deals we did, these were all deals that, that they came to us. They didn't put it through a broker per se, and they said, this is a deal we -- that's for you guys and you want it. And we've done it, includes a couple of deals in Oklahoma and a couple of deals in Texas. And with those same sellers, we have other deals that we know we're going to end up buying from them. So it's going to -- they're creating part of our pipeline. They're happy with the way we close a deal and the way we do business that they want to do business again with us and bring us another deal. Barry Oxford: Perfect. Then just kind of switching gears real quick. The G&A was lower by about $500,000 or $600,000, which is a good thing. But is that a good run rate? Or will we see it move back up closer to the $2 million level? Moishe Gubin: Greg, do you know the answer to that? I think he's on mute. Greg Flamion: I haven't really looked at the run rate for next quarter. I mean, to be honest with you, we -- Q4, I would expect this to kind of tick up a little bit more. So I guess if you want to answer right now, I'd say that we'll probably be closer to the $2 million. But I can give you a better answer, I guess, after the call, if you wish. Moishe Gubin: I could just -- just from a practical thought, we haven't added a new employee since I think maybe the first quarter when we added an asset manager, I think that was first quarter. We did hire a new lawyer, but we replaced a lawyer that was leaving after 14 years with us, and we brought in a new lawyer and it was relatively budget neutral. So from that, we talked about in the past, my personal compensation that hasn't changed. And as far as Board fees goes, that stayed exactly the same. We haven't raised Board fees in 3 years or 4 years. So that's, I guess, another positive about us. Only other thing that's out there that may be some -- that could be some G&A is legal, and that could be based on deals and financing and some other things that maybe makes one period more wonky. Doing -- having an ATM, which we haven't been using because the stock price isn't good, we still have to pay for comfort letters and all this and some of the work that needs to go for the ATM for the accounts and law professional fees. But at this point, it's the same quarter-over-quarter. It's not -- we're not doing something new that's going to have a bunch of fees associated with it. So I would bet you that it stays relatively flat to what you see, give or take, put yourself plus/minus a small margin percentage difference. But because there are payroll differences, some quarters have an extra payroll and others don't. So that should be the answer. Operator: Our next question or comment comes from the line of Mark Smith from Lake Street. Mark Smith: You've talked a bit about kind of liquidity and ability to finance additional acquisitions. I'm curious kind of your ability or thoughts around using stock more in future deals? Moishe Gubin: I love this question. One thing that gets lost in the investor public is that -- and I'm going different than what your question is, and I'm going to try to remember what your question is when I answer it. But is that one thing that gets forgotten is when we issue a bond series in Israel, the bond series has capacity for a couple of hundred million dollars more than we closed. So when we ever needed cash, if there was ever -- there's an investor public out there that might think, well, we might need cash and we're not going to be able to get the cash. In our case, because we have an approved bond series that's a lot higher than what our bonds are than what we actually took, we have availability of money at the original -- and a private placement would be at the trading price, not at the coupon price. So in theory, if it's trading higher, then we're getting paid a premium to issue more bond debt under a series that already exists in the past. That being said, as far as equity goes, I would love to sell equity. I would love to get more shares out in the public. I would like to get more liquidity in the stock. I would love to have more institutions be able to trade at larger volumes of stock. We've done a bunch of deals so far where we paid -- where we've been able to do stock. The last deal was the Missouri deal, where I think they took $2 million in stock or $3 million in stock. And they're actually happy with it. We had an investor call with them and walk them through their return, and they were happy with the stock. And I don't know if they're accumulating more at this point, but they're still holding it and they're happy to hold it. We need our stock to move. I don't know what the catalyst is at this point. Maybe we get into a really big deal and then we do a roadshow and sell a bunch of stock at a decent price and then maybe that will be the catalyst to make more trading happen and get more -- get the volume up. I mean our AFFO is at this point, it's going to be a run rate of like $1.30, $1.40 for the year. Based on an average of 13% or 14% AFFO multiple, I mean, our stock is trading at a 40% discount or something like that. I mean it's ridiculous. So I don't want to sell stock and dilute. The reality is our NAV is still probably at or around what -- where the stock is trading. It's not a metric we use for anything other than me being conscientious thinking about my shareholders and not wanting to dilute anybody. And that could be maybe a holdup that I shouldn't have, but I kindly use that to -- I'm looking out for the shareholders that they shouldn't be diluted. I know my peers don't care about that, and that's why like one of the slides, if you look at the deck, sees where they have a negative AFFO growth, and that's because they had to sell equities so they could pay a dividend. And that ends up hurting the shareholders. But I don't know, Mark, I don't know if I answered you, but that's my take on it. I would love it if somehow our stock got to be in a normal range where I could just go then do an offering so that all my IBs can make a little money and we can bring in institutions and we could be off to the races. And that's what I'm hoping that happens at some point soon. Mark Smith: I did also want to ask just if there's any impact on you or your operators here with the government shutdown. Moishe Gubin: Zero. The only impact that we have at Strawberry is we have stuff stuck in the HUD queue that they're not working. And without the HUD folks being able to process changes, we have a little bit of limbo on certain things, but money makes the world go around. And in our world, thinking about it from that point of view, business is good. We're collecting all our rents. We're meeting all our obligations. And so it doesn't have a real impact. But reality is I have a bunch of the loose ends that we'd love to tie up that aren't necessarily financial things. They're just things that have to get tied up so that we -- everything is tucked in so we can go to sleep at night. So that's really the only thing that affects us, my tenants. I don't -- I hear a little bit of noise regarding surveys because if they're not paying for that, there's not people that could go out there and survey them. We had that problem maybe 6, 7, 8 years ago, and it ended up becoming a disaster because by certain regulations require the regulators to -- anytime they hear a complaint or this or that, they actually have to visit the property and inspect, investigate the complaint. And if they're not working and you have a buildup of 6 months' worth of complaints because they don't act on a day 1 when they were working, right? So it takes some time. It ends up being they show up in a year from now, but something that happened a year ago, and then they say you did something wrong a year ago. And they say, well, but as of now, we already fixed everything. It's not -- they didn't do anything wrong today. And then they say, well, we have to give you a fine retroactively back there. And so there could be some kind of exposure there. But again, I've argued over the years, the operators are seasoned people that know what they're doing. And even more importantly is they're nimble enough to recognize that there's ups and downs in business, especially in the nursing home business. Corona is the exception of being the craziest thing that any of us have seen, right? But like in a regular world, you have ups and downs, labor disputes being one example that happens, unfortunately, time from time and reimbursement being down and then up and down, that just happens. So like the guys that know this business and are really in it because they really care about residential, but they also want to make a living. They are a business in the end. So they recognize that there's going to be ups and downs. So if there's something that is a little negative that comes out of this, so be it. It will be okay. Operator: [Operator Instructions] Our next question or comment comes from the line of Viacheslav Obodnikov from Freedom Broker. Viacheslav Obodnikov: Can you hear me clearly? Moishe Gubin: Yes. Viacheslav Obodnikov: Great. And yes, my question is on capital allocation strategy in the context of the current market. As you said, there is a very huge discount, implying about 16% to 18% annually. And maybe could you walk us through how the Board weighs the immediate and certain accretion from a share buyback against the returns from a new property acquisition? And at what point does the valuation gap become so compelling that maybe buybacks would take precedence over even a good acquisition? Moishe Gubin: Jeff, if you understood that, you can answer that. Jeffrey Bajtner: He was asking -- I believe he was asking if we plan on doing a share buyback program to help get our stock price. Viacheslav Obodnikov: I can rephrase actually. like there is a kind of huge discount and it implying a huge for investors about 16% to 18%, right? And there is like another decision to invest into new interesting opportunities in the market. And maybe you could walk us through how the Board thinks about those 2 decisions, like buyback against new acquisitions? Moishe Gubin: So that's a really good question. The pluses and minuses of that dialogue are we recognize the need for more shares in the marketplace, not less shares in the marketplace, counterbalanced by the fact that we can buy back shares at a discount. That's true. And we've utilized it when like the stock really egregiously linked at $10 a share. We've used the buyback program that we have on file. We've used that a little bit to prop up the stock, small. It hasn't been anything big. We still feel that -- and this is not something that comes up a lot. This comes up conversationally randomly, and it hasn't come up so recently because the stock was at more -- it was over $12 again. But our model, if we continue doing exactly what we're doing and we ignore for this conversation, we ignore the stock price and we keep returning the collective AFFO growth plus dividend yield of a 17% return, we feel at some point that should be recognized by the investor public. And if we take the cash that we're producing and we use that cash to be able to continue the growth the way we're growing, that meets our objective as a company to keep growing with a disciplined approach and making the high double-digit returns and building a portfolio that will continue to pay and doing it the right way, meaning we're not squeezing our tenants like a lot of other people. We have that set model and how it works, which I think is fair that we put capital out there, we take risk because this is -- it's not the simplest business to be in. And we take the risk. And for that risk, we're getting a 10% return, which we compound by doing what we do by adding debt and this and that, 10% return, I think, is fair. So -- but what you're asking is a good question because in reality is we could go and do that and then bring the stock price up. But then if there's less shareholders, there's less liquidity. And then inevitably, if somebody sells, it will kill the stock price again at some point. So I don't know. At some point, if our model stops working because the stock is just not found favorable, we'll have to do something. And I don't know if that is a fix, but it will be something that we look at. Viacheslav Obodnikov: Just a quick follow-up about the last call. There was a discussion about Illinois remains a laggard from a reimbursement perspective. Could you please kind of contrast the regulatory and reimbursement environments in kind of newer states where you're starting to invest much more against the legacy markets? Moishe Gubin: Yes. So again, to reiterate what we said in the past, right, there's two basic types of reimbursement in the country for Medicaid. There's price-based and there's cost based. The cost base is simply put, you get reimbursed for what you spend. And in those states are typically red states. And in those red states, you don't have any labor issues because you're able to pay people more because you get reimbursed more. It's almost every dollar you spend on a nurse or CNA, you get it back from the government. So you might as well take care of your staff easier because you have the money. Illinois is price-based. And that's basically the government gives you an allowance and says live within your means. But at the same token, in that case, I'm using labor as an example just because -- in that case, you have the employees that need to make more money because things are costing more money. And it's like an impasse because you want to give them more money, but the state doesn't give you more money to give them, and it's tough. So our portfolio in Illinois is performing. It's just -- you have some that are doing amazing and you have a bunch that are -- an amazing I'm talking about is rent coverage. I'm not talking about anything else in that example. Collectively, they're positive and everyone is paying rent. But you have laggards. And what's going on for our portfolio, the biggest tenant in Illinois for about almost half the portfolio is stuff that I personally have an ownership interest in. And we've announced that it's known where if we have an opportunity, we will start divesting out of not the company, but the tenant, which is related to the tenant. We will stop being in operations in some of these buildings because a mom-and-pop operator can do a better job because they don't have a corporate overhead of managing a bunch of homes. So our Illinois portfolio as the landlord, hopefully, I didn't confuse anybody here by mixing landlord tenant kind of deal. But on the landlord side of things, we're getting our rent. The rent coverage is sufficient. It's over 1. I don't know exactly the number for Illinois, but it's something. And it's still a laggard. Illinois is the biggest laggard. And that's because -- and that's really because the state has to catch up with the costs, and they will. At some point, they always do. And in fact, the union in Illinois actually is a help because they recognize -- for the most part, they recognize that the government has to raise the money, and they were out there lobbying and trying to push for their members, they're pushing to try to get that the reimbursement should go up so that there's more money to pay their employees -- to pay their members. So I think I answered your question. At the end of the day, Illinois, any price-based state, which really Illinois is the only one in this example that we have is the laggard and it's always going to be a laggard because the only way that it improves is that the state legislature has to be the ones who vote to increase rates because there's no set methodology that says, okay, you spend X and therefore, we'll give you back X. We'll reimburse you that X in year 2 or year 3, whenever they do it like the other states. And in this example, they just -- the legislature has to say, okay, the nursing homes are allowed X amount of millions -- billions a year, and we have to give them more money because they have to cover their expenses and it has to happen that way. So I think I answered your question. Operator: I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to Mr. Jeff Bajtner for any closing remarks. Jeffrey Bajtner: Thank you so much, and I'd like to thank everybody for joining us today. On behalf of myself, Greg and Moishe and the team here, we continue to work hard on behalf of our shareholders, making disciplined acquisitions and ultimately working on getting our stock price up. So if you have any questions on all our presentations in the back, there's both my e-mail address and Moishe's e-mail address, we're always available while connecting with our shareholders and investors. Have a great weekend. Thank you. Moishe Gubin: Thank you, everybody. Operator: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.
Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Third Quarter 2025 BlackLine Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. At this time, I would like to turn the conference over to Mr. Matt Humphries, Senior Vice President, Investor Relations. Sir, please begin. Matt Humphries: Good afternoon, and thank you for joining us today. With me on the call are Owen Ryan, Chief Executive Officer of BlackLine as well as Patrick Villanova, Chief Financial Officer. For the Q&A portion of today's call, we'll also have Jeremy Ung, BlackLine's Chief Technology Officer joining us. Before we get started, I'd like to note that certain statements made during this conference call that are not historical facts, including those regarding our future plans, objectives and expected performance, in particular, our guidance for Q4 and full year 2025, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our outlook only as of the date of this call. While we believe any forward-looking statements made during the call are reasonable, actual results could differ materially, as these statements are based on our current expectations as of today and are subject to risks and uncertainties, including those stated in our periodic reports filed with the Securities and Exchange Commission, in particular, our Form 10-K and Form 10-Q. We do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. All comparisons we make on the call today relate to the corresponding period of last year, unless otherwise noted. Finally, unless otherwise stated, our financial measures disclosed on this call will be non-GAAP. A discussion of these non-GAAP financial measures and information regarding reconciliations of our historical GAAP versus non-GAAP results is available in our earnings release and presentation, which may be found on our Investor Relations website at investors.blackline.com or on our Form 8-K filed with the SEC today. Now I'll turn the call over to BlackLine's Chief Executive Officer, Owen Ryan. Owen? Owen Ryan: Thank you, Matt. Good afternoon, everyone. Today, I will detail the changes we have made across our business that are beginning to deliver tangible results. Over the past 2-plus years, we have methodically rearchitected our leadership team, our go-to-market engine and our technology and operational structures. That foundational work is now largely complete. These changes give us greater confidence that we can deliver accelerating revenue growth and margin expansion as we exit this year and move into 2026. But first, let's start with this quarter's performance. We delivered another solid quarter of improving execution. Revenue growth increased to 7.5%. We achieved a non-GAAP operating margin of 21.4% and a free cash flow margin of 32%. Patrick will provide a more detailed discussion on the financials shortly. The strength this quarter was from new customer acquisition. New customer bookings were up 45% and the quality of these wins is evident with the average new deal size more than doubling by 111% and the median new deal size up by approximately 50%. New customer bookings mix accounted for 41% of overall bookings. This is not just about closing more deals, is about winning larger, more strategic platform deals often against our biggest competitors. Let me put this into perspective with some examples. Through our direct sales efforts, we secured our largest ever total contract value deal with a leading global commercial real estate services company. This deal took 2 years to close and was multifaceted, with intercompany serving as an entry point and includes a multiyear expansion across our financial close suite, leveraging Studio360 and our new platform pricing. We directly landed another new logo with a Fortune 20 company who chose our entire financial close suite, Studio360 and our platform pricing model, replacing existing tools and solutions. This was a great example of perseverance and leveraging past success as the CFO's previous experience with BlackLine translated into a meaningful new win. And in the insurance industry, we won a multi-solution deal with Accelerate, a leading middle-market specialty insurance exchange, looking for a scalable platform across both invoice-to-cash and financial close, the customer move forward with BlackLine recognizing that a platform approach with Studio360 was the optimal solution to support their future revenue growth versus remaining with multiple legacy vendors. On the partner side, our SolEx channel performance is improving. We closed mega company deals this quarter with Coca-Cola Europe Pacific Partners and with Boots U.K. Limited, proving the strength of our golden architecture with SAP. A key driver in many of these wins was our new platform-based pricing model, which accounted for nearly 3/4 of new customer bookings and is seeing solid international adoption after only 2 quarters. Our strategy is not just about winning in established markets, it is also important to unlock new growth opportunities. We have continued to make progress within the public sector. Despite the federal government shutdown, our pipeline continues to grow and we successfully delivered the production instance for our sponsoring agency in October. We anticipate completing final testing by mid-December and are on track to receive final FedRAMP approval in early 2026. Now turning to our existing account base. The interest in our Studio360 platform, new pricing model and our Verity AI offerings created some noise this quarter. We are seeing 2 dynamics play out as we see more customers evaluate or adopt platform pricing. First, as we succeed in delivering higher levels of automation, customers can achieve their outcomes with the need for fewer licenses, which is leading to user attrition. Second, we saw several large customers pause user ads to instead engage in deeper, more strategic discussions about moving to Studio360, platform-based pricing and our Verity AI offerings. Our platform pricing model is designed to decouple our growth from a simple seat count and align our revenue directly with the value we deliver. While this strategic transition will take time to work through our installed base, we believe the outcome is clear and more committed customer base providing more predictable value-aligned revenue. Although these dynamics created a slight headwind to net revenue retention, we view it as a leading indicator of a positive transition. In fact, the most telling indicator of long-term customer confidence came for our renewal activity, along with our solid platform pricing adoption. Importantly, the mix of multiyear renewals has increased to represent over half of all renewal bookings this quarter, demonstrating that customers are buying into our long-term vision and locking in their partnership, which increases the predictability and durability of our revenue. Finally, the planned churn from our strategic deemphasis of the lower end of the market is nearing its conclusion. We expect this headwind to be largely complete in the first half of next year. These outcomes are not an accident, they are the direct output of the foundational transformation I mentioned earlier. With much of this foundational work now complete, I want to detail the 3 pillars driving these outcomes. First is our go-to-market engine. Much of our success this quarter comes directly from the methodical work we have done to re-architect our go-to-market engine for scalable, efficient growth, focusing on 3 key areas. We have invested heavily in the tools and the processes our teams need to win. Our entire sales motion is now powered by modern billing, prospecting, contracting and CRM systems that remove friction and provide better insight. For example, our experience with a new AI-powered prospecting tool has shown that a BDR can nearly triple their pipeline generation. All of our BDRs will now use this tool to more quickly create and qualify opportunities. We've also transformed our marketing efficiency. Our teams are leveraging new digital campaigns and tools to drive a significantly higher ROI on our spend. In fact, despite a decrease in aggregate marketing spend since 2023, we have seen strong growth in pipeline generation through the end of Q3, which is up approximately 50%. And while it's important to leverage new technologies and reengineered processes, it comes down to people. With new leadership has now established across the globe, we've actioned a more rigorous performance management program, elevating the bar and adding seasoned sales professionals. This focus is already paying off. Rep productivity is improving. And by the end of 2025, we expect it to improve by nearly 30% versus last year. These coordinated efforts are delivering clear results. As I mentioned, rep productivity is up and importantly, our competitive win rates, especially in takeaways approved again in Q3. We believe this is direct evidence that our Studio360, platform pricing and improving go-to-market execution are enabling us to win more in the market. The ultimate outcome is clear. We are building a more productive growth engine that costs less to operate. We expect these changes will drive a 10% improvement in our customer acquisition costs in 2025 and even greater improvements next year. Second is our progress in product and technology. We have modernized our technology stack to support a future scale, efficiency and AI-powered innovation. It starts with infrastructure. A critical milestone is the near completion of our multiyear GCP migration. I'm pleased to report we only have a few customers remaining before we can fully decommission our private data centers. Finishing this project will unlock significant operating leverage and provides a modern, scalable foundation for our future innovation. This serves as the foundation for our Studio360 platform, as the central nervous system for modern finance, its power begins with a unified data layer. Powered by our partnership with Snowflake, this layer is now leveraged by 90% of our customer base for advanced reporting in less than 1 year. This helped us achieve an approximately 80% cost reduction in data storage. The real game changer for Studio360 is our progress in open connectivity. Our platform was architected from the ground up to be ERP-agnostic and our Studio 360 integrated capability extends this vision far beyond ERPs to third-party financial systems. This ability to rapidly connect to any data source can allow customers to realize financial transformation much more quickly. We're also seeing good momentum with our ERP connectors. Our Oracle Fusion Connector is already live with over 50 customers and our Workday and D365 connectors are already being used by paying early adopter clients. This success is now unlocking the full potential of Studio360 for our large portfolio of Oracle, Workday and Microsoft customers. This powerful platform infrastructure is enhancing our entire solution portfolio from our newest technology for our most established products. The performance improvements are dramatic. For example, our new big data matching solution built on this modern stack delivers a 98% reduction in match times and handles nearly 30x the data volume our previous solution, which we see as tangible proof of our ability to deliver at any scale. We are also accelerating the delivery of new innovation. Our high-frequency reconciliation solution was adopted by 10 customers shortly after its general availability in Q3 and is already helping build a multimillion-dollar pipeline. And this just isn't about new products, we are also driving product-led growth within our core. For established solutions like Journals, we've introduced new self-service capabilities for several common use cases, allowing customers to realize value faster and at a lower cost. And importantly, this unified trusted data ecosystem is the essential fuel for our Agentic AI capabilities named Verity. Now I want to spend a moment on this because in a world of intense AI hype and uncertainty, it is critical to understand why we see AI as a significant opportunity that deepens our competitive advantage. Our moat is not built on a single attribute on a powerful combination of our proprietary data and our deep expertise in delivering trusted, auditable solutions to the office of the CFO. First is our expertise and trust and auditability. In the office of the CFO, Black Box AI is a nonstarter, trust, transparency and auditability are paramount. Our entire platform was built from the ground up to be a system of record with a complete unbroken audit trial. Our approach is validated by our recent ISO 42001 certification for responsible AI which formalizes our commitment to governance, risk management and human oversight. In a world of increasing regulation, we view our deep, culturally ingrained expertise in building auditable enterprise-grade systems that finance leaders and their auditors trust is a massive competitive advantage. And second is data, AI models are only as good as the data they are trained on, and we believe our data is unique. It is not just that we have data from over 4,000 customers of all sizes across all industries and all geographies, is that we have the historical financial and operational data set for our customers going back to the day they started with BlackLine. This proprietary data set represents the accumulated knowledge of what thousands of companies have done to close their books and manage their financial operations. We believe we are sitting on a wealth of process-specific data, which we are only at the early stages of utilizing. This can allow us to deliver unparalleled value. We can provide industry-specific benchmarking that shows the customer how their processes compare to their peers and where they can improve. We are able to train our AI models on the most intricate cases by industry in a secure, auditable way because we have the real world historical data to do so. This combination of proprietary data and our leadership in trusted auditable systems is precisely why we believe we are positioned to win with AI in the office of the CFO. And this is just not a theoretical advantage. We are translating this directly into product reality. We began deploying Vera, our conversational AI to our customer base in October, just one month after its debut at BeyondTheBlack. With Vera as the supervisor of our agentic workforce, we are launching a suite of powerful agents to execute high-value tasks. For example, we already prepare our agent for account reconciliations has shown they can deliver even higher levels of automation for customers in a trusted and auditable manner. Soon, we will deploy Verity Collect to deliver agentic capabilities to our invoice to cash customers, automating customer outreach and accelerated cash collection cycles. These initial agents are the first step in our broader strategy to address the full spectrum of financial operations. Future releases will target other complex areas across record-to-report and invoice-to-cash, including agents focused on high-volume transaction matching, variance analysis, remittance automation and on-demand financial analysis. In parallel, we are executing a proof of concept with SAP to ensure the seamless technical and commercial integration of our AI-powered solutions into their ecosystem. This is a critical step in aligning our platforms and preparing to monetize our joint offering to our shared customer base. And finally, our focus on innovation and AI also extends to the implementation process. Our efforts to reinvent the implementation process are already delivering significant results. In Q3, the number of customer go lives increased by nearly 70% year-over-year and 17% sequentially. This is a powerful proof point of our team's improved execution and directly contributed to our services revenue this quarter. More importantly, it means our customers are realizing the value of their investments faster. We are also applying our AI strategy to go to the next level. We are preparing to launch implementation agents designed to automate and standardize the most common phases of deployment. We will begin piloting these agents with customers later this month before scaling them globally in the first quarter of 2026. Our focus on efficiency extends across the entire business and is organized around 2 key initiatives, creating a more efficient operational structure and leveraging AI to drive internal productivity. We have further adjusted our cost base for greater operating leverage. We have aggressively optimized our global footprint by moving headcount from high-cost to lower-cost locations. When I joined as co-CEO, our workforce was overly concentrated in high-cost locations. As we exit this year, approximately 25% of our BlackLine professionals are delivering for customers in lower-cost geographies. This strategic shift provides a significant and durable structural advantage on margin as we move forward. In parallel, we closed offices in high-cost areas while opening or expanding talent hubs in lower cost centers like India, Poland, Romania and Mexico. Our confidence in AI comes from firsthand experience, we are not just selling this transformation, we are living it. Internally, we have aggressively created and deployed AI tools to become a more efficient and innovative company. Today, BlackLiners are leveraging our internal AI platform or third-party AI tools in their daily work. The results in our product organization are promising. Nearly all of our engineers are leveraging AI tools today and our most active developers are completing over 100% more poll requests than less active users. This is not just about coding faster. It is about delivering value to customers faster. Our innovation cycle time, the time from an initial idea to that feature being in a customer's hands, has improved by 23% year-over-year, with over 160 features and products being released this year. We have also created our own AI tools to drive efficiency, reduce costs and better serve our customers globally. Our recent example is our own internal AI translation services for our solutions that can rapidly create and provide documentation and training for customers in multiple languages, allowing us to not only reduce costs but ensure we provide consistent and high-quality experiences for our customers. This internal adoption is a powerful efficiency engine. We view it as an opportunity to bend the curve on future costs and accelerate revenue growth through innovation. In summary, while operational improvements are never done, we have made real strides in how we run the business. Our strategy is clear and our execution is showing tangible results. While I am pleased with this progress, our team remains intensely focused on the execution that lies ahead. The leading indicators we have seen this year all point to a business that is accelerating. These factors give us great confidence in our ability to deliver sustained profitable growth consistent with what we have previously shared at our past 2 Investor Days. With that, I will turn the call over to Patrick to provide more detail on the financials and our outlook. Patrick Villanova: Thank you, Owen. Our third quarter financial results reflect the execution Owen has laid out. Disciplined operational management, combined with steady progress across key indicators that point to continued acceleration through the end of this year and into next. I'll walk through the details of the quarter and our guidance for the remainder of this year as well as a preliminary view into 2026. Total revenue grew to over $178 million, up 7.5%. Subscription revenue grew 7%, with services revenue growth of 13% due to accelerated project delivery in the quarter. Annual recurring revenue, or ARR, was $685 million, up 7.3%. We continue to see tangible evidence of deepening customer commitment in our forward-looking metrics. Total RPO growth was 12.4% and current RPO was up 8%. For reference, our average contract length was 27 months this quarter, up versus last year and sequentially. And more importantly, new customer contract length was up nearly 10 months versus the prior year. Calculated billings grew 4% in the quarter. This figure has an embedded 4-point headwind, which is largely timing related. As we continue to win larger, more complex enterprise deals, we have seen some customers move forward with quarterly versus annual billing terms. Our trailing 12-month billings growth, which helps normalize for these effects was 7%. Our customer count of 4,424 this quarter reflects our strategic resegmentation of the market moving away from lower-end customers. We project this transition to be substantially complete in the first half of next year. Our revenue renewal rate in the third quarter was 93%, up versus the prior year and the prior quarter driven by healthy enterprise performance in the upper 90s with middle market in the mid-80s. Net retention rate for the quarter was 103%, which includes a full point of headwind from FX. On NRR, we also saw net user adds slow in advance of customers adopting our platform pricing model and evaluating our AI road map. We continue to see a positive shift in our sales mix towards higher-value solutions. Our strategic products accounted for 36% of sales this quarter, up from 32% last year. This growth is a direct result of our go-to-market teams leveraging our unified platform to drive larger multi-solution deals. Demand was particularly strong for our market-leading intercompany and invoice to cash solutions. SolEx was seasonally steady in Q3, accounting for 26% of total revenue. Looking ahead, our Q4 SolEx pipeline is solid, and we are executing against it with several deals already closed in October, positioning us for a solid finish to the year. Turning to margin. Our non-GAAP subscription gross margin remained strong at 82%. Our aggregate non-GAAP gross margin was approximately 79%, reflecting a higher mix of services revenue this quarter due to the strong performance at accelerated project delivery from our teams. Non-GAAP operating margin was 21.4%, driven by better productivity across our GTN teams this quarter and reflects costs from our BeyondTheBlack event, which took place in September. Non-GAAP net income attributable to BlackLine was $38 million, representing a 21% non-GAAP net income margin. We delivered a record quarter for cash flow. Operating cash flow was $64 million and free cash flow was $57 million. This performance was driven by the combination of strong collections execution from our team and the timing of certain payments within the quarter. Regarding our balance sheet and capital allocation, we have approximately $804 million in cash, cash equivalents and marketable securities versus $895 million in debt. Finally, we continue to execute on our capital allocation strategy this quarter. We returned approximately $113 million to shareholders through the repurchase of 2.1 million shares. This brings our year-to-date total to over $200 million and underscores our confidence in the long-term value of our business. Now turning to guidance for the fourth quarter of 2025. We expect total GAAP revenue to be in the range of $182 million to $184 million, representing approximately 7.4% to 8.6% growth. We expect non-GAAP operating margin to be in the range of 24% to 25%. And we expect non-GAAP net income attributable to BlackLine to be in a range of $42 million to $44 million or $0.58 to $0.61 on a per share basis. Our share count is expected to be about 75.1 million diluted weighted average shares. And for the full year 2025, our updated guidance is as follows: We expect total GAAP revenue to be in the range of $699 million to $701 million, representing approximately 7% to 7.3% growth. We expect non-GAAP operating margin to be in the range of 22% to 22.5%. And finally, we expect our non-GAAP net income attributable to BlackLine to be $153 million to $157 million or $2.08 to $2.13 on a per share basis. Our share count is expected to be about 76.6 million diluted weighted average shares. While we still have 2 months left in the year, the trends we see across the business give us increasing confidence in our preliminary outlook for 2026. Based on our strong pipeline, the adoption of our platform pricing model and operational improvements, we expect to deliver a combination of accelerating revenue growth and continued margin expansion next year, assuming a stable macro environment. The balanced approach to growth and profitability gives us increasing confidence on our path to achieving the Rule of 40 targets we outlined at our Investor session recently. Owen? Owen Ryan: Thank you, Patrick. And before we go to Q&A, let me just say that we are obviously aware of the recent market commentary about BlackLine. As a matter of policy, we do not comment on market rumors or speculation. The Board and management team engaged with shareholders routinely as well as constructively, and we will continue to do so, and that is all we intend to say on this topic. Operator, could you please now open up the line for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Patrick O'Neill from Wolfe Research. John O'Neill: Just kind of wanted to touch on the commentary around some large customers pausing user adds as they weigh options around Studio360 platform pricing in some of your AI offerings, is sort of the right way to read that? Is that maybe some fields or some net new ARR slipped in the quarter as a result? And maybe -- can you just help us quantify in terms of net new ARR, the impact on these dynamics? And is that something you expect to continue into 4Q? Or is that just sort of idiosyncratic to the quarter? Patrick Walravens: Yes. No. So I think it's a good question. And we did see some deals slip at the end of the quarter. Obviously, with the Verity announcement, in particular, a lot of interest in AI. And so -- and we have seen that continuing uptick in conversations right through today. And so a lot of, as you can imagine, interested in what BlackLine has to offer, did cost us probably a couple of million dollars of delayed deals at the end of the third quarter that are now in the fourth quarter. Some of them have closed during the month of October, others will close, we think over the balance of the next couple of quarters. I do think that what we're seeing in the pipeline certainly is showing a real increase on the larger end of deals for mega enterprise and the enterprise space. Those deals tend to take a bit longer but they are much more important for what we're trying to do as an organization as we move customers onto our platform and take a full advantage of all of the capabilities that underline the Studio360 platform. Operator: [Operator Instructions] Owen Ryan: Operator, do you have more questions? Operator? Operator: Just a second, sir. Matt Humphries: For all the listeners, apologies, it seems the operator is having some technical difficulties that he's trying to get sorted out, so please just bear with us again, apologies. Operator: We have Patrick O'Neill from Wolfe Research in the queue. Owen Ryan: Operator, we just completed that one. The next person in the queue should be Rob Oliver from Baird. Can you please let him then to ask his question. Thank you. Operator: [Operator Instructions] Our next question comes from the line of Rob Oliver from Baird. Robert Oliver: Can you guys hear me okay? Patrick Walravens: Yes. And I'm very sorry about what's going on here. Robert Oliver: Awesome. No problem, as well. So I guess I wanted to go back to flesh out the previous question just a little bit. So as you guys -- I guess something this quarter took you guys by surprise. And as you move through this transition, I just wanted to ask philosophically about this issue of automation and customers and seat versus platform? Because what it seems to me is what you guys laid out last year was a strategic shift, which enables customers to capture value without necessarily needing to commit on the seat side. So is it a logo churn that you guys are seeing of size as well as seat count internally around the model transition and the new platform? And then I had a quick follow-up for Patrick. Just wanted to better understand that. Owen Ryan: Yes. Thanks, Rob. I think that here's what we're seeing in the business and what gives the team and me confidence that makes us really increasingly confident that we can deliver on the commitments that we said we would do for the business. We have laid out, as you know, guidance to return to our growth rates to the mid-teens as well as improve operating margin and return capital through share repurchases. When you think about all of this together, right, there's obviously 4 pieces. There's gross bookings, there's churn, there's what we're doing on the expense side and then obviously, attrition management. From a gross bookings perspective, what you should understand is our performance this year is showing the ability to land larger, more transformational deals with customers. New customer bookings, as we said, were up over 40% this quarter, and our net average deal sizes have doubled since last year. The pipeline has continued to grow, and it is really beginning to ripen, a continuation of the trend that we see. Now obviously, the bigger deals we do, particularly the mega enterprise, the enterprise space, take 10, 12 months to happen. For us, what we're seeing now is on a year-to-date basis through the third quarter, our gross bookings growth was about 15%, and we expect to go through the fourth quarter with growth in gross bookings at about approximately 20%. And we expect that growth rate to continue throughout next year on the gross bookings side. So what that is showing and improving is that we can win in the market. We're taking market share. We know all about that. The second piece of this then you talked about is churn. On churn, the headwind for us has been and will be for a couple more quarters, is that strategic deemphasis of the lower-end customer base that is really beginning to near its conclusion. We expect the abatement to take place by the midyear of next year. And what's really driving that is the rigorous qualification and customer selection processes that we put in place in the middle of '23 when Therese and I stepped into the role. So remember, most of our deals are 3 years back then, they are now sort of rolling off the books. The other key thing besides the change in customer selection is we have radically revamped how we do implementations with our partners and our own team, focusing much more on just go lives. We're really focused on the outcomes for our customers and all indications of all new customers that have now come in, in the last couple of years, they're very well adopted as we move forward. We talked a little bit in message about expenses as well. So we've made a lot of changes to the organization to strengthen the foundation. This work really focused on operational efficiency. I know I get a lot of questions about effectiveness of go-to-market. But what this now allows us to do is scale very efficiently with a very modern platform stack of things that we're trying to do to optimize the cost base and importantly, we've been able -- beginning to be able to decouple revenue growth from operating costs. So we expect that to drive further expansion -- margin expansion and greater levels of free cash flow next year. That's what's sort of giving us confidence on the margin side. Now let me turn to the last piece, which was part of your question, Rob, and that relates to attrition. This is an area of intense focus for us around the leadership team, something we expect to work through this year and into next. And we really are experiencing 2 types of attrition that we're working our way through. The first, for lack of a better term, is success-based attrition, where customers have really been achieving very high levels of efficiency and effectiveness with BlackLine that are actually requiring fewer user licenses. It's what the core value of the proposition is the value proposition what BlackLine delivers, but it's suboptimal for us for long term. It's the reason we've been trying to drive towards platform pricing because we recognize we have to decouple our growth from seat count and align that with the values and outcomes we're driving on behalf of our customers. With the release of Verity AI, along with the accelerated innovation across our core product and Studio360 platform, it allows us to go deeper and broader with customers leveraging the trust and brand permission that we've built. So we view that as a positive trade-off for the medium to long term, even if it's impacted us a little bit on attrition this year. Now the other piece that's really critical is attrition that relates to underadoption of our solutions. We have been dealing with that really through 2 parts of what we're trying to accomplish. One is we've been aggressively leveraging the data that we now have to better understand our customers' usage and engage with these less adopted customers to get them back on a path via our Studio360 platform and the underlying solutions. We're using this information in a way that allows us to have very meaningful and candidly, sometimes very difficult conversations amongst and between our customers, the ERP providers, the implementation partners and BlackLiners. The second piece of this really relates to our multiyear renewal efforts, which have been coupled also with the changes we've made around implementations to the processes, what we're doing with our partners, with our customers as well as the optimization of what work we're doing. This combination has really allowed us to reengage with customers and deepen and broaden the relationships that we have with them. If you remember when Therese and I stepped into the roles, we talked about elevating in the office of the CFO. That is happening now. And the positive of that, again, is it allows us to have these deeper, broader conversations. But in the short term, we've still been dealing with some attrition. But as I mentioned before, we expect to see gross bookings grow about 20% next year. And we expect to see based on the actions we're taking on churn and attrition, at least a reduction of 10%, if not 15% in C&A for 2026. So when you put all that together, as we think about where we're going, the increase the stronger gross bookings growth, the declining churn, the greater expense management and a very clear plan on reducing attrition is giving us the confidence that we're sort of communicating to deliver the top line and the bottom line results we have committed at Investor Day, and we expect to deliver that in 2027 compared to the range where we gave you from 2027 through 2029 in the long-range plan. So I know, Rob, that was a long question. I think you -- or a long answer, you said you had a follow-up question, so what's the next part of your question, please? Robert Oliver: Yes. I appreciate it. It was going to be for Patrick. Patrick, just on I guess, catching up with you guys kind of over the last couple of quarters, there's been some positive indications around customers that do adopt the new pricing model and kind of what the kind of like-for-like pricing is. So I know that you guys have had -- you broke out some nice numbers on the bookings side of customers taking the new platform? And any early indications there of kind of on the pricing side, if you're still seeing -- I mean, obviously, notwithstanding the fact that you're seeing some seat-based churn, are there customers where you're still seeing the kind of uplifts you expected to see? Patrick Villanova: Thanks, Rob. Yes, we are. So when we started I guess, introducing this platform pricing, which we started domestically here in the United States in Q1 and then internationally in Q2, we had a plan. And we continue to be ahead of that plan in terms of the amount of bookings or conversions what we've had to that. We are well ahead of that plan from a new logo standpoint. As you heard in the prepared remarks, we landed a large deal, our largest deal ever in terms of TCV, and that was on platform pricing. So from a new logo perspective, we are well ahead of our plan. We have seen an uptick in Q3 in our installed base, our existing customers adopting this. And in combination, we still continue to be ahead of our plan that we laid out earlier this year from a platform pricing perspective. Operator: [Operator Instructions] And I see our next question comes from the line of Chris Quintero from Morgan Stanley. Christopher Quintero: Really great to hear about the expected acceleration into next year. I guess as you kind of just mentioned bookings growth of about 20% expected next year. If you would kind of distill that into maybe the top 3 factors, what's really driving that booking strength and improvement here as you go into next year? Owen Ryan: Yes. Thanks, Chris. I would say the biggest thing, again, has been us changing the conversations and having them at higher levels in organizations, and seeing and being able to talk to our customers truly about digital finance transformation. So we've been sort of working our way through being viewed as a point solution to more of a platform. Those conversations, the capabilities, the innovation that we've been able to bring to the market in the last 2 years is resonating very well. One of the things that Jeremy and the team have done has listened very closely to our customers. And so you look at the amount of new product and innovation we rolled out last year, that same thing this year, and then the road map we have, our customers are really starting to see us in a way that says we are going to be a true partner for them as they go through digital finance transformation. I think the other thing is the work we do with our partners. If you remember, one of the strategic choices we made a couple of years ago was to call out a lot of partners, and we have deepened the relationships with the blue chip firms that are out there in the world. And they also are part of those conversations we're having with customers about digital financial transformation. Many of those folks are working with CFOs and Chief Accounting Officers, Corporate Controllers every day. And so that is certainly a piece of it. It's the access and the conversations at a higher level. Our guys have really raised their game in the conversations when they're out there talking with customers. And then candidly, so much of it is about the product-led growth that we've been trying to drive. I mean, again, one of the things that we've gotten back to doing really well is listening to the voice of our customer and building solutions that work for what they're trying to accomplish, but now doing that through the lens of a platform versus just a point solution. So those are the things, Chris, that are showing up. And again, when you look at our pipeline and how it's maturing, so much of that is on the higher end of the market, which is really where we see we can deliver a lot of value for our customers. Christopher Quintero: Awesome. And then I wanted to follow up on the competition angle. It seems like on this call in your prepared remarks, you were talking more about kind of competitive takeaways than you have in the past. Is that kind of the right takeaway here? And I guess, like what's really working well for you to take some deals away from the competitors here? Owen Ryan: Yes. Yes. So we are seeing a nice uptick in competitive wins. I think, again, a lot of this talks about -- I think at one level, BlackLine is viewed as a very safe choice in the office CFO. We've got a proven track record. The quality of our implementations continues to get better with our partners, the optimization, the trust and brand that we built, the products that we're bringing to bear, the scale with which we can operate. It was talked about some of the new things we can do in the marketplace. And so all of that is sort of just giving our customers that much more confidence that we can deliver on our promises. I think one of the things that I like to tell our team all the time, we're not necessarily in the business of selling software or in the business of delivering outcomes for our customers and doing that with our partners and our clients, that's really starting to show very, very nicely, and that's helping us in our win rates and obviously being able to rely on existing customers to serve as references to other customers. It's very compelling. And then the last piece of that, that we are seeing is we are really deep in a lot of different industries and the ability to sort of connect those experiences. So when we're going in, we're not just talking about accounting and finance. We're talking about accounting and finance specific to that industry. And then, by the way, when we can show where we've done it elsewhere for a peer set, it gives our customer base, which tends to be a little bit risk-averse, that much more confident on what we can deliver because we've proven we can do it elsewhere already. Operator: Our next question comes from the line of Alex Sklar from Raymond James. Alexander Sklar: Owen, maybe for you on SAP, a lot of optimism on building pipeline throughout the year with some of the changes there. I think the comments where you've got a good start to the Q4 selling season, but what else from the BlackLine side, are you still focused on to really inflect that opportunity? Owen Ryan: Yes. Look, I think the health of the SAP relationship overall is really solid. And I think we mentioned in the prepared remarks, the joint proof of concept that we're working with them from an AI perspective, we continue to put the innovation that we're creating here through their PQ process. Obviously, having Stuart Van Houten and a number of other people that have joined from SAP be part of the go-to-market framework, has all worked very, very well. I think we mentioned in one of the earlier calls, the point that we were now sharing customer success or customer usage between BlackLine and SAP, which was something brand new. We now have sort of dedicated customer success people on both sides of the SAP BlackLine relationship that will really help us to reduce some of the attrition we sometimes see in that partnership because now we're focusing in a way that, quite frankly, we hadn't been able to do in the past and again, gives us that confidence we're going to see the attrition rate drop in 2026 and beyond. So those are all the things that are going on. There's lots of activity taking place in each of the markets. I just came back from a couple of weeks in Asia Pac. Some of my other colleagues also went over to Asia Pac, where we met with the leaders in the different countries over there. So obviously, it's nice to hear things coming out of L.A. and Waldorf, but what's more important is what's the boots on the ground, I think those are where the relationships are getting better and deeper. And so we're seeing nice progress there across the board. Alexander Sklar: Okay. Great. And maybe a follow-up for Patrick. Just in terms of kind of the 2026 outlook. You think you said kind of factoring consistent macro. I know it's something that's been tougher to project this year. How would you kind of -- how are you characterizing the macro? So we've talked about some of the things your customers are facing with kind of platform pricing and Studio360 adoption. But from a macro standpoint, like how has that progressed since Q1 when we kind of started talking about the different scenarios through third quarter November here? And what are you exactly factoring for next year? Patrick Villanova: Yes. Thank you. So with regard to the macro environment that would lead to the 20% growth rate that Owen indicated, it would be the environment that we're in today. So when we were thinking about back in April and evaluating the potential impact of tariffs, we found that, that largely did not have an impact on the business this year. So when we talk about a macro environment going forward, if we maintain the current state that we're in today, that is the basis for the projection that we were casting upon 2026. Owen Ryan: Look, I think the one thing that we're all trying to work with our customers on here is you've probably seen there's about 1 million corporate job layoffs, I think, over the last couple of months. A lot of that necessarily -- or not necessarily, but it's in the back office, and that's certainly creating some opportunities for us to talk with our customers about how they can use BlackLine because of the efficiency that we're driving for our customers and you power that with what the -- what we're demonstrating to them around AI, and so it could become a little bit of a tailwind versus a headwind depending on how these companies choose to move forward. Fascinating to me in my trips around the world in the last month, and I've spent a lot of time on the road in markets that I would have thought would have been slower or more resistant to adopting the kinds of change that you sort of sometimes see in North America, that is accelerating throughout the rest of the world. And so I think again, that sort of is a bit of a positive tailwind from where I sit today. Operator: And I show our next question comes from the line of Patrick Walravens from Citizens. Patrick Walravens: Great. And it's nice to see that the -- you're starting to see the signs of what you've been working on for so long, Owen. Owen Ryan: Yes, I'm right, Patrick. Patrick Walravens: We're well impatient over here. I'm sure you are, too. Owen Ryan: I hadn't noticed. Patrick Walravens: My question for you is, you made an interesting comment. You said that the conversations between the ERP providers, the customers and the implementation partners can be very difficult, why is that? Owen Ryan: Well, because you wind up with customers sort of have sometimes these views of how quick their transformation is going to go, how easy it's going to be. You replaced an ERP system. That's a complicated project. People change, priorities change, things get emphasized, deemphasized and everybody wants to think it's, well, just slam in the technology, and it will be nirvana. And it's not -- that's not the answer. It's about not only changing the technology, it's making sure you change all the processes that go with that and then also helping people through the change management of what all this takes. And so it's very easy for somebody to say, well, it's only because of X, but it often is because of X, Y, Z and A, B, C. And so what we're trying to do more of now is engage and lean into those conversations. And what we're seeing is positive, it's showing up in the multiyear renewals because we're forcing things that maybe we had in the past wouldn't have done is getting these customers back on that journey and showing them what the art of the possible is. It's so critical from my vantage point around Studio360 to have the blueprints that are part of that. It's so critical that we can now talk about the ability to integrate, the ability to sort of orchestrate what they're doing to visualize it and then have the control and compliance that's on top of all that, those are things that we're forcing into a conversation that, candidly, it isn't always the easiest thing to do, but sitting there are not engaging doesn't do anybody any good. And again, where we're seeing, I think, the uptick is our customers signing up for multiple years because they know they got to get back on this journey. And I think the other thing that's interesting about this a little bit, Patrick, I'm not sure it's scientific, I also think now that people are getting back in offices, face-to-face conversations are a good thing to have and are sort of driving some of the changes in how things are beginning to unfold. Patrick Walravens: Yes. I agree with that. Okay. And then Patrick, 2 quick ones for you. So first of all, I mean, why does -- you're in line on EPS this quarter. So you took the EPS for the year down by $0.05 to $0.11 bottom top of the range, so for Q4. Why is that? Patrick Villanova: There's 2 factors there, Patrick. The first one is you're talking about non-GAAP net income is the interest that we earn on our cash balance. And as we indicated earlier, we have purchased $200 million plus in stock this year as part of our share buyback program, which is driving down the interest that we earn on that. The second driver is the big beautiful bill. While that has provided an infusion of cash flow for us and many other businesses, it does not change our non-GAAP tax expense. So the expense remains constant from a provision standpoint, but we do have a cash flow benefit from that bill. Patrick Walravens: Okay. And then the second question is just so we understand clearly what you guys are saying about the -- about next year. So at your financial analyst session, you presented 2 slides. One was the target model framework. I'm sure you know it by heart, right, which starts with total revenue growth of 13% to 16%, and goes all the way down to your operating margin. And then you had another slide which showed your commitment to the Rule of 40, which had you at 38% in '27 and 40% in '28. So what exactly is it that we're going to see in '26 now? Patrick Villanova: In 2026, you will see at least a Rule of 33 as we committed to in Las Vegas. Patrick Walravens: Okay. So is there any acceleration of this framework? Owen Ryan: For 2027, yes, Patrick. That's where, again, we talked about what we're seeing from a gross bookings perspective, what we're doing on the churn and what we're seeing on the expense side. So as we think about the revenue growth, that's really when we get to that teen growth number in '27, we'll see an acceleration of revenue throughout the year. We think we'll see an acceleration on the bottom line. But the real impact of that will work its way throughout the financial statements throughout the course of the year and again, then show up pretty clearly starting in 2027. Patrick Walravens: Okay. So target model framework slide now, that's now through '27? Owen Ryan: Yes. Yes. Operator: And I show our next question comes from the line of Steve Enders from Citi. Steven Enders: Okay. Great. I guess I want to go back to just the 20% kind of bookings commentary and I guess the view of that kind of accelerating from where we're at today. Just I guess, what is it that you're seeing like gives the confidence around that picking up going into Q4 and then going into next year? And then I guess, on the other side of that, also the commentary around this kind of transition going from the headcount impacts to kind of driving that platform model? I'm just trying to understand, I guess, the kind of like puts and takes to kind of make that 20% happen there? Owen Ryan: Yes. So on the gross bookings side, if you remember, starting in September of last year, we started to communicate that the pipeline was starting to grow. And that has grown even right through the month of October. Every month, we continue to see progress on the size of the opportunities and the brands that we want to be doing business with. That's what's driving that growth is the conversations that our people are engaging within customers as well as a great work that our marketing team is doing in the marketplace. So you watch that and you can see how it's progressing through the stages of sales. And so that's what gives us the confidence of what we expect to see in the fourth quarter and then what we're seeing heading into next year. Remember, it takes a good 10, 12 months for stuff in the mega enterprise space, the enterprise space to make its way to what we do in the pipeline compared to the mid-markets, maybe 4 to 6 months. And so everything we would have expected -- or we're trying to drive, excuse me, not expected, from the quality of that pipeline, from the customers we're engaging with, the partners that we're pursuing those opportunities with and the level of engagement from those customers all give us a much higher degree of confidence as we work our way through, and we've seen the acceleration of gross bookings throughout the course of the year and now beginning to really see that pick up in the fourth quarter. And when you start to then look at the beginning, or into next year, you can see the pipeline that started in January, working its way right up through the end of October continuing to mature its way through. And so that is what gives us confidence because we have enough pipeline to deliver what we've just said around an increase in the gross bookings. So that's the first piece. And hopefully, that's responsive to your question. The second piece is there was a lot of work that we had to do to reposition BlackLine to get to become a $1 billion company. I would say that when I look back with where the infrastructure was, it was probably better suited for a $250 million company than somebody trying to get to $1 billion. And so all the things that have taken place in go-to-market in the G&A part of the business and the product and tech, that has been being worked on through multiple angles, really culminating for where we are today and the ability to move forward with much more operating leverage in the business going forward. And so it's just the investments you would make that accelerate, make it easier for our people to conduct their jobs and we are seeing the increases in productivity. I'm thrilled to see a 30% increase in productivity from a quota-carrying rep. And I think Stuart and his team are just getting started on that as we move forward. The things that Jeremy Ung and his team are doing about productivity from our engineers is phenomenal. And so we're seeing us taking advantage of revamping our processes, using technology as well as the change management we need to drive in the organization. So we feel pretty comfortable that we're going to be able to decouple revenue growth by adding heads all the time to drive that revenue. If we don't need to do that as we scale out the business. It doesn't mean we won't add quota-carrying wraps, doesn't mean that we won't add product and tech professionals as appropriate, but it's not going to be that high correlation that you would have seen from BlackLine previously. And I think that's where we see, again, the opportunity to both accelerate top line growth as well as accelerate bottom line performance. Steven Enders: Okay. That's great to hear. And then maybe to follow up on Pat's question on just the next year kind of view. I guess appreciate saying that 33% number. I guess maybe asked a little bit differently, like if I'm looking at where consensus numbers are for next year, I think it's at high 8%, almost 9% growth. Is that the right ballpark in terms of how you're thinking about now? Or how should we maybe think about the mix of growth and margin to get to that 33% number? Owen Ryan: I think you're largely thinking about it correctly. But obviously, we're -- our target of a Rule of 33 for 2026 is our minimum expectation in terms of what we're going to achieve next year. So yes, we're aware that the consensus number is 8.8%. We do have confidence in our growth profile for next year and our ability to achieve at least the Rule of 33. Operator: And I show our next question comes from the line of Jake Roberge from William Blair. Jacob Roberge: Great to hear about the pipeline strength, but can you give us some more color on what you're seeing with close rates and win rates, just given the divergence between pipeline, gross bookings and then also ARR growth would just be helpful to understand what you're seeing on that front. Owen Ryan: Yes. Look, I think our win rate is probably up about 10 percentage points from where it was. So if -- and I'm just going to use a number, if it was 20%, now you could look at it maybe 22%, right? Those are lower than they actually are, but just using it that way. So we see that uptick and close in win rates and we can tell we're taking share from somebody out in the marketplace. And so that has been very encouraging. And we expect that, that is going to continue, if not accelerate even a little bit more, just again, given all the things that the responsiveness we're getting from our customers around the platform pricing, understanding better what Studio360 really is all about and then all the work that the team has done around Verity AI. It's sometimes hard for me to process the amount of change that we've driven into the company last year and this year, just on the product and tech side. It's one thing to sell that into the marketplace, deliver to the marketplace, a whole other thing to get your own people enabled on it, to understand it, buy into it, get comfortable with it and go out and tell that story. And again, we're seeing that our team is getting better and better at articulating that value proposition and engaging in conversations at a higher level in a broader as well as deeper way. And so that's what we're seeing. I don't know, Patrick, anything you want to add on particular numbers, but that's what's going on in the business right now. Operator: And I show our next question comes from the line of Koji Ikeda from Bank of America. Koji Ikeda: Sorry about that, I was on mute. So I totally appreciate right before the Q&A that you don't comment on media speculation. And I really do appreciate that level setting. And so -- but I do think it's important to ask, and I wanted to ask about how you're thinking about driving shareholder value from here. Whatever you can talk about from that lens would be really helpful, because I look at the third quarter growth, I look at the profitability, but balance against the duration adjusted billings growth of 7%. But then really, it sounds like bookings is having some good momentum, too. So whatever you could share on how you're thinking about driving shareholder value would be really helpful. Owen Ryan: Look, Koji, I think we're all fixated and focused on that every day, and I appreciate that you're not going to ask me about the market rumors. I think we meet with the Board on a regular basis. The Board is well aware of our responsibilities, fiduciary responsibilities to drive shareholder value and that's what we're trying to do by reaccelerating growth the way we've talked about it, driving bottom line performance, returning cash to shareholders. Those are the things that are within our control that we are executing every day and we feel really good about that. And no one's asked me yet about AI, so hopefully, somebody will and why that's -- we don't view that as a threat to our business because I think that's the other thing that's held the share price down a little bit. I know certainly, when I talk to investors and analysts, they're always saying, "Well, isn't AI going to put you out of business?" And so Koji, as I answer, so I'm going to try to do it in 2 parts. I think we're doing everything we can. We're doing it even quicker now because things are finally converged on getting the bookings machine going, really dealing with the C&A challenge and managing expenses. On the AI side, where we seem to have been lumped in with everybody else and taking our lumps from that, we said in the prepared remarks, we believe we have 2 strong parts that reinforce and widen the moat as we operate around AI. First, we are viewed by our customers, but also by the world's leading accounting and auditing firms as well as the implementation partners as a very safe, reliable, trustworthy pair of hands. As Patrick says all the time, 95% right in accounting is 100% wrong. So we understand that responsibility clearly and has been in our DNA since the founding of the company. Actually, even earlier today, I had a meeting with the leadership of one of the most critical bodies that works with companies, auditing firms and regulators, and the topic was about the role of AI in accounting and auditing because we want to make sure we're staying very closely aligned with the latest thinking and even shaping the thinking of what policies and guidance will be as AI makes its way forward. The second piece that we talked about was the data that we have. And we are sitting on a trove of information that we are really just beginning to use and our customers are beginning to see the power of that information. Interestingly, as we talk with finance teams and IT teams, 2 things are generally cropping up: First is these companies seem to be interested in buying proven solutions rather than taking a chance on less established brands as it relates to the financial close and consolidation; and second, and this is important is the IT team and their initiatives -- AI initiatives seem focused more on their bigger business opportunities that could have an impact for their companies, and it is not centered on financial close and reporting as a priority. In fact, we're aware of a paper that's going to come out next week that's sort of just going to emphasize that, and it wasn't a paper, by the way, created by us. So the key for us as we move forward with AI is going to be able to provide AI solutions that remain reliable, transparent, auditable as well as cost effective for our customers. Now one other data point that I would just share with you that is worth noting. Our roster of customers includes the world's leading technology companies. We have a who's who, it's incredible. And these companies are engaging with us on what we can do for them with AI. Even though they're selling AI out in the marketplace, the place they are not -- they don't seem to be interested in selling AI is in financial close and reporting. And so while there's no guarantee that they're going to use BlackLine AI, it does seem to support the statements I made above that their priorities are elsewhere, and they have an interest in what we're doing. And I think if we can convince the market that there is different pockets of who are going to be the winners and losers in the AI war, then we feel like we're going to be a winner in that. And hopefully, we'll get some pop out of that for our share price. And again, on these conversations that I'm having with the various bodies that oversee public companies, auditors and the like, the regulation is going to take a really long time to get going. And so if anybody thinks that publicly traded companies and no matter what market they're operating in, are going to go do something really crazy around the financial close and consolidation and what they're willing to sign off on for a rep letter and everything else and in what they're communicating to the capital markets, we just don't see it happening anytime soon. And we see that we are really well positioned for the conversations that the customers who trust us and understand what we're doing. And so I think for us, we look at this as a real positive, but we have to obviously show that to the market. Operator: And I show our next question comes from the line of Terry Tillman with Truist Securities. Dominique Manansala: This is Dominique Manansala on for Terry. So just considering the federal motion of early and FedRAMP unlocks future opportunity, how does adoption typically sequence here? Do you expect it to expand horizontally into additional agencies or more so vertically within a single agency into workloads like intercompany or invoiced to cash? And then on top of that, are there specific things that shorten time to live once FedRAMP has achieved like maybe a shared service model or preexisting SAP footprint? Owen Ryan: Yes. It's a really good question, Dominique. And I think the answer to the first part of the question is both. What we're seeing is, like, for example, with the DOJ win that we had, I mean, that is now available to multiple agencies where they can -- within the DOJ, I forgot how many there are, but there are quite a few that have access and a number of them are now looking at what we have to offer. But I think the other thing that's been interesting is being able now to have more conversations across different federal agencies where there's a keen interest in what a BlackLine can offer. And I think some of the very interesting conversations earlier on for what I would have argued were sort of our more traditional financial close capabilities around REX and matching and journals but I never think of the federal government as an intercompany opportunity. But interestingly, it has proven to be an intercompany opportunity because of all the interagency billing and activity that goes on. So we're seeing plenty of opportunities very quickly across the federal space and even picking up now in the state space as well. So I think we sit here we're very confident that based on the feedback, BlackLine is a really terrific fit for the federal government space. The ability for to deliver automation, control, auditability for these agencies is really incredibly important to them. And given the pressure on the federal workforce, the opportunity for what BlackLine can do seems to be resonating very, very well as we're pursuing that marketplace. Dominique Manansala: Great. That's helpful. And then just as a follow-up, in building an elite partner group and then being selective in where you invest or invest enablement dollars, how do you determine which partners get priority here? Is it -- does it influence on transformational deal formation, industry specialization or maybe contribution to source pipeline? Owen Ryan: It's a couple of different things. So obviously, if you think about many of the partners that we work with, they often have dedicated teams that are almost sitting in the office of the CFO and Controller. So we try to work with those that have the strongest brand permission in those customers. We try not to sole source things. We tend to -- if a customer asks us for recommendation, we try to provide them at least 3 names, typically 3 names of partners that we work with, and we try to match that up with the organization's preference for their own customers. But again, we work with a sort of a who's who list, but it's their permission in the space, it's their industry capabilities. If they've made the investments to really deepen their capabilities around certain products within BlackLine. So we've seen a real uptick in our critical partners trying to learn and understand even more about intercompany, our invoice to cash solution. And so the better equipped they are for those, the higher the likelihood that we are to make a recommendation of them as at least one potential player in any opportunity. So that's sort of how it's worked so far. I will say it's a lot easier with a smaller list of partners to navigate than the dog's breakfast of partners we had previously. And I think that those deeper relationships are certainly opening up where those partners are that much more confident to recommend BlackLine. I think we have seen a real breaking apart of the partners sort of saying, well, you could pick this provider or you could pick that one with a more firm BlackLine is the best at this and here's why we would recommend you go with them versus someone else? Operator: And I'm sure our last question in the queue comes from the line of Adam Hotchkiss from Goldman Sachs. Adam Hotchkiss: I'll keep it to one quick one. I just wanted to ask on the 10- to 12-month sales cycles you mentioned, Owen. Obviously, that makes sense given the size of some of these opportunities. But what are you doing from the perspective of trying to automate some of the implementation work in order to lower sales cycles? And do you have any sense for how quickly and by what magnitude do you think you can reduce time and cost of implementation for customers would be really helpful to get some context. Owen Ryan: Yes. Adam, that's a great question because, look, the CFO has a project and he's got 2 that can deliver 20% return just making it up, and one is in the office of CFO and one's on sales, they're going to pick sales all the time. So we have to find ways to deliver greater value even more quickly. So over the last sort of -- when Therese and I stepped into the role, we changed out pretty much all of the leadership team of -- on our professional services side. We've changed a lot of our customer success leadership, all with the idea of trying to drive greater implementation, greater optimization, and that was sort of just revamping the way we do things, right? Just being crisper, cleaner of how you go about it. In the last 6, 8 months, 9 months, whatever it is at this point in time. The next phase of that was then how do you take all the lessons and experiences from all these implementations we've done, all these optimizations we've done by industry, by size of company, by workflow to then say, "Hey, here is a quicker, better way we can help you do this." We will be making that available to our partners to use. We'll be making that available to our customers to use because, again, what we want to do is drive that value for our customers that much faster. So you heard us talk about how many more go-lives we've had sequentially as well as just year-over-year, but critically, the time to get those implementations is continuing to drop. And I'll have a better answer for you in February by how much we think that's going to drop, but it will not be an insignificant cutoff of time that goes from sort of when the customer signs the contract to when they go live, so they begin to really optimize what we're doing with them. Operator: That concludes our Q&A session. At this time, I'd like to turn the call back over to Owen Ryan, CEO, for closing remarks. Owen Ryan: So thank you all for joining the call tonight. Sorry about the little bit of technology glitches at the beginning, but we really do appreciate your interest in following BlackLine. Look forward to continuing to talk with you, share more about our journey and how we're going to make the plans that we've committed to you. Everybody, have a great night. Take care. Operator: Thank you. Thank you for attending today's conference call. This concludes the program. You may all disconnect.
Operator: Good day, everyone, and welcome to the EOG Resources Third Quarter 2025 Earnings Results Conference Call. As a reminder, this call is being recorded. For opening remarks and introductions, I will turn the call over to EOG Resources Vice President of Investor Relations, Mr. Pearce Hammond. Please go ahead, sir. Pearce Hammond: Thank you, Betsy. Good morning, and thank you for joining us for the EOG Resources Third Quarter 2025 Earnings Conference Call. An updated investor presentation has been posted to the Investor Relations section of our website, and we will reference certain slides during today's discussion. A replay of this call will be available on our website beginning later today. As a reminder, this conference call includes forward-looking statements. Factors that could cause our actual results to differ materially from those in our forward-looking statements have been outlined in the earnings release and EOG's SEC filings. This conference call may also contain certain historical and forward-looking non-GAAP financial measures. Definitions and reconciliation schedules for these non-GAAP measures and related discussion can be found on the Investor Relations section of EOG's website. In addition, any reserve estimates on this conference call may include estimated potential reserves as well as estimated resource potential not necessarily calculated in accordance with the SEC's reserve reporting guidelines. Participating on the call this morning are Ezra Yacob, Chairman and Chief Executive Officer; Jeff Leitzell, Chief Operating Officer; Ann Janssen, Chief Financial Officer; and Keith Trasco, Senior Vice President, Exploration and Production. Here's Ezra. Ezra Yacob: Thanks, Pearce. Good morning, and thank you for joining us. It's been a significant quarter for EOG, one that marks both a pivotal strategic milestone and a disciplined continuation of our financial framework. As you know, we have successfully closed the acquisition of Encino in early August. This transaction strengthens our portfolio, cementing a third high-return foundational asset, diversing our production base and accelerating our free cash flow generation potential even during a more dynamic commodity environment. This acquisition was part of an exceptional quarter where EOG once again delivered outstanding operational performance that has translated directly into strong financial results. For the third quarter 2025, oil, natural gas and NGL volumes exceeded the midpoints of our guidance, while capital expenditures, cash operating costs and DD&A all came in below guidance midpoints, resulting in $1.4 billion of free cash flow, $1.5 billion in net income and $1 billion of cash returned to shareholders through our regular dividend and share repurchases. Through the first 3 quarters of this year, we have committed to return nearly 90% of our estimated 2025 free cash flow, including $2.2 billion in regular dividends and $1.8 billion of share repurchases. In today's dynamic energy equity environment, share repurchases are especially compelling, and we expect to remain active in our buyback program, further enhancing returns to shareholders through the cycles. EOG's value proposition is guided by our strategic priorities of capital discipline, operational excellence, sustainability and culture. Our continued outperformance this quarter and throughout the year demonstrates consistent execution of our value proposition by teams across EOG's premier multi-basin portfolio, while our cash return performance highlights our unwavering commitment to disciplined value creation for our shareholders through industry cycles. I want to highlight 4 key differentiators that set us apart and position EOG to deliver value to our shareholders in a dynamic market. First, our diverse high-return portfolio with a deep inventory of opportunities. We invest at a pace that generates high returns while optimizing both short- and long-term free cash flow generation. Our foundational assets in the Delaware Basin, Eagle Ford and Utica continue to underpin our activity, driving strong full cycle returns, while our emerging plays, Dorado and the Powder River Basin are making tremendous progress on improving well performance and lowering costs. And our consistent focus on exploration, both domestically and internationally, gives us confidence in our ability to continue improving one of the industry's highest quality portfolios. We are especially excited about the potential for international unconventional development through our entry into the UAE and Bahrain. Our differentiated exposure to both North American liquids and natural gas as well as international unconventionals positions EOG to benefit from medium- and long-term growth in all 3 areas, creating multiple avenues for future value creation. Second, our focus on lowering breakeven costs. Each year, EOG utilizes data and technology to drive continuous operational improvements, capturing incremental efficiency gains and identifying opportunities to reduce our cost structure. In addition, at times, we make strategic infrastructure investments that further lower costs. In the past year, we've brought online the Janus gas processing plant in the Delaware Basin and the Verde natural gas pipeline connecting Dorado to the Agua Dulce hub. These high-return strategic infrastructure projects helped further reduce our breakeven costs by enhancing reliability, lowering operating expenses and improving price realizations. Operational execution and investment focused on improving our broader asset base not only strengthens our resilience in a lower price environment, but also improves margins and returns for shareholders through industry cycles. Third, our commitment to generating sustainable free cash flow. Our low-cost structure drives robust, sustainable free cash flow generation, supporting EOG's regular dividend as well as additional cash return to shareholders. EOG has generated annual free cash flow every year since 2016 and has never cut nor suspended its dividend in 27 years, a remarkable track record that is a testament to our resilient business model and represents a key differentiator versus peers. And fourth, EOG's financial strength. Our pristine balance sheet is anchored by a leverage target of less than 1x total debt-to-EBITDA at bottom cycle prices of $45 WTI, $2.50 Henry Hub. With nearly $5.5 billion in total liquidity, we have tremendous capacity and flexibility to invest through the cycle, ensuring EOG emerges from any downturn an even stronger company than when it entered. On commodity fundamentals, the impact of spare capacity returning to the oil market is slowly becoming evident. We expect inventories to continue to build as it will take a few quarters for growing demand to absorb spare capacity barrels reentering the market. Beyond near-term oversupply, evolving geopolitical risk, the rapid decline in spare capacity, reduced investment in new supply and further demand growth will remain key drivers of the oil price. Looking past the few -- the next few quarters, we see constructive support for oil prices. And turning to natural gas. Our outlook remains positive. U.S. natural gas enjoys 2 structural bullish drivers, record levels of LNG feed gas demand and growing electricity demand, which should provide price support. Our investments to build a premier gas business has EOG poised to deliver supply into these growing markets. Looking to 2026, it's too early to provide specifics on activity and capital spending. Our capital allocation remains driven by returns-focused investments, our view on the outlook for supply-demand fundamentals and a reinvestment pace that supports continuous improvement across our multi-basin portfolio. This disciplined approach allows for optimal development of our assets while balancing both short- and long-term free cash flows to drive higher cash returns to shareholders. 2025 has truly been a transformative year for EOG with the successful acquisition of Encino as well as our strategic entries into the UAE and Bahrain. And moving into 2026, EOG is better positioned than ever to execute on our value proposition and create shareholder value. Now here's Ann with a detailed review of our financial performance. Ann Janssen: Thank you, Ezra. As Ezra mentioned, the closing of the Encino acquisition in early August is a significant event for EOG. The acquisition enhances the foundation of our value proposition, sustainable value creation through industry cycles, and our financial strategy remains unchanged, a pristine balance sheet to support a sustainable growing regular dividend, disciplined investment in high-return inventory and significant cash return to shareholders. The third quarter is an excellent example of this strategy at work. We generated adjusted earnings per share of $2.71 and adjusted cash flow from operations per share of $5.57. In the third quarter, free cash flow totaled $1.4 billion and through the first 3 quarters of this year, EOG has generated $3.7 billion in free cash flow. Regarding our balance sheet, following the funding of the Encino acquisition, we ended the quarter with a robust cash position of $3.5 billion and $7.7 billion in long-term debt. Our balance sheet continues to serve as a pillar of our financial strength. Our leverage target of total debt at less than 1x EBITDA at bottom cycle prices remains one of the most stringent in the energy sector, and we continue to view our pristine balance sheet as a competitive advantage, providing both protection in volatile markets and the ability to strategically invest through the cycles. During the third quarter, we continued our history of significant cash returns to shareholders, anchored by our robust regular dividend of nearly $550 million and supplemented by nearly $450 million in share repurchases demonstrating our commitment to both sustainable and opportunistic cash returns. For calendar year 2025, we have paid regular dividends of $3.95 per share, representing an 8% increase over calendar year 2024. On October 31, we paid our latest regular dividend, which was $1.02 per share, equating to an annualized rate of $4.08 per share or a 3.9% dividend yield at the current share price. This dividend yield significantly exceeds the S&P 500. Our sustainable and growing regular dividend forms the foundation of our cash return strategy. We also have other incremental levers such as share repurchases, providing an avenue for further cash return through industry cycles. Since initiating buybacks in 2023, we have repurchased nearly 50 million shares or approximately 9% of shares outstanding. We have ample flexibility for additional share buybacks with $4 billion remaining under our current buyback authorization. In the past 5 years, we have returned over $20 billion to investors through a mix of dividends and share repurchases. For the full year 2025, we are forecasting a $4.5 billion in free cash flow, a $200 million increase in annual free cash flow versus our previous forecast at the midpoint of guidance. This increase is driven by outstanding performance through the first 3 quarters of 2025 and strong fourth quarter guidance that leaves us well positioned entering 2026. In summary, EOG delivered another outstanding quarter. We strengthened our portfolio, maintained the robustness of our balance sheet and position the company for sustainable value creation through commodity cycles. As we look forward to next year, we remain focused on what we can control, operational excellence, cost discipline and capital returns. With that, I'll turn it over to Jeff for an update on operating results. Jeffrey Leitzell: Thanks, Ann. First, I want to recognize the exceptional dedication of the entire EOG team. Consistent outstanding execution across every part of the organization is what enables us to convert our operational strengths into value for shareholders. We had another strong quarter of execution across the business. Our teams continue to deliver consistent results, meeting or exceeding expectations on nearly every operational metric. Production volumes outperformed, largely driven by stronger-than-expected base production performance in our Utica asset, while capital expenditures were below target, supporting strong free cash flow while keeping us on track for full year guidance. Cash operating costs also came in under target, dominantly driven by reductions in lease operating expenses and GP&T across our foundational assets. These strong quarterly results reflect the quality of our assets and the continued discipline of our operating culture. In the Utica, the Encino integration is progressing exceptionally well. I want to thank all of our employees, including new employees from Encino for their efforts in efficiently integrating this asset and fast tracking the execution of high-return development. We have excellent line of sight to realize our $150 million of synergies target within the first year and lower well costs being the primary driver. We are extending EOG's culture and multi-basin portfolio of learnings, innovation and technology transfer to the acquired assets with excellent outcomes thus far. By applying EOG's drilling and completions technical expertise across the acquired Encino acreage, we have already realized strong efficiency gains. As a result, we can maintain the same targeted 65 net well completions for 2025 while reducing our Utica rig count from 5 rigs down to 4 for the remainder of the year. With respect to production, over 80% of the applicable Encino wells have been placed on artificial lift optimization. Moving forward, we anticipate continued efficiency gains and strong field performance as we implement EOG's operational best practices and our suite of proprietary software applications. During the third quarter, EOG brought online our first well in the Utica gas window. [ The Bakken ] wells each had an average 30-day IP of 35 million cubic feet per day. This was a 3-well package with average lateral lengths of just under 20,000 feet. Our focus in the Utica will remain on the volatile oil window, but we are extremely pleased with the potential upside from the Utica gas window over time. Turning to the Delaware Basin. We are pleased with our recent well results, which are on forecast and in line with our development strategy. Our teams continue to drive operational improvements that are helping us to unlock additional value from this already prolific asset. Over the last several years, innovations like our EOG motor program, super zipper operations, high-intensity completions and production optimizers have allowed us to lower cost and improve returns across our acreage. Throughout our core areas, we have built out our surface locations, facilities and gathering systems, and we'll be able to take advantage of this infrastructure when we return to these areas to continue development. Another major driver in well cost reductions has been longer laterals, where we have increased our average lateral length by over 20% in 2025 alone. Overall, we have lowered well costs more than 15% over the last 2 years. Due to this positive step change in capital efficiency, we continue to evolve our development approach to balance returns with resource recovery. This has enabled our team to unlock additional distinct landing zones that now meet or exceed our stringent economic hurdle rates and increase our total recovery per section. We see outstanding economics on these new targets with payback periods of less than 1 year and direct well level rates of return across both shallow and deep targets in excess of 100% at current prices. In the Eagle Ford, economics continue to improve even after 15-plus years of development. For our 2025 program, we have reduced our breakeven price by 10% due to extended lateral lengths and reductions in both well costs and operating costs. Moving forward, we will continue to leverage technology and efficiency gains to drive strong returns and margin enhancement across the Eagle Ford play. In Trinidad, we have completed the first wells of our Mento program and are extremely pleased with the initial results. For 2026, we plan to commence installation of the coconut platform, reflecting further investment in our high-return Trinidad program. Finally, we are advancing the Barrel oil discovery towards FID with our partners and look forward to giving you an update in the near future. In the Gulf States, our exploration programs are moving forward, and we are pleased with our progress. We drilled our initial wells in Bahrain in the third quarter and will spud our first well in the UAE this quarter. We are excited about these opportunities that allow us to leverage our technical expertise and extensive data set from drilling thousands of unconventional wells across a wide variety of plays. The opportunities in the UAE and Bahrain are just another example of EOG's focus on exploration as we continue to look for organic ways to improve and expand our inventory. Regarding service costs, as industry activity has decreased in the second half of 2025, we are seeing some softening in the market. The majority of these decreases have been associated with non-high-spec equipment since these are the first to be released and become available. For the high-spec services that EOG utilizes, we have observed much more resilient pricing with utilization remaining high. We have just recently started seeing a low single-digit reduction in spot rates for high-spec equipment, but this has largely been offset by the impact from tariffs, primarily on non-casing steel products. As we look to the future, we currently have around 45% of our service costs locked in for 2026, and we'll look for opportunities throughout the next few quarters to take advantage of any additional softening in the market. Regardless of how service costs shake out, we remain focused on delivering sustainable efficiency gains year in and year out. After an outstanding third quarter, we are poised to finish 2025 strong and enter next year with tremendous momentum. Now I'll hand it back to Ezra to wrap up. Ezra Yacob: Thanks, Jeff. In closing, let me highlight a few key messages. First, this has been an exceptional quarter for EOG. We strengthened our portfolio with the successful completion of the Encino acquisition, maintained a robust balance sheet and further position the company for long-term value creation. Second, today's dynamic market environment is exactly what EOG is built to excel in. Our diversified portfolio enables ongoing investment in high-return projects, while our low breakeven costs drive strong free cash flow that supports both our regular dividend and additional shareholder returns. Our industry-leading balance sheet remains the cornerstone of our financial strategy, ensuring value creation through every phase of the cycle. Third, EOG holds a distinctive position in the upstream sector with access to a deep inventory of growth opportunities spanning North American liquids, North American natural gas and international conventional and unconventional plays. Our continuous data collection and development of proprietary technology reinforce EOG's culture of innovation and exploration, keeping us at the forefront of industry advancement. And finally, this quarter's results highlight the enduring strength of EOG's value proposition, anchored in capital discipline, operational excellence, sustainability and a high-performing culture. Thank you for your continued interest in EOG. We will now open the line for questions. Operator: [Operator Instructions] The first question today comes from Neil Mehta with Goldman Sachs. Neil Mehta: Appreciate One macro, one micro question. So the macro, Ezra, you guys do really good macro work, especially given the analytical department that you set up a couple of years ago. And it sounds like on oil, you guys got a pretty cautious near-term view, but a more constructive medium-term view. And on gas as well, you had some comp. So can you just unpack it and maybe put some numbers behind your viewpoint because I know everything you say is backed up by some analytics here. Ezra Yacob: Yes, Neil, this is Ezra Yacob. That's a great question. I like how you phrased that, cautious near-term constructive medium and long term. I think broadly, even in spite of a lot of rather daily or weekly volatility, I don't know if that much has changed in our broad view since we discussed it last quarter. We continue to see fairly consistent and what I would call moderate demand growth for 2025 and continuing into 2026. The volatility earlier this year with uncertainty around potential tariffs has generally eased as that policy -- as those policies have become a bit more transparent. And what we see, as I spoke to in the opening remarks, driving near-term fundamentals is the spare capacity return to the market, rather -- the spare capacity return to the market is really causing concern more so than investment in significant new supply. And that's an important distinction because what we forecast with continued growth in demand is while the near term looks to be oversupplied, like you mentioned, we have a potential where you could rapidly see us move from an undersupplied environment to -- from an oversupplied environment in the near term to an undersupplied environment really in the medium term. And it actually sets up for us that we end up being quite bullish when we look out longer term on the supply-demand balances for liquids in light of the reduction in spare capacity and the reduction in investment that you see right now in combination with there's always going to be ongoing geopolitical risks. And then we also see a continued long runway for demand growth to continue. That's on the oil side. On the natural gas side, as I mentioned in the opening remarks, again, we see 2025 as being kind of that inflection point, and it's playing out that way. While you do have storage approaching the 5-year -- really about 5%, I think, above the 5-year average, we are seeing the increase from LNG demand for feed gas, and we're really starting to see the increase in electrical demand continue. Our forecast has always been that kind of the back half of the decade we'll end up seeing somewhere around a 4% to 6% compound annual growth rate. And I think you're starting to see a number of forecasts actually even exceed that range for North American gas demand. Neil Mehta: Good perspective as always. And then the follow-up is a little bit more micro. We recognize well data can be super noisy, but we've got -- there have been a lot of attention on the Delaware, in particular, and some of the third parties around productivity data coming in a little bit softer. And that times up well with people getting concerned about Permian maturity around some of the wells. And so I wanted to give you an opportunity to address that directly and help potentially comfort the market around that risk. Jeffrey Leitzell: Yes, Neil, this is Jeff. And as we just talked about in our opening remarks, our Delaware Basin wells, they're performing just as we have them designed. And it's really just a continued evolution of our development strategy out there, which ultimately, our team is fully focused on taking that asset and maximizing the value. The first thing that I'd tell you, the team's focus on is they're always looking to balance returns with maximizing NPV per acre and the overall recovery of the acreage. And what we've really seen over the last handful of years just through innovation and efficiency gains is we've really lowered the cost there in the Delaware and seen a pretty big step change in our capital efficiency of the play. A couple of examples of that is we've increased our lateral length this year alone 20%, which has really helped cost. And when you look at that cost reduction, we've had about 15% reduction over the last 2 years. And then on top of that, through all of our core areas, we've been able to build out our infrastructure. And whenever we return to these sections, we're able to use that infrastructure for a benefit. So when you take all this and you add it all up, what we've been able to do is unlock additional unique landing zones there in the Delaware that they're meeting right now our stringent economic hurdle rates at bottom cycle pricing. And what I'd say about these zones is they really vary all the way up and down the stratigraphic column. and they kind of vary from area to area. But really, if you look at this kind of development progression, it's very similar to what we've done in other plays. I mean, take the Eagle Ford, for example, we lowered well costs there. We applied new completion technology, and we were really able to unlock additional resource in that play. And you're seeing the same thing out here in the Delaware. And then the important thing to really take away with this is that these new targets have just outstanding economics. With payback periods, they're less than a year. And then at the direct well level rates of return, I mean, they're greater than 100% at current prices right now. So I'd say our teams are really excited about the progress they're making with the program, and they're going to continue to look for innovative ways to drive down cost, keep improving well performance and unlock as much resource as we can out there in the Delaware. Operator: The next question comes from Steve Richardson with Evercore. Stephen Richardson: Ezra, I was wondering if we could talk a little bit about '26. I know you said explicitly, it's too early to talk about '26. But I was wondering maybe you could -- if we take fourth quarter CapEx, which is a number you just guided to and annualize that, I know there's a whole bunch of problems with that framework. But I was wondering if you could kind of talk about activity levels today and what that may look like as you roll forward or even just some of the considerations up, down international, Utica after you've had it under your belt for 3 months. So just wondering if you could just kind of go around the portfolio and maybe just give us a sense of how you're thinking about things with the macro backdrop you just outlined. Ezra Yacob: Yes, Steve, thanks for the question. I know usually, there is a lot of pushback on using a fourth quarter number as a run rate. I actually think in our case right now with where we see the macro environment, under the current macro environment, which I appreciate you prefacing with that, I actually think the Q4 run rate is probably a pretty good spot for everyone to start with, to be honest, because as you said, some of the puts and takes. Now again, it is a dynamic market. So you've got a lot of potential for things that can change. But as we see the market going forward on the oil side being likely oversupplied for the next couple of quarters, maybe that turns over pretty quickly next year, maybe it pushes out a little bit further. But really, on the oil side, we see next year, as we sit here today, is really probably being no to low oil growth and low oil growth would really mean that in the next few months, we're seeing maybe the potential for some oil supply to increase in the back half of the year. But right now, it's pretty difficult to see the market asking for increased supply in the front half of the year. So I think no to low oil growth. We obviously are going to continue to invest in our gas play, as we've talked about at Dorado, as we've talked about trying to build a premier gas company basically inside of EOG. We're ramping up our LNG commitments over the next few years. We continue to see, as I talked about at the beginning, kind of 2025 being an inflection point for North American gas demand. So I think continued investment in Dorado. And then we have continued investment in the international at a pretty similar pace to what we're doing today. We do have another platform under construction there in Trinidad, but we've had an active drilling campaign there for this year. And then with the Q4 number, we've actually started investing in both the UAE and Bahrain, and we'll have some consistent activity going there as well. I think, again, with the purview of the asterisk that it is a dynamic environment. I think those are kind of the puts and takes, Steve, that I'd be looking at. And I think, like I said, the Q4 run rate is probably a pretty good starting point. Stephen Richardson: That's great. We won't hold you to it, but that's a really good starting point, fourth quarter times 4, it is. Maybe one a little bit more on the asset side on the Utica, but I was wondering if you could talk about how you're thinking about oil gathering and market access there. The movement in what the asset has done to your corporate differentials is meaningful. And I know you've got a number of ways to solve that either third party or like you've done yourself in other instances. So I was wondering if you could talk about that and the time line at which we could see something there. Jeffrey Leitzell: Yes, Steve, this is Jeff. When we think about the oil markets up there, first off, there's plenty of market for the molecules. That's not the issue. Really, what we focus on up there is going to be the differentials. And as you actually alluded to, our premium oil differentials, they did narrow slightly since the Encino differentials were a little bit wider. And that's to be expected. Encino on that acreage, we were really active in the volatile oil window, and they were a little bit more active to the east of us, which tends to be a little bit more condensate related. So that's really where you're seeing the difference. And the way I look at it is with any play, over time and maturity, we'll be able to improve those oil differentials there, especially with the added scale from the overall acquisition. Operator: The next question comes from Josh Silverstein with UBS. Joshua Silverstein: Pretty big drop in the overall cost guidance this quarter, $0.25 here. Can you just talk about the drivers of this? Was it a function of adding the Encino assets and how we should kind of think about the costs looking forward into next year? Jeffrey Leitzell: Yes, Josh, this is Jeff. Yes, it's kind of right across the whole board with our operating expenses. We're seeing really good performance. So on the LOE side, we had about a $0.10 beat from midpoint, and that was primarily driven by lower-than-expected workover costs and compression costs across the whole company in most of our assets. And then also, we did see a little bit lower offshore LOE in Trinidad than what we had forecasted. On the GP&T side, we were about $0.20 below midpoint. And what that had to do with was our natural gas gathering and processing fees in the Eagle Ford and the powder came in a little bit lower than expected, which was good. And then also with us only having about a week under our belts before the last call, we had a slight forecast variance in the Utica due to the Encino acquisition. So that came in a little bit less on GP&T. And then also, everything else was looking pretty good. G&A was about $0.08 below midpoint. That was somewhat tied to the Encino acquisition there coming in under. And then DD&A also came in under, which primarily is related to a little bit better performance across the portfolio from an overall reserve standpoint and really good costs flowing through there to the pools. Joshua Silverstein: Got it. And then just going to the balance sheet and shareholder return profile. Now that you're post the Encino acquisition, how should we start thinking about the free cash flow allocation going into next year? Do you want to start trimming away at the debt that you guys have taken on? Do you want to build the cash balance up to that kind of $5 billion, $6 billion level? And then should we still be thinking maybe of that 70% plus of the free cash flow to shareholders? Ezra Yacob: Josh, this is Ezra. Yes, I think maybe I'll start with the last point there, that 70% commitment. Don't forget, that is a minimum commitment. The reason we came out with that 70% commitment of free cash flow return to shareholders that it's durable throughout the cycle. But as you know, you've seen we've basically exceeded that in the last few years, been closer to about 90%, I think low -- maybe 92% of free cash flow return to shareholders. Going forward, we love where our balance sheet is right now. Our total debt is right at our target of total debt versus EBITDA at bottom cycle prices at about 1x. And I think we're in a great spot with our cash position. As we talked about in the opening remarks with $5.5 billion of liquidity, it gives us a lot of opportunities to continue to invest throughout the cycle or look for small bolt-ons or other opportunities to build value for the shareholders. I wouldn't say that it's a priority to continue to build that cash balance at all. I think as Ann mentioned in the opening remarks, right now, we actually see continued return of cash to shareholders through stock buybacks as being a pretty opportunistic avenue that we have in front of us, not only for EOG, but really for the entire sector right now. Operator: The next question comes from Doug Leggate with Wolfe Research. Douglas George Blyth Leggate: Ezra, I wonder if I could try and hit the inventory question. I know you haven't given a lot of updates today on that or sustaining capital for 2026. But my question is really more philosophical about how you think about managing the business. There's been a lot of focus, for example, on what is the Delaware inventory depth. You've already addressed that. But it kind of -- it's almost like folks are looking at, well, that means you can't sustain the production. So my question is, are you looking -- are you running the business to optimize production at basin levels? Or are you running the business to sustain portfolio free cash flow? And in other words, the interplay of the different basins? That's my first question. My follow-up is a quick one on exploration because obviously, you've stepped out into the international arena in certain areas. But our understanding is that EOG may be starting to build a position in Alaska. And my question is, what is your view of business development? Is Alaska part of your portfolio? What are your plans there in terms of incremental spending? And how should we think about that going forward? Ezra Yacob: Thanks, Doug. Yes, this is Ezra. I appreciate that you can get on. I know you're traveling a little bit. But listen, to start with the kind of the total portfolio and how I think about the business, multi-basin operations has always been a strategic advantage for us. We've got flexibility, diversity of rock types. We continue to collect data and learn about different reservoirs. It also puts us in -- gives us diversity of product mix and direct diverse access to different markets. And we've been able, as a first mover to really put together a high-return inventory of over 12 billion barrels of equivalents as we've talked about. And so I think with that, combined with our low-cost structure, really gives us a significant runway to continuing generating free cash flow in a very sustainable manner. As I mentioned in the opening remarks, we've actually generated free cash flow 10 years in a row now through a couple of different cycles. And I think it also demonstrates not only the sustainability of that inventory, but also our consistent focus on ultimately capital discipline, the company's commitment to capital discipline. Resource depth by play is part of what you're asking, and I'd say that's a really dynamic question. And Jeff addressed that with specifics to the Delaware Basin and the Eagle Ford example because as we continue to build infrastructure, lower well costs, we lower operating costs, and we continue to actually learn about the reservoir, the normal life cycle of any of these unconventional plays is that you'll unlock additional resources. We've seen it in the Bakken, the Eagle Ford, the Permian to a certain extent in the Powder River Basin. So as far as assigning a static number, the Permian, obviously, with its stacked play potential and the high level of landing zones is probably our top resource base. Utica and Eagle Ford based on sheer size, obviously, are very strong as well. And that said, we do have a slide in our deck that highlights the payout, the returns, the costs of all 3 of those foundational assets. And that slide actually does take into consideration the current differentials as well between the Utica, the Delaware and the Eagle Ford. And what you see is really all the economics are quite similar at the basin level in terms of the economics, which directionally points to the free cash flow generation of the potential of all 3 basins being pretty similar. And again, it's why we see a long runway for sustainable free cash flow generation of the current inventory. The way we think about the business is investing in each asset at the right pace at the right time. Part of that is a function of our learnings. Part of it is a function of our infrastructure and part of it is a function of generating free cash flow, Doug. So we really think about the individual basins individually, and then we roll them up to the company level. And at the company level, of course, we end up viewing the macro environment and then are, like I said, committed to capital discipline and generating free cash flow. Now on the second part of your question, Doug, as far as exploration, you know as well as anyone that exploration is really nothing new for EOG. It's long been a, I'd say, a cornerstone of our strategy is to use data and technology like I just talked about to continue to unlock reserves that are typically overlooked. We're not necessarily frontier basin type of a company. We've really built the majority of our inventory with the strategy of using data and technology to look for bypass reserves. And in fact, we've done that. We've invested in exploration in the last few years at times when really it's been a little bit unpopular, but we continue to see that as the best way to improve the quality of our asset base. And we think it's key to our high full cycle returns and our lower breakevens. So I think the takeaway really should be that we do have a pretty strong pipeline of projects that span the spectrum of -- from initial ideas to leasing to initial wells to maybe delineation wells. And so we feel very good about our exploration efforts. That being said, in the last 12 months, we have expanded our inventory pretty dramatically with the Utica acquisition. And I think our near-term focus really is continuing to integrate that asset, continuing to drive down our breakevens across all of our plays, especially in the Utica, continuing to invest in growing our Dorado asset. And then, of course, our investment in unlocking the potential that we see internationally in both the UAE and Bahrain. Douglas George Blyth Leggate: And you confirm the Alaska position? Ezra Yacob: No, Doug, as you know, you've been following us for a number of years, Doug, and it would be a first if we actually start talking about individual exploration plays. So we'll just leave that one for some time in the future. Operator: The next question comes from Leo Mariani with ROTH. Leo Mariani: I appreciate you all's comments on '26. certainly helpful here. Clearly, it sounds like on oil, a little concerned near term makes sense. On gas, obviously, there, it seems like you're quite bullish as we roll into 2026. So just curious there, do you view '26 as maybe the year where you can step up the Dorado activity a little bit to take advantage of that bullish outlook? Ezra Yacob: Yes, Leo, it's Ezra again. It's a good question. I will -- so we are bullish on gas. And part of the reason is because we have captured some markets to grow into. We see the electrical -- electricity demand has continued to grow. We're taking advantage of that right now really with our -- especially our capacity along Transco that delivers our gas into the Southeast power demand pool. But also, obviously, our commitments on the LNG side are increasing. The biggest thing with gas, though, as we saw last year, if we just look at the last 12 months, I might be off on this just a little bit, but we really exited last year's injection season right around the 5-year high. And then within about 6 or 7 weeks, we were at a 5-year low on the 5-year range with respect to storage levels due to a pretty cold winter, but I wouldn't say anything exceptionally out of the ordinary. And I think it shows the volatility of gas because here we sit today with storage levels, again, about 5% above that 5-year inventory level. a little bit of background, Leo, on the ultimate answer where I'd say our pace for Dorado, kind of like I just finished up with Doug, is ultimately going to be governed by keeping our full cycle returns high, which means continuing to develop that at an appropriate pace where we can keep our costs very, very low. I've talked about before how there are a couple of step changes for costs in any of these unconventional plays. The first is when you can really command a rig full time. The second is when you can get to a frac spread full time. And yes, '26 will probably get pretty close to that. But like I said, there is a little bit of flexibility still in the plan that we've baked in. Let's see how it plays out. Let's see where winter goes and really see how the LNG demand continues to increase. And that will kind of determine again our investment rate at Dorado. -- growth, again, ends up being an output of our ability to kind of invest in these plays, each of these plays at the right pace to drive those returns. Leo Mariani: Okay. I appreciate that. And then just wanted to jump over to Bahrain here. So it looks like you guys showed in your results a little bit of international gas production outside of Trinidad on the quarter. I know you drilled some wells in Bahrain in 3Q, like you said. So it sounds like there's some production on those wells. Just any kind of early time kind of read? Are those wells kind of hitting or beating expectations at this point? What are you guys seeing there in Bahrain? Keith Trasko: This is Keith. We're very excited about the positive momentum we have in the Gulf States. In Bahrain, we have a full team operating there. We've been granted that exploration concession in the partnership with BAPCO. That did allow us to take over a handful of legacy producing wells. That's the gas volumes that you see reported here in the quarter. As far as the expectations for those or the production on those, those are the same wells that led us to want to get into the concession in the first place. So they are a little bit older wells. They were part of the robust data set that we had before entering the country. So they're a little bit older. We have drilled our first few wells, first few new wells and we're going to look to starting completing them on this quarter. So we'll say we're gaining a better understanding on both the geology and the operations side in Bahrain. It's early days, but we're very excited about the opportunity here. Operator: The next question comes from Scott Hanold with RBC Capital Markets. Scott Hanold: Ezra, you were clear that you'd be willing to obviously extend above 70% of shareholder returns, especially at the attractive valuation right now. Looking -- obviously, it looks like you've already done about 1 million, at least 1 million shares of buybacks in the fourth quarter to date. What's your temperature on at this valuation to potentially push to 100% or even more this year? I mean, how compelling is valuation today versus, say, a year or 2 ago when you were closer to 100%. Ezra Yacob: Yes, Scott, thanks for the question. We've definitely got the flexibility and the strength of the balance sheet that would support going to higher levels than the 70% minimum and really going to the higher levels of the 92% that we've done in the past. Like I said, I think it's very compelling, not just for EOG, but really for all the sector. I think currently, energy's weighting is around 3% of the S&P 500. And so we see a large dislocation in valuations. And we see a large dislocation in valuation of EOG. And so I think it's a fantastic opportunity for us here when you look at the near term where it looks like there's the potential for continued oversupply, spare capacity entering the market. We're focused on capital discipline and continuing to generate free cash flow. And at this point, like I said, building cash is not -- on the balance sheet is not a priority for us. Our balance sheet is in a very pristine state where we like it. And so there is opportunities to return close to 100%. Scott Hanold: Okay. That's clear. And my follow-up, I think, is for you, Jeff. You mentioned obviously better base production performance in the Utica. Can you give us a little color on that? Was it some of the artificial lift efforts you did? Or was it just better performance of the reservoir as you all got into the Encino assets? Jeffrey Leitzell: Yes, Scott, thanks for the question. And it's really kind of a magnitude of the whole integration. And really, we've -- over just a few months, we've realized significant operational momentum just by putting all of our drilling completion and production expertise out there into the asset. So we've talked about the efficiency gains we saw on the drilling side. So we're actually dropping down 1 rig going from 5 to 4. So we're seeing really good performance on the efficiency side there. And then over on the production side, I think we've implemented the high-intensity completion design there now with scale. So we're starting to see some benefit from all of that. And then as you alluded to, too, as far as some of the legacy wells, we've moved over the full 1,100 wells to the EOG suite of proprietary applications. and that includes 80% of them that are the applicable wells. We've got them on the EOG artificial lift optimizers. So we're starting to see the uplift benefits from that. And as you alluded to, that's part of the reason that we see the beat there in Q3 out of the Utica. So still have a long ways to go, though. There's still technologies that we can unveil. There's still things from the efficiency aspect, but we're doing really well there in the Utica, and we're realizing a lot of the synergies and the production uplift that we expected. Operator: The next question comes from David Deckelbaum with TD Cowen. David Deckelbaum: I wanted to ask a little bit more about the optimization and lower operating costs. I think you cited lower workover expense for this year. And I'm curious, is that really just specific to the integration that you're seeing in the Utica? Or is this broad-based around, I guess, just better reservoir productivity? Or are you just seeing better responses from reservoir performance across your assets that requires less workover intervention? Jeffrey Leitzell: Yes, David, this is Jeff. What I'd say is it's really across the whole portfolio. We're really seeing improvement where we're focusing on where major failures are. So a lot of it's going to be with our data and our analytics, understanding where failures are in each one of these wellbores and the different artificial lift systems and how to go ahead and alleviate those failures out of the front end. And then some of the additional technologies we actually talked about on our last call with some of these HiFi sensors where we're able to put it on subsurface and surface equipment we're able to monitor vibrations and other data real time to understand when failures may happen or even understand prior to failures, so we're able to catch them and be able to minimize the overall expense. So I really think it's just a credit to all of our teams out there that they're not leaving any stone unturned. We're making sure we take all of our data and apply it to all of our wells that are producing to make sure that we're minimizing the downtime and really maximizing the overall production across the portfolio. David Deckelbaum: Appreciate that. And Ezra, just given some of the commentary, particularly around spare capacity dwindling in the ensuing years ahead, how do you put that in the context of your appetite for just expanding in the areas where you're at? Or overall, I guess, your appetite for trying to hoard as much resource as you can sort of in the next, call it, 12 to 24 months period, either through M&A or just trying to organically focus on expanding resource? Ezra Yacob: Yes, David, it's a great question. And downturns are a fantastic time to explore because typically, a lot of companies -- if companies are exploring in a downturn, that's one of the things that's typically easy. That's a program that's easy for them to pull back on and reduce. As far as the inorganic, I think at this point, small bolt-ons are really some of the more fundamental blocking and tackling of trades to continue to shore up our acreage position is what you should be expecting from us. The Encino acquisition was very reminiscent of the Yates acquisition, which we did 10 years ago now, it was a bit of a unicorn that came along in an emerging asset with hand-in-glove acreage positions and fit. It's a very, very high return prospect for us, and we got it at a price because it was really an emerging asset that made it very, very compelling. Typically, in these emerging assets, you don't really have the opportunity to do something like that because as competition starts to see your well results, those price -- those entry points, the price points really start to increase. And for us, we look at any of these opportunities, inorganic or organic through a returns-focused lens. And so what I mean by that is any of our exploration opportunities really need to compete, and this calls back a little bit to Doug's question. It really needs to compete with the existing portfolio. We aren't really interested in just grabbing more inventory, quite frankly, we're continuing to have interest in expanding the quality of our inventory and continuing to improve the returns, really the full cycle returns that we can deliver to our shareholders. Operator: The next question comes from Betty Jones with Barclays. Wei Jiang: I wanted to ask about technology. EOG has always been on the forefront of integrating technology and big data. We're hearing a lot about AI models. So just want to get your take on the materiality of AI integration on your operations and exploration efforts and whatnot. And do you still see advantage of building these -- your capabilities in-house? Ezra Yacob: Yes, Betty, this is Ezra. AI at EOG, yes, we definitely see advantages and advantages, significant advantages to building a lot of our proprietary apps and software developments in-house, typically because we couple them directly with the field operations, things like Jeff has talked about, I think, on the last call with regard to our high-fidelity sensors, some of our downhole tools that we've got real-time measurement that's really making a big impact on the way that we operate and driving down costs. I'd say, broadly speaking, AI, and you've heard it throughout this earnings season, everybody mentioned something on their call. So I think it's clear that AI really is transforming the entire industry, the oil and gas industry. And it really is happening, I'd say, at every stage of operation from, as you pointed out, exploration throughout the field, including safety. And as you know, our journey has been maybe a little bit longer in the tooth than others. We started with smart technology really prior to COVID. And that's some of the technology that we put out on our centralized gas lift systems. I mean, we're coming up on almost 10 years of utilizing that really, which really manages and optimizes the amount of injection gas versus the production that you're seeing out of it. And we've, since that time, developed machine learning algorithms now that we utilize for not only that production optimization, but for other aspects of our operations as well. And it's just recently that we've started to develop some of the deep learning tools where you're really collecting, organizing and using significantly more types of data, including human observation and experiences, really experiential learning. And so while we're not quite to true agentic intelligence, we are using quite a bit of generative AI, not only to organized geologic data and attempt to uncover hidden trends, but we've got real-time drilling optimization. We're improving efficiency and equipment reliability. We've got predictive maintenance, process optimization, really some autonomous operations going on in the field. And then like I said, maybe I'll just finish up on the safety side. Safety is crucial in oil and gas, and AI is definitely helping our efforts in that regard as well, helping to detect anomalies, both on the emissions, spills and safety side throughout our different operation disciplines. Wei Jiang: Great. That's very helpful color. A follow-up probably for Jeff. Just curious on the dry gas Utica well drilled. What was the impetus to drill that well? And clearly, I see that more as a dry gas option in the portfolio. So what would it take, whether market or price related to trigger that option? Jeffrey Leitzell: Yes, Betty, this is Jeff. Yes, we're extremely excited about those Bakken wells. As we said, they came on, each one had individual 30-day IPs of around 30 million a day. So very, very strong. And they actually -- those were wells that we acquired. So we just completed those wells and brought them on production. So they were already drilled when we acquired them. But what I'd say is we're excited about those results, but we also know we've got a multi-basin portfolio all around the country. So we have a lot of flexibility to take advantage of all the different markets and be very strategic in how we're maximizing our price realizations and netbacks. And in the Utica, as in-basin demand continues to increase and we get some additional pipeline capacities in there and built out, we feel like we'll be well positioned to take advantage of it. But ultimately, I mean, when we're talking about gas growth within the company, we have Dorado, which is the lowest cost gas in the U.S. It's located right next to the Gulf Coast market center. There's a growing LNG market, as you know, and increasing demand growth. We've got a 21 Tcf resource down there, and we're just excited about the opportunities that gives us in the market. So realistically, up in the Utica, as we said, we're going to focus on the volatile oil window. We have opportunities to grow the gas in the future there. But really with gas growth, I'd say our focus is on Dorado. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Yacob for any closing remarks. Ezra Yacob: Yes. We appreciate everyone's time this morning and want to thank our shareholders for your continued support. And a special thanks to all of our employees and partners for delivering another outstanding quarter. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello all, and thank you for joining us on today's Royal Gold 2025 Third Quarter Conference Call. My name is Drew, and I'll be your operator on the call today. [Operator Instructions] With that, it's my pleasure to hand over to Alistair Baker to begin. Please go ahead when you're ready. Alistair Baker: Thank you, operator. Good morning, and welcome to our discussion of Royal Gold's Third Quarter 2025 results. This event is being webcast live, and a replay of this call will be available on our website. Speaking on the call today are Bill Heissenbuttel, President and CEO; Paul Libner, Senior Vice President and CFO; and Martin Raffield, Senior Vice President of Operations. Other members of the management team are also available for questions. During today's call, we will make forward-looking statements, including statements about our projections and expectations for the future. These statements are subject to risks and uncertainties that could cause actual results to differ materially from these statements. These risks and uncertainties are discussed in yesterday's press release and our filings with the SEC. We will also refer to certain non-GAAP financial measures, including adjusted net income, adjusted net income per share, adjusted EBITDA and cash G&A. Reconciliations of these measures to the most directly comparable GAAP measures are available in yesterday's press release, which can be found on our website. Bill will start with an overview of the quarter and recent events. Martin will provide portfolio commentary, and Paul will give a financial update. After the formal remarks, we'll open the lines for a Q&A session. I'll now turn the call over to Bill. William Heissenbuttel: Good morning, and thank you for joining the call. I'll begin on Slide 4. We had another quarter of very strong results, and we set new records for revenue and cash flow. Our portfolio performed well and allowed us to benefit directly from materially stronger gold and silver prices. Earnings for the quarter were $127 million or $1.92 per share and after adjusting for nonrecurring costs related to the Sandstorm and Horizon transactions were a record $136 million or $2.06 per share. Gold remained the largest contributor to revenue for the quarter at about 78% of the total and a strong gold price, combined with our low and stable cash G&A allowed us to maintain an adjusted EBITDA margin of over 80% for the quarter. We continued our focus on shareholder returns and paid our quarterly dividend of $0.45 per share. We added a strong operator to our portfolio in First Quantum with the $1 billion gold stream transaction on [ concession ]. And post quarter end, we received our first gold delivery in early October. We are pleased to add yet another large, long-life and cash flowing asset to the portfolio. Also post quarter end, we completed the acquisition of Sandstorm Gold and Horizon Copper on October 20. The strategic rationale for the combination of these companies clearly resonated with our shareholders, and we were pleased with the overwhelming shareholder support for the transactions. Not only have we added a series of quality producing and development assets to the portfolio in recent months, but we also saw very positive news within the pre-existing portfolio with the life of mine extension at Mount Milligan and the Fourmile exploration update, both of which will be covered by Martin later in our presentation. And finally, in October, we received the first tranche of gold as partial consideration for the Mount Milligan cost support agreement. This agreement from early 2024 was a key step for Centerra to begin work on the mine life extension project, and we are pleased to see the initial results of that project study. This is a win-win for both Royal Gold and Centerra shareholders. I'll now turn the call over to Martin to provide a portfolio update. Martin Raffield: Thanks, Bill. Turning to Slide 5. Overall revenue for the third quarter was a record $252 million with volume of 72,900 GEOs. Royalty revenue was up about 41% from the prior year quarter to $86 million. We saw very strong revenue from Peñasquito, the Cortez CC Zone, LaRonde Zone 5 and Voisey's Bay, which was partially offset by weaker revenue from the Cortez Legacy Zone. Revenue from our stream segment was $166 million, up about 25% from last year, with increased sales from Andacollo, Rainy River, Mount Milligan, Khoemacau and Wassa, partially offset by lower sales from Xavantina. Turning to Slide 6. We saw some material news at Mount Milligan and Cortez in the quarter. At Mount Milligan, Centerra reported the results of the mine life extension project. They are expecting an increase in the mine life from 2036 to 2045, and there is potential to extend that further with expansion of the current mineral resource, future raises on the planned new tailings facility and other mine life extension opportunities. Centerra has reported encouraging support from the government, and Mount Milligan was given fast track status by the province of BC in line with its commitments to streamlining permitting and regulatory processes for critical mineral projects. Mount Milligan is Royal Gold's largest contributor in terms of revenue and the mine life extension adds significant value to our largest asset. At Cortez, Barrick provided an update on exploration and development plans for Fourmile, which is described as a multigenerational project. Barrick has completed a preliminary economic assessment that indicates the potential to produce 600,000 to 750,000 ounces annually over a 25-year mine life. Barrick is undertaking a multiyear exploration program and they expect to set the mine up for initial test stoping shortly after underground development has been put in place by 2029. Barrick believes there is potential to increase the production rates further as confidence in the ore body and geotechnical modeling progresses. The royalties we acquired in 2022 at Cortez provide full coverage of Fourmile at a rate equivalent to an approximate 1.6% gross royalty. At Kansanshi, First Quantum announced last week that the S3 expansion is complete and is transitioning to operations. First Quantum reported that throughput and recoveries at the S3 expansion are ramping up faster than expected and copper production in the fourth quarter of 2025 is expected to exceed third quarter levels. We received the first gold delivery under our new stream in early October. We've now reached the regular cadence for monthly deliveries, and we're expecting total deliveries and sales of approximately 7,500 ounces in 2025. This is about 5,000 ounces less in 2025 than our estimate when we announced the transaction, and this difference is related to timing of the initial delivery and is not related to production shortfalls. We also had some notable updates at a handful of our smaller assets. At Rainy River, New Gold reported strong production for the quarter due to processing of higher-grade ore in the open pit. Underground development is also advancing well, and they are expecting 2025 gold production to be above the midpoint of the 265,000 to 295,000 ounce guidance range. At Back River, B2Gold announced that commercial production was achieved on October 2 and reiterated near- and long-term gold production estimates. At Khoemacau, MMG confirmed the timing for the expansion project, and we expect to complete the feasibility study by the end of 2025 and produce first concentrate in 2028. At Cactus, Arizona Sonoran reported PFS results, which indicate a 22-year mine life with average copper production of 198 million pounds per year and 226 million pounds per year in the first 10 years. Arizona Sonoran expects to complete a feasibility study in the second half of next year, leading to a final investment decision as early as the fourth quarter of 2026 and first production of copper cathodes in the second half of 2029. At Red Chris, Newmont reported that it aims to deliver a development proposal for the block cave expansion to its Board towards the middle of 2026. In September, the government of Canada recognized the Red Chris expansion as a project of national importance, granting a priority status under the Major Projects Office Fast Track initiative. And at Xavantina, Ero reported an increase in reserves and resources driven by plans to market a high-grade gold concentrate over the next 12 to 18 months as well as exploration efforts that continue to extend the known limits of mineralization. And finally, while Sandstorm assets weren't part of our portfolio until quarter end, there were a couple of developments at the larger assets that are worth noting. At MARA, Glencore submitted the RIGI application to the government of Argentina in August, which Glencore describes as a significant step towards development. And at Platreef, Ivanhoe announced the first feed of ore into the Phase 1 concentrator last week, and the first concentrate is expected in mid- to late November. We visited the site in October, and we're impressed with how Ivanhoe has advanced the project and is preparing to transition to operations. I'll now turn the call over to Paul. Paul Libner: Thanks, Martin. I will turn to Slide 7 and give an overview of the financial results for the quarter. For the discussion of Slide 7 and 8, I'll be comparing the quarter ended September 30, 2025, to the prior year quarter. Revenue for the quarter was up strongly by 30% to $252 million, which was another record for the company. Metal prices were a primary driver of the revenue increase with gold up 40%, silver up 34% and copper up 6% over the prior year. Gold remains our dominant revenue driver, making up 78% of our total revenue for the quarter, followed by silver at 12% and copper at 7%. Royal Gold has the highest gold revenue percentage when compared to our large cap peers in the royalty and streaming sector. Turning to Slide 8. I'll provide more detail on certain financial items for the quarter. G&A expense was $10.2 million and was relatively unchanged. Excluding noncash stock compensation expense, our cash G&A has dropped to less than 3% of revenue for the quarter, which shows the efficiency of our business model. Our DD&A expense decreased to $33 million from $36 million. The lower overall depletion expense was primarily due to lower depletion rates in our stream segment as a result of reserve increases. The largest reserve increase was at Mount Milligan following the life of mine extension, which dropped the DD&A rate to $220 per ounce from $340 per ounce. The decreases in stream depletion rates were partially offset by higher production at Voisey's Bay compared to the prior year. On a unit basis, this expense was $451 per GEO for the quarter compared to $462 per GEO. We incurred $13 million of acquisition-related costs this quarter related to the Sandstorm and Horizon acquisitions. Acquisition-related costs are attributable to financial advisory, legal, accounting, tax and consulting services. I'll provide some additional accounting and financial commentary on the Sandstorm and Horizon acquisitions in a moment. Interest and other expense increased during the quarter to $8.6 million due primarily to higher average amounts outstanding under the revolving credit facility compared to the previous year. Tax expense for the quarter was $29 million compared to $22 million, and our effective tax rate for the quarter was 17.9% Net income for the quarter increased significantly over the prior year to $127 million or $1.92 per share. The increase in net income was primarily due to higher revenue, offset by the Sandstorm Horizon acquisition-related costs and higher income tax and interest expense. After adjusting for the acquisition-related costs, adjusted net income was a record $136 million or $2.06 per share. Our operating cash flow this quarter was also a record at $174 million, up significantly from $137 million in the prior period. The increase in the current quarter was primarily due to higher net cash proceeds received from our stream and royalty interest. With respect to the outlook for the rest of the year, we are maintaining our 2025 guidance ranges for metal sales, DD&A and the effective tax rate. Note that these guidance ranges were provided in March of 2025. And when we refer to our expectations for the remainder of the year, we are excluding any contributions or impacts from the Kansanshi Stream acquisition, deferred gold consideration from the Mount Milligan cost support agreement and the Sandstorm and Horizon acquisitions. I'll now provide a few additional comments on the Sandstorm and Horizon accounting treatment and financial results. First, we currently are in the process of finalizing the accounting treatment for both transactions. However, we anticipate both transactions to qualify as business combinations under U.S. GAAP. As a result, approximately $13 million in acquisition-related costs were expensed during the third quarter. We also expect additional deal-related closing costs to be expensed during the fourth quarter. And second, Sandstorm and Horizon will not be publishing third quarter results given the timing of the transaction closing. However, for the third quarter, Sandstorm recognized nearly $58 million of revenue and $37 million of operating cash flow, while Horizon recognized $6 million of revenue and $3 million of operating cash flow. I will point out that these figures are unaudited and were prepared in accordance with IFRS accounting standards. So they are not directly comparable to Royal Gold's financial information prepared in accordance with U.S. GAAP, but they should help the market understand the relative contributions of each company in the quarter. We will provide consolidated results from the transaction closing date within our next quarterly release and audited financial results. I will end on Slide 9 and summarize our financial position. As disclosed in August, we drew $825 million on our $1.4 billion revolving credit facility to help fund the Kansanshi acquisition. We repaid $50 million of that borrowing in September and ended the quarter with $775 million drawn. That left us with approximately $813 million of liquidity between the undrawn and available amounts on the revolver and $188 million of working capital as of September 30. We drew an additional $450 million on the credit facility on October 10 for the closing of the Sandstorm and Horizon transactions, and we currently have $1.225 billion drawn, leaving $175 million undrawn and available. Further, we anticipate making a $75 million repayment towards the revolver balance on November 10. The current all-in borrowing rate on the credit facility is approximately 5.3%. In keeping with our long-standing practice, we intend to pay down our outstanding debt from future cash flows, and we expect to repay the outstanding balance around mid-2027 based on current metal prices and absent further acquisitions. In terms of additional liquidity, after the quarter end, we received the first tranche of gold as part of the deferred gold consideration for the Mount Milligan cost support agreement. In keeping with our previous commentary, we sold those ounces shortly after receipt and realized proceeds of $44 million. Recall that the delivery and sale of these ounces are not revenue and will not be reflected in our calculation of GEOs. The next two tranches of gold to be delivered by Centerra are also tied to production at the Greenstone mine. They are payable upon production of 500,000 ounces and 700,000 ounces of gold. And based on projections by Equinox Gold, these hurdles are expected to be met in the second half of 2026 and the first half of 2027, respectively. With respect to further financial commitments, we have $100 million of funding outstanding for the warrants acquisition. We expect to fund the remaining commitment in two $50 million tranches with the first tranche expected in the fourth quarter of 2025 and the second in May of 2026. That concludes my comments on our financial performance for the quarter, and I will now turn the call back to Bill for closing comments. William Heissenbuttel: Thanks, Paul. I'd like to welcome several new colleagues to Royal Gold, including those who have recently joined us from Sandstorm. These transactions significantly increased the size of our business, and we are pleased to add some very capable individuals to our team with institutional knowledge of the Sandstorm and Horizon assets, which will help us as we manage this much larger portfolio. And finally, I would like to address the transformative quarter we just completed at Royal Gold. Over the past few years, we have heard criticisms about our revenue and NAV concentration, our limited growth profile and the shorter duration of our portfolio. I believe we have answered these questions with the transactions we have closed this year and the developments in the portfolio, and I would like to highlight these three areas. We have one of, if not the most, diversified portfolios by revenue and net asset value in our sector. We have added Mara, Hod Maden, Platreef and Oyu Tolgoi growth potential to our previous growth prospects at Great Bear, Red Chris, [indiscernible] and Khoemacau. And we have increased the duration of our portfolio with the Mount Milligan mine life extension, the 4-mile upside potential, Kansanshi and the longer-dated growth from Sandstorm and Horizon. These events combined to position Royal Gold as a premier company in our sector with a well-diversified gold-focused portfolio with organic growth potential. We'll be working over the next few months to make sure the market understands the potential value that exists in the expanded Royal Gold portfolio. Operator, that concludes our prepared remarks. I'll now open the line for questions. Operator: [Operator Instructions] Our first question comes from Cosmos Chiu from CIBC. Cosmos Chiu: Maybe my first question is on the Kansanshi stream, the new stream you have. As you mentioned, 5,000 ounces is deferred, I guess, if that's a word for it, given the need to initiate delivery mechanisms for the new contract. I guess my question is two parts. Number one, could you maybe talk a little bit more about what that means in terms of setting up or initiating these delivery mechanisms? Is it computer systems? Is it the way you report? Or is it actual delivery? And then number two, in terms of the 5,000 ounces that you thought you might get in 2025, is that going to come in, in 2026 then? And is that going to be sort of in addition to what you would expect it in 2026 anyway? William Heissenbuttel: Yes. Cosmos, it's Bill. Thanks for the question. I may try to handle this one and then the other guys can jump in. Really, there's nothing real complicated about the system or setting it. To be honest, I think we had just announced Kansanshi and we had our earnings call within, I don't know, a week or so of that. And when you look at a model, you look at it and say, okay, that's production. We'll get so many ounces. But what we didn't do at the time of this overlay, the delivery mechanism, which was you're going to start getting them in October. So it was just really -- it was just a mistake on our part in terms of when do we expect the ounces to come? It is not a reflection of the production shortfall. There's nothing wrong with the agreement as the way it is structured. We just pushed ounces that in just a basic model said, you're going to get some of the ounces. Just some of those ounces are going to come in next year. Cosmos Chiu: I guess mathematically, if I were to take your 12,500 ounces that you had expected, that would have been from August to December in 2025. If I were to gross it up for full year in 2026, that would be 30,000 ounces. And then if that's the case, can I just add the additional 5,000 ounces to it in 2026? Like is that the type of how I should think about it? Or is that not the case? William Heissenbuttel: Well, no, what would happen is when you get to the end of 2026, the ounces that are derived from production in December, for example, are going to be delivered in 2027. So it's not as though you take 30,000 ounces and add a bunch of some new ounces. There's just a delay like there is our other concentrate operations like Andacollo and Milligan. Cosmos Chiu: Understood. Okay. Great. Maybe switching gears a little bit. Bill, I see that you now have $1.225 billion of debt on your balance sheet. I guess my question is, how comfortable are you with that level of debt? I know you do say that under current metal prices, you can actually repay everything by mid-2027, absent any further acquisitions. But how realistic is it to assume there won't be any other acquisitions? William Heissenbuttel: I mean you never know in this business, right? I mean if you had told me on January 1 of this year that we were going to make about $5 billion of investments during 2025, I wouldn't have believed you. Certainly, we have gone years where there haven't been many investments. And I think 2024 is probably an example of it. So it is possible that we don't find anything we like, and we just continue to pay down the debt. As to the first part of your question, the debt level, I'm very comfortable with. And I think what we need to show as we move forward through 2026 is what is the running trailing 12-month EBITDA of all these combined companies. and with Kansanshi. And your pro forma leverage is going to be, I don't know, between 1 and 1.5 on a net debt-to-EBITDA basis. And that's extremely comfortable. I'm not concerned at all. Cosmos Chiu: Great. And then maybe one last question. Congratulations on closing of the deal with Sandstorm Gold and Horizon Copper. And with that -- and despite the simplification of the structure, you still will hold a 30% joint venture interest in Hamadan. Historically, Royal Gold was never in the business of really holding on to joint venture partnerships for the long term. I don't know if this is a question I ask SSR Mining, but how do you look at that 30% joint venture interest gain kind of like potentially convert into more of a conventional royalty interest? William Heissenbuttel: Yes, Cosmos, I think we've been pretty consistent saying that our goal is to not be a joint venture partner. It's not what we do. And it is probably very high on our priority list of trying to find a way to convert it into something that is more traditional for our business. Cosmos Chiu: What are some of the key sort of not hurdles, but discussion points then? And when could we expect that to consummate? William Heissenbuttel: I can give you a time line. You can't I can't give you a time line. But as you go through this, when you're taking exposure to cost overruns and operating expenses and you want to convert it into something that doesn't have that exposure, there's a value discussion to have with whomever you sell it to and then what gold price do you use. There's a big difference between current gold prices and what you would call long-term consensus prices. So those are all the typical topics that will come up when it comes down to negotiating something. Operator: Our next question today comes from Josh Wolfson from RBC. Joshua Wolfson: I noticed in the text and also in some of Bill's commentary, there was some disclosure about working over the next couple of months to ensure the market understands the business following the deals that were completed. I'm just wondering if you can provide some more insights on what this means given both of these transactions were press released and the information is out there in terms of some of the details. William Heissenbuttel: Yes. I mean when I talk about working hard to make sure people understand what all these -- the companies together with Kansanshi mean, I'm really -- what I'm saying is spending as much time as I can in front of investors and analysts. Look, there's a lot that's happened in our company in the last 6 months. And I think we need to be able to focus people a little bit on saying, okay, this is what it looks like. These are the growth prospects and just sending that message over and over again because I truly believe there is a valuation gap. And I want to be in front of people telling our story, telling people again why we think the Samsung Horizon deal made sense, why Kansanshi makes sense, but at the same time, being in front of them to listen to, are there any other concerns out there? Because as I said in my prepared remarks, I think we addressed the major ones we heard over and over again, but maybe there's something out there. So when I talk about working hard to make sure the market understands it, I'm just talking about physically being in front of people, telling the story and listening. Joshua Wolfson: When it comes to disclosures, the company historically issued and thinking about guidance, both near term and long term, I understand the company's historical views on this. I'm just wondering if there's any refreshed perspectives. And then also when we think about 2026, when will the company look to provide that insight? Is it still going to be in April? Or can we expect something more prompt earlier in the year? William Heissenbuttel: Yes. So I think I can say that we are planning an Investor Day. I think it's in late March. And I think that at that point in time is when we expect to talk about 2026 guidance. As far as long-term guidance, 3-year, 5-year, the position is still what it's been. Josh, you've heard me over and over again, say, we don't own these properties. We're not close enough to them to tell you what's going to happen in 3 years. So there is still that reluctance. What we have done in the past is go asset by asset to some extent and say, this is what the operator thinks. -- here's our interest and then help people from the operators' forecast what it might look like on an asset-by-asset basis. But I don't think you'll see us go to sort of a consolidated 3- or 5-year. But again, look out for that Investor Day early next year. Joshua Wolfson: Got it. And then there was a couple of financial items that I just wanted to drill down on. Specifically, at least on the income statement for cost items, minority interest kind of jumped up this quarter and then LZ 5 on the asset list was quite high in terms of revenues. Is there any insight you can provide there as well as the fourth quarter expenses for the Sandstorm deal? William Heissenbuttel: Paul, can I turn the minority interest question to you? Paul Libner: Yes. So the minority interest was -- you saw was a little bit higher or unusual this quarter. To give you a little bit of background, and this isn't really unique to us. We are a general partner of a partnership that holds a very small royalty interest on the pipeline and Crossroads deposit at Cortez. And we actually administer some of the custodial functions on behalf of some of those partners. And some of those partners as part of that royalty left to receive some of their royalty proceeds actually in kind or in gold. Well, during the quarter, we actually sold some of those ounces for one of those partners, and they actually had a pretty small book value, if you will, compared to spot when we sold those ounces. So the sales proceeds that we recognized were actually included in interest and other income. But then given that partnership is fully consolidated under U.S. GAAP, that gain was actually backed out in other comprehensive income or that minority interest that you call before arriving at EPS. So really, at the end of the day, there was no effect on our results. Joshua Wolfson: And then, sorry, just the deal expenses for the fourth quarter, if there's any insight and then also LaRonde and 5. Paul Libner: Yes, I'm happy to take the deal expenses. Obviously, yes, we're still going through the accounting of those expenses, you can appreciate. But certainly, from the period October 1 through closing, additional, again, legal advisory service type fees, still accounting for all those, but we will have some of those charges come through in Q4 as well. And again, those will be a nonrecurring kind of onetime in nature. Martin Raffield: And I can take the Zone 5 question, if you like, Bill. So Josh, Agnico identified a mining area in Q3 that was mistakenly excluded from our partial royalty area, and that exclusion goes back to November 2022. It's quite easy to see why it happened. The various blocks outside of zone that are plunging into the royalty area. And the area in question was actually accessed from one of the LaRonde mine shafts rather than the Zone 5 decline. They've made that payment up in Q3 and completely covered the November 2022 through June 2025 shortfall. Joshua Wolfson: Okay. So sort of a true-up, I guess, you could say, for historical production. Unknown Executive: Exactly right. Operator: Our next question comes from Brian MacArthur from Raymond James. Brian MacArthur: A lot of them have dealt with. But can I just ask on Fourmile. You've been very kind and give us the 1.6% equivalent. But is that a combination of GSR1, GSR2, GSR3, NVR 1? Like is this going to be variable? I just can't remember where all the different pieces cover it? Or is that 1.6% a pretty good thing to use on an annual basis? Or are there going to be years it's 1% and years it's 3%. William Heissenbuttel: No, that's a pretty good number to use. The $1.6 billion is the Rio royalty, and it's the bit of the Idaho royalty that -- and we bought those two towards the end of 2022. So it's completely separate from all the legacy stuff that you've known for years. Brian MacArthur: Perfect. So it's that simple $1.6 royalty? William Heissenbuttel: Yes. Brian MacArthur: Excellent. And just so I can clarify my own mind back to Cosmos' question on Kansanshi. So this 5,000 ounces, it's just an NPV problem, if I want to put it that way, of being delayed a quarter. It's not like those ounces are gone forever just because of the true-up date of the transaction or something. It's just purely a concentrate delivery and all the ounces are the same in the end. Is that right? William Heissenbuttel: All the ounces are the same. It's just a timing issue. Operator: Our next question comes from Lawson Winder from Bank of America Securities. Lawson Winder: And I would like to ask just a couple of things. So first of all, on capital returns, we're approaching the time of year where Royal Gold typically considers the next dividend increase. When you think about everything that's happened this year, do you think about there being an opportunity for a bigger-than-usual increase because of the larger portfolio? Or could it just be a smaller increase given the heavy capital spending so far this year? And then sort of related to that, what are your thoughts on share buybacks? And I just kind of occurred to me when you were speaking, Bill, in response to one of the other questions about the valuation gap. I mean, do you see an opportunity to utilize a share buyback to help close that? William Heissenbuttel: Yes. Thanks, Lawson. Look, on the dividend, you're absolutely right. Our Board looks at it in November. I'm not going to lead high or low in terms of what we might do there. But the thing we have been saying to folks is when we were going through Sandstorm and Horizon and Kansanshi, one of the things the Board said to us was you're going to be issuing 18 million, 19 million shares, you'll be taking on debt. We have an almost 25-year record of increasing dividends. We want to know what's going to happen to that. That was part of their analysis and increasing it every year is sort of near and dear to our heart. This is a Board decision. I'm not going to say anything. We'll be back to the market in a couple of weeks. But it's really important to us, notwithstanding that we have $1.225 billion in debt. I can tell you when we went through 2015, we had the exact same thing. We spent over $1 billion in CapEx, continue to increase the dividend. So that on the dividend. On the share buybacks, I want to give this some time. Again, talking about going to work in front of the market, telling the story, I want to see what happens to our valuation. I mean, we still trade at a premium, and it still might be hard to justify share buybacks. But right now, I want to see what the messaging can do. And at the same time, we do want to repay that debt. So there is a use for the capital -- for the cash flow that is being generated over the course of the next year. And that's a priority as well as to pay that down. Lawson Winder: Great. Thinking about 2026, very helpful to have that Investor Day kind of in the back of my mind. But then just thinking about the portfolio, so the Kansanshi Stream and Sandstorm, it's changed very substantially. As you look to 2026, conceptually, would you expect a material increase in GEOs next year versus 2025? And then also thinking about when we can get real numbers on those, would we expect the 2026 guidance to then come out with that Investor Day in March? Or could we possibly get something a little earlier here, just given all the moving parts? William Heissenbuttel: No, I think the Investor Day is when you're going to hear about what we expect for 2026. I mean you have to understand that assets, the producing assets, they've been in our portfolio for 2.5 weeks. So even thinking about making an estimate for next year right now would not be the smartest thing in the world. So Investor Day, we'll be talking about guidance and talking about all the -- this new portfolio, as you say, and what it means for next year. Lawson Winder: Very helpful. And then just finally, there was an update from Arrow yesterday on Xavantina, this concept of processing stockpiles. Would Royal Gold benefit from that in any way? William Heissenbuttel: Yes. I mean it's gold production. We expect it will flow through to our interest. Operator: Our next question comes from Tanya Jakusconek from Scotiabank. Tanya Jakusconek: Just wanted to finish up just on the Sandstorm transaction. Bill, you mentioned that we'll take another charge in Q4. You've integrating assets people at this point. Is it fair to assume that as we look at '26 besides looking at obviously the depreciation and what the guidance on that basis, all of the noise will be out. So all of the unusual items are going to be closed in 2025, have the people and everything is finalized so 2026 will be to look at. William Heissenbuttel: Yes. Tanya, that is the one thing I've sort of said to the team is I want everything done by the end of this year that is nonrecurring with respect to this transaction because as I said, we need to start building this record of quarter-over-quarter of sort of recurring business where we can show the revenue, we can show the cash flow that we're generating. And what I don't want to have is a bunch of expenses leaking into the first quarter. Now we may not -- depending on the invoicing that we get, we may not be able to do that, but I'm highly confident that we're going to be able to isolate the rest of the transaction expenses in the fourth quarter of this year. Tanya Jakusconek: Okay. So that would be good. So like 2026 will be what this would look like with all of these pieces in place. William Heissenbuttel: Yes. Tanya Jakusconek: Okay. that's good. And maybe I could go on to Paul. This is an accounting question from a non-accountant. So maybe I just want to make sure that I count correctly the Mount Milligan cost support agreement of that 11,000 ounces, that $44 million that came in on October 3. So nothing through the income statement. Where will it show up in the cash flow? Where is that going to be put exactly? So I have it in the exact place. Paul Libner: Tanya, thanks for the question. Yes, so we've talked on a few calls and had some commentary even today just on that treatment. But yes, the Milligan cost per agreement certainly was a unique transaction for us. But as even Bill mentioned today, certainly, it's a win-win for both companies. But you may recall that the consideration that we received for that additional support that we're going to provide was in the form of cash and then that deferred gold and then the free cash flow interest at Milligan as well. And so I think the easiest way to think about this on how it will impact the financials is all that consideration that we received as part of the agreement will eventually all be recognized as that deferred support liability that's on the balance sheet currently at $25 million, because we have that obligation to provide additional cash payments under the agreement in exchange for that consideration that Milligan or Centerra provided. So with the gold that we received in early October, that deferred support liability is going to increase by the fair value of those ounces that we received and sold. Again, we sell those ounces immediately or shortly after we receive them. So you're not going to see much, if any, likely not much in the form of a P&L impact. But again, as a reminder, when we receive and sell those ounces, they're not part of our sales guidance here in 2025. But even as I mentioned in the prepared remarks that we do anticipate receiving the next delivery in 2026. So you won't see those ounces show up in some of that guidance that we provide in 2026 as well. Tanya Jakusconek: I know it's not part of your revenue. I know it's not part of your GEO ounces. Does it go anywhere through the cash flow statement? Or just the balance sheet that I think about. Paul Libner: Just balance sheet. Tanya Jakusconek: Just balance sheet. Okay. That's all I just wanted to clarify. And then maybe I can have maybe Bill or someone in the team just talk to us about you've done 2 big deals. I just quickly looked at your available liquidity after you adjust for the Sandstorm deal and your $100 million payment that needs to go out plus the -- just -- you have maybe $300 million, $400 million of available liquidity. Are you still looking at transactions in this market opportunities? Or have we put a pause on that? William Heissenbuttel: No, we're still looking. I don't think we'll ever stop looking. There are still opportunities in the market. There -- I think the ones we're seeing are not of the scale that the ones we just did like Kansanshi. I think one of the interesting dynamics on the BD side is with where the gold price has gone, I've always said that BD is harder to do when the gold price is volatile because it's hard to land on a gold price that both the seller and the purchaser can agree on. And if no one -- I don't think anybody in our sector is using $4,000 an ounce to value things. But at the same time, I'm not sure the seller is going to be accepting of a long-term consensus price of $3,000. So that may slow the processes down a little bit. But we're not closed. We're not going to sit on our hands until we repay that debt. We're still active. Tanya Jakusconek: And what would you be comfortable size-wise? Would it be that $100 million to $300 million range? William Heissenbuttel: Yes. I mean that's what we normally see in the market. I think at this point, I would say if we did do something, it would have to be something we really loved like because you have a choice, we can continue to pay down the debt or we can make new investments, and I'm happy doing both. But the investment that we might make, I think, would have to be something we found so attractive. We just could not pass it on. Tanya Jakusconek: So would it be fair to assume, Bill, then it would be like -- so if anything in your existing portfolio came available, let's say, in parts of projects that you already have an interest and something comes available, that would be kind of viewed as a bolt-on. Would that be what you're saying versus like going into new jurisdictions? William Heissenbuttel: No, I mean not just bolt-on acquisitions. If it comes within the portfolio, great, we'll look at it. And if it's a completely new company, new project, we'll look at that as well. If it's attractive, we may decide that we do want to make that investment. We just have to manage -- I think people want to see the debt come down, even though I'm comfortable with it. But we just have to balance it. Tanya Jakusconek: Yes. Fair enough. It's nice to see the $4,000 gold price. We just don't know how long it stays, right? Operator: Our next question comes from Derick Ma from TD Cowen. Derick Ma: I just had a quick accounting question. Is there going to be a bump in the cost base of some of these former Sandstorm assets, i.e., will depreciation for the assets be higher than they were when they were in standalone and Sandstorm? Paul Libner: Yes. Derick, yes, as we -- as I mentioned in our prepared remarks, I mean, we're still going through that accounting at the moment as far as the allocation of the purchase price there, which obviously will include the allocation among the different interests at Sandstorm and impacting the depletion rate. So we're still going through all that at the moment. I do think that we'll be able to provide a bit more information on that within our next update call. Operator: Our final question comes from Carey MacRury from Canaccord. Carey MacRury: So based on Barrick's 4-mile update, it looks like the mineralization potentially trending maybe off your royalty ground. Is that the case? Or do you see it as all being on your royalty ground? William Heissenbuttel: Martin, can I push that one to you? Martin Raffield: Yes. On our royalty ground, Carey, we don't see any of the material that they're identifying at the moment as being off our ground. Carey MacRury: Okay. Great. And then I know inclusion in the S&P 500 has always been an elusive target. Do you see with these transactions that that's more likely now? Or have the goalposts moved on that? William Heissenbuttel: I think we're still a bit of ways. Last time we checked, I think that the minimum was like $20.5 billion, and we would still have a ways to go to achieve that one. Operator: That concludes the Q&A portion of today's call. I'll now hand back over to Bill for some closing comments. William Heissenbuttel: Well, thanks, everyone, for taking the time to join us today and for all the good questions. We appreciate your interest in Royal Gold. We look forward to updating you on our progress in the new year. Take care. Operator: Thank you all for joining. That concludes today's call. You may now disconnect your lines.
Operator: Welcome to Arkema's Third Quarter 2025 Results and Outlook Conference Call. For your information, this call is being recorded. [Operator Instructions] I will now hand you over to Thierry Le Henaff, Chairman and Chief Executive Officer. Sir, please go ahead. Thierry Le Hénaff: Thank you very much. Good morning, everybody. Welcome to Arkema's Q3 2025 Results Conference Call. With me today are Marie-José Donsion, our CFO; and the Investor Relations team. To support this conference call, we have posted a set of slides, which are available on our website. And as usual, I will start with some comments on the highlights of the quarter before letting Marie-José go through the financials. At the end of the presentation, we'll be available, as always, to answer your questions. Let's comment first on the economic environment, which remains, as you know, challenging. We noted weaker-than-anticipated trends in the U.S. over the summer. The lower demand is probably a reflection of ongoing uncertainty around the tariffs and frictions in adjusting supply chains. On the other hand, Europe and Asia remain consistent with what we have seen since the start of the year, Europe at relative low levels and Asia still with a positive dynamic in particular in China. The negative currency impact was also slightly stronger than in Q2. Despite this challenging macro environment, our growth pockets, which are at the heart of Arkema strategy delivered substantial growth. As a matter of fact, our sales were up 20% in several key markets, namely batteries, sports, 3D printing, health care and new generation fluorospecialties with low Global Warming Potential. This positive momentum is also supporting the ramp-up of our major project shown on Slide 7. But all in all, that was not sufficient, obviously, to offset the strong macro headwinds of the third quarter. With the Q2 results, we shared with you that this major project should bring EUR 50 million additional EBITDA in '25 versus '24. I am happy to convey that we reassessed the progress, and we can lift the impact to EUR 60 million. This contribution is essentially supported by the strong momentum in PVDF for batteries, by use of Pebax in sports and 1233zd fluorospecialties in building insulation. PIAM has also showed good growth since the start of the year, thanks to new smartphone models and now flexible packaging adhesives starting to contribute. This is certainly less than the initially estimated EUR 100 million attribute to the tough environment. Nevertheless, these projects show good momentum and the setup for 2025 is encouraging. As you know, these projects are already fully financed and therefore, are included in our capital employed with only limited contribution to the P&L until now. In this regard, the group will gain around 2.5 points of ROCE from this project over the next years in addition to the improvement of the cycle, which will benefit to everyone. We can mention also the start of 2 new plants in Q3 in the U.S., both on budget and on schedule, the new 1233zd unit, a fluorospecialty with low emissive impact used for building insulation or thermal management and our new DMDS capacity for refining and biofuels with an impact on earnings still limited in 2025. In addition, the new Rilsan Clear transparent polyamide plant reached mechanical completion. This unit, downstream of its polyamide 11 plant in Singapore is expected to be operational in the first quarter of 2026. Given the tough environment, I'd like to stress that all teams are fully mobilized on a daily basis to best manage the current economic and geopolitical context. We run a number of cost-cutting initiative as shown in Slide 3 and are on track to deliver the targeted EUR 100 million of fixed and variable cost saving by year-end. The cost alignment will continue, and we strive to again offset inflation in 2026. In addition, Arkema stayed disciplined in capital allocation. You see that we made progress in working capital management and delivered EUR 200 million (sic) EUR 207 million recurring cash flow, up compared to last year despite lower earnings. This cash generation is fully reflected in the reduced debt, maintaining a robust balance sheet. Arkema will once more reduce CapEx next year to EUR 600 million while continuing to optimize its working capital. Despite all the efforts of the Arkema teams, EBITDA was down to EUR 310 million. Looking at the results by segment, you could recognize the different profile of each product line. Adhesive Solutions and Advanced Materials are more resilient with earnings affected by lower demand, while net pricing was only slightly down. In contrast, there was more volatility in Coatings linked to the low cycle in upstream acrylics, while the old generation fluorogases in Intermediates reporting a seasonally lower outcome. I already mentioned the ramp-up of our major project, which reflects the execution of our growth strategy, but also our ability to work in parallel on 2 tasks. We focus on optimizing our operations in the short term, but at the same time, secure our growth potential on the long term, both prepare us to be ready in a year when the macro will again be more supportive. As highlighted before, we follow our strategy focused on 5 identified high-growth markets where we continuously look for new opportunities. In this context, I am happy to announce that we will expand our potential in the attractive advanced electronics market by adding a new structure platform dedicated to data centers. We have shared details of it in Slide 5 of our Q3 presentation. By dedicating a joint initiative to this powerful market, we see significant growth prospects, though starting from a low base. Besides, I would like also to emphasize Arkema's success in the battery market in Asia. Our bet on LFP batteries is clearly a winning one and our strategy to expand our asset base with modest CapEx in China, Europe and the U.S. turned out to be relevant, putting us in a good position to grow in this dynamic market. We recently inaugurated a new laboratory dedicated to the next generation of batteries using an innovative dry coating process for electrodes that significantly reduces the cost of battery production while lowering its carbon footprint. This innovation illustrates that PVDF's long-term growth potential remains significant while offering premium margin when we target as we are doing the high end of the range. I will now hand it over to Marie-José for more details, so a more in-depth look at the financials before we discuss the outlook at the end of the presentation. Marie-José Donsion: Thank you, Thierry, and good morning, everyone. Let's start with the Arkema's revenues. At EUR 2.2 billion, our Q3 sales were down 8.6% year-on-year. They were impacted by a negative 3.9% currency effect, reflecting mainly the weakening of the U.S. dollar against the euro, but also from other currencies, including Chinese yuan and Korean won. Volumes were down 2.5%, reflecting the lower demand observed in the U.S. over the summer and the overall weak demand environment in Europe. On the other hand, we continued to benefit from a positive dynamic in Asia and more particularly China, mainly driven by High Performance Polymers. The price effect was a negative 3.7%, impacted essentially by the acrylic cycle and the old generation refrigerant gases. All other activities showed a more limited price decrease of 1.3% with a slightly negative net pricing, the benefit from lower raw material costs works progressively through the supply chain. Q3 EBITDA came in at EUR 310 million. The currency effect representing around EUR 15 million negative. Looking at the performance by segment. Adhesives EBITDA reflected the weak demand in industrial additives and the disappointing summer in the U.S., notably in flexible packaging and construction. On the other hand, construction business grew in Asia, thanks to positive momentum in Asian buildings and remained broadly flat in Europe. The performance of Bostik continues to be supported by our ongoing work on efficiency and our price discipline. Finally, the integration of Dow's adhesives brought a limited contribution this quarter due to the softness in the U.S. market notably. In Advanced Materials, the EBITDA was essentially affected by the volume decrease in Performance Additives that were impacted by the weak demand environment in Europe and in the U.S. as well as the reorganization of our Jarrie site in France, in hydrogen peroxide. On the other hand, High Performance Polymers volumes were stable, benefiting from strong growth in Asia. And the margin of the Advanced Materials segment remained overall at the good level, 18.8% with HPP maintaining its solid margin level of 20%. In coatings, EBITDA was essentially impacted by the low cycle conditions in the upstream acrylics. Sales declined in the U.S., in particular, in the construction and the decorative paints markets. The performance of the segment was therefore significantly lower than last year. Lastly, Intermediates EBITDA included the usual seasonality of the third quarter as well as the impact of the evolution of regulations in the U.S. and Europe in refrigerant gases. Depreciation and amortization stood at EUR 168 million. They included the amortization of new production units, which started up in the course of 2024 as well as in 2025. This led to a recurring EBIT of EUR 142 million and a REBIT margin of 6.5%. Nonrecurring items amounted to EUR 48 million. They include the typical EUR 35 million of PPA depreciation and EUR 13 million of one-off charges, notably restructuring costs linked to the reorganization of our hydrogen peroxide site in France. Financial expenses stood at EUR 33 million. The increase versus last year reflects mainly the increased cost of our bonds as well as the lower interest of invested cash. And consequently, Q3 adjusted net income stood at EUR 78 million, which corresponds to EUR 1.04 per share. Moving on to cash flow and net debt. Arkema delivered a solid cash flow, as you could see in Q3 with recurring cash flow standing at EUR 207 million. This reflects our continuous initiatives to tightly manage our working capital and integrate also decreasing CapEx versus last year. The working capital ratio on annualized sales stood at 17.3% and total capital expenditure amounted to EUR 131 million, in line with our objective of EUR 650 million for the full year 2025. Net debt amounts to EUR 3.4 billion, including EUR 1.1 billion of hybrid bonds. The net debt to last 12 months EBITDA stands at around 2.6x. Note also that we continue to refinance our 2026 loan maturities with the issuance in September of a EUR 500 million green bond with an 8-year maturity and an annual coupon of 3.5%. This has also enabled us to extend our debt maturity now to 4.6 years. Thank you for your attention, and I'll now hand it over back to Thierry for the outlook. Thierry Le Hénaff: Thank you, Marie-José. So going into Q4, the macroeconomic environment remains challenging, marked by low visibility and weak demand in U.S. and Europe. So no surprises there. In this context, as already said, optimizing the short term by working on fixed costs, CapEx, working capital remains among our top priorities. We are on track, as mentioned, to achieve around EUR 100 million of fixed and variable cost savings in '25. More specifically, our numerous initiatives on fixed costs will enable us to offset inflation in both '25 and '26. At the same time, we continue to build Arkema for the future. It's very important, by maintaining our efforts in R&D as well as in sales and marketing, focused on the key attractive market identified by the group, supported by the major projects that you are well aware of. Taking into account the macro environment that remains challenging and the softer-than-expected demand in the U.S. for the time being, at least, we aim at delivering an EBITDA of between EUR 1.25 billion and EUR 1.3 billion in 2025 with a midpoint globally consistent with the consensus and a recurring cash flow of around EUR 300 million. I thank you now very much for your attention. And together with Marie-José, we are certainly ready to answer any of your questions. Operator: [Operator Instructions] First question is from Martin Roediger, Kepler Cheuvreux. Martin Roediger: I have 3 questions, if I may. The first question is for Thierry. Regarding the reason for this additional guidance cut this year, it seems you are getting more concerned about the U.S. market, especially about the weaker construction market in the U.S. How do you see the near-term prospects in the U.S. construction market? And the other 2 questions are for Marie-José. Other chemical companies have released bonus provisions in Q3, some already in Q2. Have you done that as well? And do you plan that in Q4? And is that part of the EUR 100 million cost savings this year, which tackles both fixed costs and variable costs, and we know that bonus belongs to variable costs. And finally, on cost savings impact on your P&L. Your SG&A costs increased in Q3 quarter-on-quarter and year-over-year. Why do we not see the cost savings in your SG&A line? Thierry Le Hénaff: Okay, Martin. So on the first -- thank you for your question. First -- on the first one, no, what we see today is that, yes, in the summer, the U.S. was weaker than expected, not necessarily weaker than Europe because Europe was already weak but does not mean necessarily that we are more pessimistic on U.S. going midterm. I think U.S., and we have a long experience there because it's [ 45% ] of our total sales around. Experience in the U.S. is that things are moving quite fast. They are -- this country is very agile. So you can have a quarter which is disappointing and 2 quarters after, it goes in the other direction. So I would be cautious on the answer. We just comment on what we see in Q3. We think Q4 will be in the same [ vein ]. But I would be cautious in extrapolating what it means for the following quarters because [ this is the ] nature of U.S. to be more reactive and we have a little bit more volatility than we can have in other parts of the world. Marie-José Donsion: So regarding cost saving, maybe more broadly, just to remind what we aim at doing. Basically, the objective is to deliver EUR 100 million cost saving. I would say, 2/3 fixed costs, 1/3 variable costs. And when we look at the fixed cost component, for sure, they incorporated bonuses. So this has been adjusted progressively as we progressed in the year based on the, let's say, the revised guidance we gave to you. So there is no last minute, I would say, effect that I expect in Q4. It has been progressively factored in the publications. So when you look at the evolution year-on-year, basically, you see a slight increase, which means right now, we are not fully offsetting inflation, but we are actually quite largely offsetting inflation. I consider inflation amounts to roughly EUR 60 million, EUR 70 million a year on fixed costs for Arkema. And clearly, we are limiting the effect of increased fixed costs right now at, I would say, only a total of EUR 50 million. So clearly, we are producing or delivering the effort to massively compensate this inflation effect. So I'm not sure why you think it's not visible, but it's definitely visible internally when we look at our metrics. So no particular effect of provisions, which when you look at the balance sheet, are rather stable over the period. I hope it answers your question. Thierry Le Hénaff: Maybe to add also to Marie-José, when we say that we remove inflation for next year, this means that we take into account the fact that, as Marie-José said, that a part of the savings this year are linked to bonuses. And we know that we will need to set that next year, but it's part of the game, and we take the challenge. Operator: The next question is from Tom Wrigglesworth, Morgan Stanley. Thomas Wrigglesworth: Two questions, if I may. First one is around the data center presentation that you made and specifically the refrigerant gases. You talked about Forane for chillers. What does that do to the market? Will that rapidly tighten the currently -- the current offering of HFCs and HFOs. And then secondly, with regards to the immersive heaters. Is that going to be a higher-margin product than your current emissive refrigerant gas business? So that's a couple of questions there. Secondly, on -- really on a kind of a higher level. Obviously, if I look at the bridges for all of this year, pricing is going down faster than raw materials. So is that a function of mix, i.e., you're losing higher-value products more so than you're retaining -- than you're keeping raw material gains? Or are you having to give back price to hold on to volume? Thierry Le Hénaff: Okay. Thank you, Tom, for this question. So very different in nature. So with regard to data center, first, as you could see, you have a presentation, Page 5. It's the first, I would say, exchange with you on data centers. It does not include -- for the sake of your knowledge, it does not include what we do in battery for data centers. This means what -- stationary batteries each in the battery platform. So this means that when we say more than EUR 100 million of sales in 2030, starting from a base, which is today, our first estimate is a bit more than EUR 10 million. So a significant increase. It does not include what we are doing in battery. So as you mentioned, chiller will be a key part on next generation of refrigerant. Today, the sales there are very, very limited, but we see strong potential for low GWP fluorogas in chiller. So it depends, as you know, on the technology of data centers, but we see there good growth with good margin, but it's only 1 point among 6 or 7. We see also growth for High Performance Polymers. It can be PVDF, it can be polyamide 11 for wire and cable. It can be also for [indiscernible] waterproofing. It can be even for direct-to-chip cooling, a kind of PVDF, et cetera. So we have plenty of application there. But as you mentioned, HFO is certainly one element. With regard to pricing, in fact, it's interesting to see more detail what is happening in pricing. In fact, we separate acrylic monomers and fluorogas, which obviously are affected significantly in pricing. The first one because of the cycle, the second one because of the evolution of generation. So it's not you don't compare apple-to-apple because of the quota mechanism. But clearly, Intermediates is big -- certainly has a big impact on pricing. Outside of Intermediates, it's far less. And outside of acrylic monomers, it's even far less for Adhesive Solutions and Advanced Materials. The net pricing is close to neutral, slightly negative, but close to neutral and the pricing itself is around minus 1%. Now with regard to raw material, what is happening is that, as you know, the supply chain, you have some stock, supply chain are long. And it takes time to work through for the raw material to work through the P&L. And so you have a little bit of a time lag between the pricing effect and the raw material. But we are not worried at all on, I would say, Adhesive Solutions and Advanced Materials. We have some examples where we are a bit more, especially in China under pressure in pricing there. But on the other side, we have positive pricing in some other areas, including our new business development with a high price. For us, a question of pricing, but since the start of the year is really concerning refrigerant for the old generation and acrylic monomers. Operator: The next question is from Matthew Yates, Bank of America. Matthew Yates: A couple of questions, if I may. I just like to follow up on Tom's one around the data center. As you said, it's the first time you've really mentioned this. So I'm just trying to educate myself a little bit. Where are you in the commerciality of some of these products? Are they technically developed? Are they qualified with customers? Are they already generating sales? Or is this more of an ambition and there's a lot of work to do over the next few years to actually get these products to market and generate some revenue? So just -- that's the first question. The second one, I'm not sure if it's for you, Thierry or Marie-José, but I wanted to ask about the dividend. And we know that traditionally, Arkema had sort of other strategic priorities, and the dividend payout ratio was relatively low. But compared to the amount of free cash you're now generating of EUR 300 million is effectively 100%. And you've got your leverage creeping up to 3x. So can you just give us an idea of how important and how sustainable that dividend is when you get to the end of the year, and you debate that with the Board? And whether has it got to the point where if we don't see a macro improvement paying out so much is going to infringe on your strategic flexibility and whether you want to do CapEx projects or M&A, whatever it is? So just like to hear your sort of philosophy around the dividend. Thierry Le Hénaff: Thank you, Matthew, for this important question, clearly. So with regard to data center, as I mentioned, so we have around a bit more than EUR 10 million of sales, which means that we have already a commerciality of this product and that most of the products we are talking about have already been developed now what takes time. And this is why we have a ramp-up until 2030 to be above EUR 100 million. And it does not, as I mentioned, take into account the PVDF for batteries in stationary, which go to data center, which is not insignificant, which is already fully commercial. But on what is outside, I would say we have already a certain maturity of the technology themselves. So it's more a matter of developing application with some qualification, et cetera. So it will take the time it takes, knowing that in data center, the technology are really continuing to evolve, as you may know, significantly. So even for -- you would have already mature sales in certain application, anyway, you need to work on the new application, the new technology and to adapt your product and your new business development to this. So to answer your question, we are in the middle of your question, I would say, some commerciality, mature technologies, but application are not fully mature. So we need to ramp up, and it will take a certain number of years. But I think it was mature enough to share this data center call with you, and we'll have the opportunity to come back in far more detail next year on this topic of data center, which is, as I mentioned, joining the electronics -- advanced electronics platform. With regard to the dividend to a certain extent, the answer is in the question. The good thing first is that we are in absolutely trough conditions in specialty chemicals and chemicals overall. And despite of that, we cover -- with the free cash flow, we cover the dividend. So I think it's good news. You know that the dividend return to shareholder is a very important policy for Arkema. So we will -- the idea is to make it sustainable as it has been in the past. You have not a year which looking like the other one. And to make it sustainable beyond what I've just said, you could see that next year, our CapEx will be at EUR 600 million versus EUR 650 million this year. So it's a difference. Our project will also ramp up. So no, I think we stay in the same -- with the same idea of [ at least ] stable dividend. Obviously, it has to be decided by the Board. So we will have this discussion normally before the Feb presentation of full year results, but this is the philosophy of Arkema. Operator: The next question is from Georgina Fraser, Goldman Sachs. Georgina Iwamoto: I've got 2. First question is on HPP. We've seen a decent amount of CapEx and also the acquisition of PIAM going to this division. And I just wanted to hear from you, how is the performance of this division been versus your expectations? And should we think about the fact that we're maybe at low utilization rates at the moment? I just want to try and gauge what kind of upside potential there is here and maybe why the performance has been a bit lackluster. And then my second question, a little bit of a follow-up on the dividend or cash flow outlook question. EUR 600 million in CapEx next year is still quite high. Could you give us a sense of what your maintenance CapEx is and how much flexibility you have there if it was needed? Thierry Le Hénaff: Yes. Okay. Thank you, Georgina. So on the first one -- first of all, we -- if you look at HPP, we have 4 lines, which are very interesting. We have PVDF, specialty fluorogases. We have polyamide 11, and we have PIAM. I would say all these line are growing line on which we have, as you mentioned, spent a high amount of money for development, for growth, for CapEx and for acquisition. Clearly, this year is a real challenging year for all chemicals company. So HPP is not immune. As you could see this part of the performance of Advanced Materials, HPP has resisted [ quietly ] compared to what we can see outside, but below our expectation because of the macro. So the projects themselves are ramping up okay, but they are not immune to the macro. So we -- at the beginning of the year, we were expecting more from HPP. The good thing is that we think that all the strategic moves that we have done with HPP were the right ones that the line is certainly one of the most resilient inside Arkema. And the prospect of growth -- even if they have been delayed to a certain extent because of the macro, the prospect of growth remain quite significant. With regard to utilization rate, it's clearly that in consistency with what we see from the macro, they are more on the low side. And don't forget that we are also optimizing our inventory as everybody is doing on the supply chain from customer down to our suppliers. And that -- because of that, we, let's say, also adapt the utilization rate of our site. But we consider that HPP will continue to remain a bright spot of Arkema in the coming periods. With regard to CapEx, I don't share with you the fact that CapEx is still quite high at EUR 600 million. And to share with you because we have discussion with all of you and including investor, some are telling us the contrary that maybe is a bit too low. So I think for us, we think it's reasonable in this kind of environment to take down the CapEx to something which remain relatively okay not to jeopardize our mid- and long-term growth. It would be a full mistake, and some companies have done that in the past in chemicals and now they regret it. So we try to stay consistent over years. And -- but on the other side, we were in '24 at EUR 750 million, then we are at EUR 650 million this year, next year, EUR 600 million. I think a good adjustment of the CapEx in order to take account the evolution of the macro. With regard to which part is maintenance, modernization, legislation, CapEx, I would say that we have around EUR 400 million -- when we are at EUR 650 million, we [indiscernible]. So this means that it's EUR 400 million, yes, around EUR 400 million. And the rest are really productivity and development CapEx, but which are more smaller scale compared to what we have been doing in the past 3 years with the major projects. Operator: The next question is from Jean-Luc Romain, CIC Market Solutions. Jean-Luc Romain: [Technical Difficulty] Operator: Romain, could you please get closer to the microphone, please? Jean-Luc Romain: I'm [indiscernible] microphone. Thierry Le Hénaff: We hear a second voice behind you. Okay. So maybe we can take another one and then come back to you when we fix your topic. Operator: Okay. So the next question is Chetan Udeshi, JPMorgan. Chetan Udeshi: I just had a bit more philosophical question. It seems from all your comments that your view is this is much more a cyclical phenomenon in the sector, and you don't want to necessarily take any radical steps for that reason. Is that understanding correct? Because when I look at your numbers, and it's not just Arkema, right, I mean, to be fair, it's across the whole sector. Everybody is suffering from same issue. And a lot of time, at least my personal opinion is it's blamed on demand weakness, which may or may not be the only reason. So I'm just curious, from your perspective, you don't see any structural changes in the industry that would warrant more structural changes in how Arkema is setup, I mean in terms of whether you need to have all the businesses that you have within Arkema, maybe it's better to monetize some of them, given the multiple. Thierry Le Hénaff: So thank you for the question. It's a good question at least on the [ paper ] is that from what we see today, which part is, let's say, short-term cyclical and which part could be more structural. I would say we have been in the business, as you know, since 20 years, I'm frankly speaking. And you may have forgotten what we have seen in 20 years are significant shifts of the world. So you have at the same time -- and it can be positive and negative. When you see structural change, the negative is always one-to-one with a positive. So you have opportunities and challenges at the same time. It's true today. It was true in the past 20 years. So this means that what we see today is a combination of -- and this is the majority of what we see by far of some macro-related cyclical issue, and it will come back. This is -- we are absolutely convinced of that. And then you have some more structural change. You have more, let's say, protectionism, you have more regionalization, you have more aggressiveness from Chinese competitors. But by the way, we also take advantage of it because we are strong in China, and we have enjoyed quite a good year in China. Yes, this is a world of today. You need to be agile to adapt permanently. Where I don't agree with you is this question of radical step or whatever. I think if you look at the, for example, portfolio of Arkema, 60% of the business, which was at the origin has been sold, we changed completely, we made the acquisition. I think it's part of our business life, and we continue to take the steps that makes sense to do. And so we are thinking all the time but not necessarily sharing what we are thinking with all of you, obviously. But no, no, I think we have a good level of reaction. And we try really to manage the 2 horizons at the same time. One is really short term, working on the cost, working on the cash. And we think we are doing quite a great job, thanks to the team on that. At the same time, having in mind that the frame in which we are operating is shifting a little bit, we are moving in order to adapt to that. This is what we have sold in the recent years with PMMA and we bought Ashland and PIAM. And even if these 2 are not in terms of ramp-up exactly where we would have thought they would be, I can tell you they are far more resilient than many business in chemicals. So it goes in the right direction. It takes time. But I think we are doing -- we are really on the right topics, and we are doing what we need to do, and it does not prevent us from thinking all the time if another evolution could be meaningful or not. So no, no, we are -- we recognize that. And it's good for us. I've always said that Arkema would not be the Arkema of today if the world has been easy and lighter, then you would have had the same players as they were 20 years ago. I think the fact that there is a disruption, maybe we suffer short term. But we think that in the long run, it gives opportunity to company like us, to companies that are reactive, agile, ready to question themselves to take new opportunities and to make a difference with the other guys. Operator: The next question is from Emmanuel Matot, ODDO BHF. Emmanuel Matot: I have 3 questions. First, do you think we are close to the bottom of the cycle now that the issue of customs tariff has been settled in the U.S.? What your main customers are telling you in that country? It seems you are very cautious about the scenario of recovery next year, considering your decision to reinforce your efforts on costs. Second, can we have an update on PIAM? How is it delivering in the current context? And my last question, your inventory levels at the end of September are stable in value compared to the end of June at EUR 1.3 billion. Does this mean that it will be very difficult to reduce stock in the future, demand does not recover? Thierry Le Hénaff: Okay. Clearly, as we mentioned, we are in a low cycle. So where are we exactly? I think everybody has to be modest on that. All the analysts and all the players in the industry, we have all been wrong. My feeling is that we are really at a low point -- and it has been also a long period of decline quarter after quarter. So I don't know if we are at the bottom, but we get close to the bottom. And what we cannot say is when the recovery will start. And this is why -- and I think we gave the message, we want to be ready for whatever scenario. This is why at the same time, we really optimize what is linked to cost, cash, et cetera, but not jeopardizing the ability to rebound when the cycle is coming back. And your experience has been that each time the light has come back, we are one of the first one to take advantage of the recovery. So we want to stay with this mindset, while recognizing the challenge of the current macro and adapting what we have to do, but without losing the, I would say, the focus on the long-term development of Arkema. It's a fine balance, but I think this is what we try to do so far. On [indiscernible], as you know, it depends really on the end market, particularly advanced electronic of PIAM. The vision per quarter can change because it depends on the stock policy of the customer, et cetera. But globally, we have done a good year, a good progression for PIAM with a margin around, again, 30% in Q3, which means the resilience of this -- of PIAM is far above any product line in specialty chemicals. They were rather stable in Q3 after a very strong growth in Q2. I don't want to talk '26 for the time being. But with regard to PIAM, I can make just a short comment is that this seems to be quite positive on '26 and from their discussion with the customers. So I would say PIAM certainly lagged from their initial business plan, but quite resilient, growing this year, rather positive for next year. On your last question, I think the difficulty -- first, we are doing a good job on our stock. You can see that in the cash generation. The difficulty when you are in the middle of the year, especially at the end of the Q3 is that you are still at a point where the sales seasonality is rather stable. So you cannot absorb, take the risk of losing sales. And -- but we know that we have opportunities to reduce further our stock up until the end of the year, and we will do it, and we know how to do it. Maybe Marie-José, you want to complete? Marie-José Donsion: So in fact, Emmanuel, when you look at the ratio of inventory on sales, frankly, we are very much aligned if you compare with last year. Last year, end of the year, we finished with EUR 1.350 billion, which represented 14.7% of our sales in terms of level of stock. And this year, we are at EUR [ 1.309 ] billion, as you mentioned, which represents 15% of our 12-month sales. So ultimately, because it's still not year-end, there is a very limited, let's say, excess of stock in the chain compared to last year year-end level. So definitely, we are adjusting permanently to the forecast, and there is an additional expected reduction for year-end on this metric in particular. Operator: The next question is from James Hooper, Bernstein. James Hooper: I have 2, please. The first is about the cost savings and delivery. How does the increase fit into the ambition that you had at the 2023 CMD to deliver EUR 250 million savings over the 5 years? So you've added the incremental EUR 50 million this year. Is this -- is it the opportunity has become EUR 50 million bigger? Or is this more just pulling forward savings to kind of take advantage of the current situation? And the second question is about the kind of Specialty Materials projects. So the -- initially, when you guide 2025, you had EUR 100 million. They've been downgraded to EUR 60 million. What kind of growth potential contribution are you expecting if we assume a similar macro environment in the coming years? And then kind of put another way, if these projects have contributed EUR 60 million more and EBITDA is down EUR 250 million year-on-year, then how do -- what actions are you taking for the rest of the business? Or can these businesses grow fast enough to offset weakness elsewhere despite your cost savings? Thierry Le Hénaff: Okay. With regard to additional -- to cost savings, so yes, clearly, what we are doing is not just to get quicker on the cost savings. It's to have cost savings. This means that if we say, for example, this year, we increased by [ EUR 50 million ]. This means this [ EUR 50 million ], you will find them at the end of the 5 years period. So this means that we are at EUR 300 million. If next year to deliver the offset of inflation, so we will be again significantly above the [ EUR 50 million ]. This above will be also on top of this EUR 300 million we have just talked about, et cetera. There is no way we said EUR 205 million to be, at the end, far more than EUR 250 million. I think it answer your first question. On the project contribution, the growth potential for us is intact. So the question is more -- it depends on the scenario of the macro. Well, it depends if the macro is coming back already in the course of next year or later or whatever. What is clear is that we believe that the number we have shared with you are still the same. The question is more the time line. This means that if the macro is coming back sooner than later, I think we can certainly still target EUR 400 million in '28. If it take more time, it will be difficult to deliver the EUR 400 million. But I think the best will be to have an update in the course of next year on all this project. What is very important for me is that this project is from a strategic standpoint. And it comes to a certain extent, it's consistent with the answer I made to the question before, the strategy that is supporting this project is still completely valid. Even if the world is changing all the time, I think this project are still completely relevant from what we see of the evolution of the world, and this is the most important thing. Now we can debate on the timing, if we can still maintain what we said for the achievement of the EUR 400 million for '28 or if the macro remains similar, as you mentioned, then by nature, there will be some delay. But at the end, the contribution will still remain very significant. And the endpoint would be the same, clearly. Now, as we said, I don't know if it clears really your question on additional action on the project. You got the answer or no? The work of Arkema is not limited to this project. There are plenty of new business, which are absolutely not linked to this project. And clearly, looking at, for example, when we discuss data center, which was not in our -- so much in our vision up until recently is something that we will develop, will be not linked to this major project [ as something ] else. So we permanently to complete our new business development prospect based on the evolution of the world. Operator: The next question is from Jean-Luc Romain, CIC Market Solutions. Jean-Luc Romain: [indiscernible] better now? Thierry Le Hénaff: You have to talk a little bit louder, I don't know because it's very low. Jean-Luc Romain: My question relates to the 5 outlets, which have 20% growth. When you first talked about those 5 sectors, it was representing 52% of your sales and your target is 25%. Where are you now in terms of the weight of those 5 outlets, which are growing faster than the rest of your business? Thierry Le Hénaff: Okay. So if I understood well the question, this 20% growth belongs to the 5 market, which represents 15% of Arkema, but they are not -- we don't make 20% on the full 15%. It's an extract -- the market we are mentioning at the beginning, battery, sport, et cetera. It's a part of that 5 market, of the 5 platform. This means this 20% applying more to around 7% of the sales. On the rest, the other 8%, we are far more stable. Does it answer your question? We take the last question. Operator: Gentlemen, there are no more questions registered at this time. Thierry Le Hénaff: Okay. So if no other question, I would like to thank you very much for taking the time to hear us, and I wish you a good day. Don't hesitate to come back to Beatrice and to James if you have any further question. Thank you very much again. Operator: Ladies and gentlemen, this concludes this conference call. Arkema, thanks you for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the conference call to discuss Holley's third quarter 2025 earnings results. [Operator Instructions] Please be advised that reproduction of this call in whole or in part is not permitted without written authorization of Holley. And as a reminder, this call is being recorded and will be made available for future playback. I would now like to introduce your host for today's call, Anthony Rozmus with Investor Relations. Please go ahead. Anthony Rozmus: Good morning, and welcome to Holley's Third Quarter 2025 Earnings Conference Call. On the call with me today are President and Chief Executive Officer, Matthew Stevenson; and Chief Financial Officer, Jesse Weaver. This webcast and presentation materials, including non-GAAP reconciliations, are available on our Investor Relations website. Our discussion today includes forward-looking statements that are based on our best view of the world and of our businesses as we see them today and are subject to risks and uncertainties, including the ones described in our SEC filings. This morning, we will review our financial results for the third quarter and discuss guidance for the full year 2025. At the conclusion of the prepared remarks, we will open the call up for questions. With that, I'll turn the call over to our CEO, Matthew Stevenson. Matthew Stevenson: Thank you, Anthony, and good morning to everyone joining us live on the call today. As we look back on the third quarter of 2025, I'm pleased to share that the positive momentum we have been building for more than 2 years continues to gain strength. This quarter marks another clear step forward in our transformation journey, a reflection of disciplined execution, sharp focus and a resilient team that keeps delivering results in a constantly changing consumer and macroeconomic environment. For the third consecutive quarter, our core business delivered strong growth. Just as a quick reminder, when I say core business, I'm referring to our results, excluding the operations we divested and the product lines we phased out as part of last year's strategic rationalization. This quarter, we made meaningful progress across the company with core growth in every division. It's especially encouraging to see continued momentum in both our direct-to-consumer and business-to-business channels, reinforcing the strength and balance of our omnichannel strategy. As we've said before, our omnichannel approach remains central to our core strategy as the leading consumer enthusiast platform in the automotive performance aftermarket. We're committed to serving customers wherever they choose to engage, whether that's through e-tailers, distributors, wholesalers, third-party marketplaces, installers, national retailers or our own e-commerce platform. The foundation we've built through our strategic framework continues to deliver from product innovation and digital capability to operational excellence and commercial capabilities. With these fundamentals in place, our focus remains on sustaining momentum and executing against our 3-year plan. We're also staying proactive in managing external factors like tariffs and supply chain costs. While these remain dynamic, our diversified sourcing strategies and pricing discipline have positioned us well to manage impacts and protect margins. Overall, it was an excellent quarter, one that reflects the hard work, focus and determination driving our organization forward. I couldn't be prouder of our team and the meaningful progress we continue to make together. Now let's turn to Slide 5. I'll walk you through a few of this quarter's standout highlights. We delivered strong results this quarter, achieving 6.4% growth in our core business. This performance reflects genuine volume-driven expansion, which continues to build momentum quarter-over-quarter. Year-to-date, our 5% core growth is composed of a 4% increase in volume and a modest 1% pricing tailwind. This performance showcases the strength of our business model designed to drive consistent growth and the deep commitment of our enthusiast consumer base for whom this is more than a hobby. It's a passion and it's a way of life. Importantly, our growth was broad-based across all channels, divisions and within 70 brands. That breadth speaks to the success of our transformation initiatives across the company and the strong execution behind our go-to-market strategy. In our B2B channel, we saw a 7.3% growth as we deepen engagement with key partners. Through strong joint planning, continued data integration and expanded sales enablement tools, we've enhanced collaboration and delivered more value to our channel partners. It's a great example of how our customer-first approach is driving strong relationships and measurable performance gains across the business. Our strategic initiatives also contributed meaningfully this quarter, generating about $26 million of revenue. Roughly $11.3 million came from new product innovation and portfolio management, including strategic pricing and channel margin optimization. These results underscore how well our commercial and operational teams are working together to drive sustainable, profitable growth. Even in what's typically our slowest quarter of the year, we generated $5.5 million of free cash flow, a $7.6 million improvement from last year. That improvement came from higher margin and disciplined capital management across the organization. We ended the quarter with net debt-to-EBITDA leverage at 3.9x, ahead of our year-end target of 4x. Now this is the first time we've been below 4x leverage since 2022, a clear marker in our transformation and a reflection of our stronger financial position. And after the quarter ended, we prepaid another $10 million in debt, bringing total prepayments to $100 million since September 2023. That's an important milestone for us and reinforces our commitment to strengthening the balance sheet, positioning us for continued long-term value creation. Let's move over to Slide 6 and take a look at some of the key quantitative highlights from the quarter. Net sales for Q3 was $138.4 million, which translated to core business growth of 6.4%. That marks our third consecutive quarter of year-over-year growth in the core business, and it underscores our outperformance in the market and the share gains we are seeing in key categories across the company. Gross margins came in at 43.2%, up more than 400 basis points from last year. That improvement reflects strong pricing discipline and operational improvements across the company while keeping our focus on quality and serving the customer. Adjusted EBITDA margin rose to 19.6%, an increase of over 300 basis points year-over-year. This strong performance highlights the operating leverage within the business and the benefits of maintaining cost discipline and execution focus, resulting in a significant $7.6 million improvement in free cash flow compared to the same quarter last year. On the right-hand side of the slide, you can see a few additional business highlights. Product innovation continues to be central to our philosophy, and this past quarter delivered a range of successful launches across our divisions, including digital dashes from our Holley EFI product suite, Big Claw heavy-duty brake kits from Baer, at-home BMW performance tuning solutions from Dinan and [ Club Sport ] racing seats from Simpson. We'll see the impact of these and many other recent product introductions when we review our strategic initiatives tracker in the upcoming slides. Operationally, we also continue to move the needle. In-stock rates for our top 2,500 products improved 2.2% year-over-year, giving customers better access to what they need. Efficiency was up more than $3 million and past due orders were down 20.7%. Those are strong signs of progress and a testament to the impactful additions we made to our operational leadership team across supply chain, manufacturing and quality. On the consumer side, we continue to see strong engagement from our enthusiast base. Direct-to-consumer sales were up 4.2% year-over-year, supported by a sharper promotional execution and stronger digital performance. The third quarter also represents the peak of our event season. And this year, engagement across our enthusiast community was strong. Attendance at our events was on track to break records, but a rainy weekend during our flagship LS Fest East did impact that momentum, leaving overall attendance roughly flat for our event season this year. Even so, the impact of these events extends well beyond in-person attendance. A key part of our event strategy is leveraging these experiences to grow and engage our digital audience. With more than 8 million followers growing steadily this quarter at 2% year-over-year, our brands continue to reach and inspire enthusiasts across platforms, keeping our community energized during marquee weekends like LS Fest. On Slide 7, we can see some standout examples of the core business growth driving our performance across divisions in Q3. Our Domestic Muscle division roared ahead with 6.2% year-over-year growth, powered by an unwavering enthusiast passion for our legendary brands. Multiple brands delivered standout high-single and double-digit gains across categories, reinforcing the vitality of this portfolio. The Modern Truck and Off-Road division accelerated with 5.2% growth, led by exceptional performance from Baer, Flowmaster and Range, each posting double-digit gains. DiabloSport also delivered robust high single-digit growth, further strengthening the division's overall performance. Meanwhile, our Euro & Import division continued its impressive trajectory, climbing 16.6%. Dinan and APR sustained remarkable growth throughout the year, driving strong segment performance. We've also shifted AEM to our Domestic Muscle portfolio, better aligning its fuel delivery and monitoring focus with that vertical. Going forward, the Euro & Import division will include only Dinan and APR, sharpening focus and alignment. In our safety division, distributors began ramping up ahead of the Snell 2025 certification changeover, which officially began on October 1. Simpson Motorsport, Motorcycle and Stilo all posted solid gains, signaling renewed momentum across the category. This acceleration follows the typical precertification cycle slowdown earlier in the year, and it positions the division for continued strength through the balance of 2025 and beyond. Together, these results highlight broad-based growth across our divisions, setting the stage for continued progress. Let's move next to our strategic initiative tracker to see how these efforts are fueling our long-term growth. But before that, just a quick reminder on Slide 8, where we revisit the 8 areas forming the foundation of our strategic framework centered around 3 core principles. First, fueling our teammates, making Holley great place to work, where team members are empowered, see clear paths for growth and thrive in an engaging and inclusive culture. Second, supercharging our customer relationships, delivering the premier consumer journey in our industry, strengthening B2B partnerships through shared growth and leading with innovation that defines performance excellence. And finally, accelerating profitable growth, expanding into new markets, pursuing transformational M&A and driving continuous operational improvement to enable reinvestment and long-term value creation. Together, these principles continue to guide our strategic initiatives and keep our teams aligned around Holley's long-term vision. Now on Slide 9, I'm pleased to share our third quarter highlights as captured in the updated strategic initiative tracker. Under our Trailblazer and trusted partner pillar focused on B2B growth, we delivered another strong quarter. Enhanced product data adoption at key retailers drove $1.7 million in new sales, bringing year-to-date gains to $83 million. Our smaller account segment also remained strong, growing $2.4 million year-over-year in Q3. The largest driver of growth in the quarter was continued share gains with our largest e-tailer and wholesale partners. Altogether, B2B initiatives generated $13.5 million in revenue this quarter. Turning to our premier consumer journey pillar. E-commerce and direct-to-consumer channels continue to perform well. Third-party marketplaces grew 28% year-to-date to $12.9 million, with our new Amazon program driving over 50% growth in the chemical product sales. Enthusiast events also fueled record merchandise sales and overall e-commerce sales were up 5% year-to-date. In total, this pillar contributed nearly $2 million year-over-year. New product launches across divisions, paired with continuous sales strength in tuning and exhaust for their new innovations delivered $2.5 million in year-over-year growth and set the stage for strong momentum heading into Q4. Within portfolio management, strategic pricing actions and distributor margin enhancements contributed an additional $7.7 million in sales during the quarter. Combined, this pillar contributed approximately $11.3 million in revenue during Q3. Our global expansion in new markets pillar also continues to gain traction. Mexico shipments reached 240,000 in September, our second straight month above 200,000, tracking toward a $2.5 million annual run rate. Powersports delivered record revenue of nearly $300,000 in September and $1.1 million year-to-date, keeping pace with a $1.8 million target. Together, these efforts generated $1.1 million in revenue for Q3. Under our Fund the Growth pillar, cost and efficiency initiatives yielded $6.2 million in total savings this quarter. In-stock rates for our top 2,500 products are near our 93% goal with significant reductions in past dues with decreased overall inventory levels. Finally, our Great Place to Work initiatives continue to build engagement and productivity. Employee engagement rose 4%, and we remain on track to achieve our revenue per employee goals by year-end. Altogether, execution of our strategic framework delivered about $27.8 million in revenue from key initiatives and $6.2 million in cost savings this quarter, clear proof of focus, discipline and consistent execution. Holley's third quarter showcased strong broad-based growth, margin expansion and disciplined execution across our business. We've strengthened our financial position, bringing net debt-to-EBITDA leverage below 4x for the first time since 2022, a major milestone in our transformation journey. These results reflect the hard work and focus of our team and position us well for continued momentum. With that, I'll turn it over to Jesse to walk through the financial highlights and refined guidance for the remainder of the year. After Jesse's remarks, we'll return for Q&A. Jesse? Jesse Weaver: Thank you, Matt, and good morning, everyone. I'd like to start by providing an update on our progress against our financial priorities, then discuss our third quarter '25 financial results before discussing our guidance updates. Moving to Slide 11. Turning to our financial priorities. Our focus remains on strengthening the fundamentals of the business by restoring historical profitability and optimizing working capital. We built on our progress with operating efficiency by generating $3.2 million in incremental savings during the quarter, achieved through ongoing improvements in logistics and the recovery process. These efforts have already pushed total '25 savings to $5 million with additional initiatives still underway. As of the end of the quarter, we remain within our target range and expect further savings through year-end as the team continues to execute on previously outlined initiatives moving steadily toward the midpoint of our annual goal. Turning to working capital. I'd like to take some time to discuss our inventory performance in the third quarter. Year-to-date, inventory reduction moderated from $9 million in Q2 to $5 million in Q3. This shift reflects operating decisions made during the quarter aimed at enhancing long-term visibility, control and operational efficiency, specifically around the consignment inventory and bonded warehouse. While these actions temporarily increased inventory on hand, they are foundational to our improvements in operations and delivering on our commitments to our customers. While these operational changes mean we are not currently on pace to reach the low end of the $10 million reduction target for the full year of '25, they are setting the stage for sustainable improvements in working capital management. We remain focused on refining our SIOP process to improve planning and forecasting, optimizing safety stock levels, all of which are expected to drive further gains in '26 as these initiatives mature. And on Slide 12, we'll walk through our key financial metrics for the third quarter. Net sales for the third quarter grew 3.2% to $138.4 million versus $134 million in the same period a year ago. It's important to note that this is the first time we achieved net sales growth on a GAAP reported basis in 2 years. On a core business basis, we achieved net sales growth of 6.4%, which is the third quarter in a row of core business growth. The increase was primarily related to a combination of improved pricing realization of $4.6 million and volume mix increase of 3.7. Core business growth once again came across all divisions as well as both channels and continues to be the result of our commercial transformation efforts with B2B and D2C. Gross profit was $59.8 million in the quarter, a growth of 14.4% compared to $52.3 million in the same period last year. Gross margin for the quarter was 43.2%, an increase of 422 basis points versus 39% in the prior year. This improvement was through a combination of pricing flow-through as well as operational initiatives highlighted earlier in the presentation across facilities efficiencies, reduced excess inventory write-downs and improvements in quality through reduced warranty claims. SG&A, including R&D expense for the third quarter was $38.2 million versus $34.7 million in the same period for the prior year. Primary drivers in SG&A are related to lapping reduced payroll expense in '24 from the furlough activity, reduced '24 incentive comp accrual and increased investments in '25 related stocks and tariff mitigation support. Net loss for the third quarter was negative $800,000, a $5.5 million improvement versus a net loss of $6.3 million in the third quarter of '24. Adjusted net income in the third quarter was $3.3 million, a $3.8 million improvement versus an adjusted net loss of $500,000 in the same period of last year. Adjusted EBITDA for the third quarter was $27.1 million versus $22.1 million in the prior year and driven by a combination of higher sales and improved gross margin. Adjusted EBITDA margin was 19.6%, a 309 basis point improvement versus 16.5% in the third quarter of 2024. On Slide 13, the third quarter was another strong quarter of free cash flow generation of $5.5 million compared to negative $2.1 million in free cash flow for the same quarter a year ago. This performance was driven by improved EBITDA, slightly offset by working capital investments, as previously noted in the presentation. And year-to-date, we have generated $30.3 million in free cash flow. On Slide 14, we reduced our covenant net leverage at the end of the third quarter to 3.9x versus 4.2x a quarter ago. In the third quarter, we prepaid an additional $15 million of debt, which helped drive our leverage down under 4x target we set for the end of '25. This marks the first time we are under 4x leverage in 12 quarters. In addition, at the end of October, we prepaid another $10 million of debt. And since September of '23, we have prepaid $100 million of debt, exercising our commitment to strengthening our balance sheet and enhancing our financial flexibility. And just as a reminder, our leverage remains well under the 5x covenant that is only in place when the revolver is drawn at the end of the quarter. There is no outstanding balance on our revolver, and we concluded the quarter with $51 million in cash with no expectation of drawing on the revolver in the near-term. As we look ahead to guidance on Slide 15, we've been closely monitoring the broader economic environment throughout the year. Conditions remain fluid as tariff developments continue to evolve and consumer trends adjust. While factors such as higher unemployment, persistent inflation and tariff uncertainty have influenced sentiment as reflected in the University of Michigan Consumer Index, U.S. households continue to navigate these challenges with measured caution. But even within this complex backdrop, Holley continues to deliver strong results. Our disciplined execution, focus on operational excellence and commitment to strategic priorities have driven growth that exceeded expectations through the first 9 months of '25. This performance highlights the resilience of our business model and our ability to perform in a dynamic environment. Given our results year-to-date and momentum we've built across our core operations, we are raising our full year guidance for revenue at the bottom end of our range on adjusted EBITDA. This update reflects both our confidence in the team's ability to execute and our disciplined approach to navigating an evolving macro environment. For '25 revenue, we now expect a range of $590 million to $605 million, which implies 3.8% growth at the midpoint over the core business base of roughly $575 million in '24. Additionally, for adjusted EBITDA, we now expect a range of $120 million to $127 million as we raised the bottom end of our guidance from $116 million. We look forward to closing the year on a strong note and roll this momentum into 2026. We remain focused on strengthening our balance sheet, enhancing free cash flow generation and maintaining disciplined capital allocation to position ourselves for long-term growth for years to come. This concludes our prepared remarks. We would now like to open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Christian Carlino with JPMorgan. Christian Carlino: You had talked about taking high single-digit pricing, but price realization was only around 3% in the quarter. So could you talk about why that delta exists? What was same SKU inflation? And then is it simply a function of channel mix and more B2B sales versus D2C or is there some trade down or favoring smaller projects over larger ones? Jesse Weaver: Yes. Good question, Christian. I think it's -- from what we can tell, it's a combination of those things. Obviously, continued strong growth on B2B as it relates to the ASP, you're going to have a bit of a lower price realization on a comparable basis as well as we've got several of our customers who, from a contractual perspective, the pricing doesn't flow through immediately. It comes in later periods. And then there's just -- as it relates to some of the contractual prices on some of the other items that we do for our existing distribution partners that are not playing in there but it really is a combination of them. As it relates to some of the trade down piece, Christian, we're not necessarily seeing that as much. It's just the other items. Christian Carlino: Got it. That's helpful. And you're not tracking to above your gross margin and EBITDA margin targets for the year. So how should we think about the structural margin profile of the business? I guess, 2 parts there. One, is there anything unsustainable in the base right now? And then the flip side is that you've achieved this despite a subdued sales environment. So as sales growth returns to more normalized levels, is there room to expand margins further or will you generally look to reinvest upside back into the business? Jesse Weaver: On the first question, no structural change. I think, obviously, the pricing is certainly helping here and particularly at the lower volumes. But to your second question, yes, I mean, I think Matt and I continue to hold to -- while we're 2 years into the transformation, there's still things to be looked at as it relates to driving growth, particularly operations. And so we don't want to overcommit here in terms of just all of the growth flowing through. But obviously, we do keep an eye towards just driving continued margin acceleration, and our commitment is above 20%, but I wouldn't expect it to all flow through until we get to a much cleaner glide path, particularly on operations. Operator: Our next question comes from the line of Phillip Blee with William Blair. Phillip Blee: The question. The midpoint of your guidance implies a fairly big step down in organic sales growth in the fourth quarter it seems. So is that more just a function of conservatism in the current environment or is that driven by something more specific that you've seen quarter-to-date that warrants a bit more caution here? Jesse Weaver: Good question, Phillip. And it's a combination of the conservatism, like the current environment is a bit murky, and I think we're all reading the news every day. And so, Matt and I are really big on making sure that we don't overpromise on this. Plus, this time last year, we're lapping a marketing calendar event that we decided not to reengage in this year just from a margin profile perspective. So that's impacting the top line a bit. So those 2 things combined really account for the majority of it. Phillip Blee: Okay, great. And then given what you know about who your average customer is, how do you think about the potential benefits from the One Big Beautiful Bill between no tax on tips and overtime and the potential for a bigger tax refund season next year? Do you think that, that could have maybe a more meaningful impact on your business and underlying demand? Matthew Stevenson: Phillip, it's Matt. What I think the current environment shows our consumers are resilient, right? This is not just a hobby for them, it's a lifestyle. And as we've seen in the past, when there's times they get more discretionary income or tax refunds, that does generate increases in demand. So we'll see how that plays out over the next 6 months or so. Operator: Our next question comes from the line of Joe Altobello with Raymond James. Joseph Altobello: I guess, Matt, first question for you. You've talked about a lot of the changes at Holley over the last 2-plus years here, certainly making a lot of progress. As we start to think about 2026, where are your priorities for next year? Matthew Stevenson: Joe, I think if you reflect back on our strategic initiatives that we showcase each quarter on the progress there, that is part of our 3-year plan, and that's what we had the teams focused on. So there's a number of key growth areas there. Also, we still think it's pretty early relative to the operational roadmap we have for continued improvements there. So between those strategic initiatives around growth as well as operational improvements, that's where the team is focused. And again, still early innings in a number of areas that we continue to see opportunity. Joseph Altobello: Okay. Maybe a follow-up for Jesse. You mentioned inventories were a little heavier at least than I was looking for. Can you sort of explain a little bit better what drove that? Jesse Weaver: Yes, Joe. So in the quarter, there are a couple of things. One, operationally, we felt like there was a much stronger case for us to actually service our customers better by taking some product that we've been selling on consignment and bringing it into our system. It brings a lot more visibility into where the product is, how much of it we have on hand so we can make products and deliver on time to our customers. So that was about a $2 million to $3 million headwind in and of itself. And then in addition, we also decided to get out of the bonded warehouse, which was a strategy that was used to help mitigate tariffs in the beginning. It worked for that purpose. But as tariffs came down, it also was causing operational challenges. So as we started to bring in those products out of the bonded warehouse or directly from port and the port in particular, became less congested, you see a lot of inventory that came in, in Q3 that more than likely would have shown up in Q2. So it felt like a big change in Q3, but it's just more of some of the things that should have come in, in Q2 as well. Operator: Our next question comes from the line of Brian McNamara with Canaccord Genuity. Brian McNamara: Congrats on the strong results, I might add. So I'm curious, you guys did a 3.3% in Q1, 3.9% in Q2, a 6.4% in Q3, markedly getting better each quarter. Matt, I think like about a year ago, you kind of called your shot and you said we're going to return to growth in Q1. So kudos on that. I'm just curious how this year has played out relative to your expectations internally? Matthew Stevenson: Brian, thanks for the question. I think, Brian, when we look at -- when we set out at the end of last year, our plan for '25, I'd say the team is doing a great job executing. We have -- as we just talked about with Joe, our strategic initiative tracker. That's what the team is locked in on every day and continue to deliver on the critical few initiatives that are underneath that to either drive growth or operational improvement. So I would generally say it's as planned. Brian McNamara: And then with all the work you guys have done behind the scenes, do you think you have all the building blocks in place for this growth to be what I would, dare I call, sustainable from here on out, obviously, acknowledging that from quarter-to-quarter, there'll be unique challenges. Matthew Stevenson: Yes. I mean we spent a lot of time on foundational elements, whether it was on our direct-to-consumer business, continue to enhance relationships with our distributors. And these are the foundational building blocks for the long term. Brian, as you know, we just -- currently, SEMA is going on right now, and I had the opportunity to meet with a number of our great distribution partners and the journey we've been on within the last 2 years and the enhanced collaboration and the ways we're finding to grow together. And so again, all foundational elements that are there for the long term. Brian McNamara: And just last quick one, on SEMA, actually. It feels like you guys have refined your strategy with that event each year since you've been there, Matt. I'm curious how does SEMA today compare to maybe your first go at it in 2023 and obviously, acknowledging there was a high energy there last year given the election results. Matthew Stevenson: Yes. I'd say the energy this year, Brian, was -- it felt even greater. I mean our booth was just absolutely packed. Customer meetings were tremendous. And to your point, like how we've progressed, this is my third SEMA with the company. I would say we continue to execute a plan at the event. From last year, really focusing on our key 4 verticals and somewhat eye-opening to the market the amount of fantastic brands and products we have in our portfolio and showcasing them within our 4 verticals and then just continue to expand that execution, that strategy, engaging with major customers, having set meetings and times to connect and winning product awards and really showcasing the great innovations we have. The team does a great job really refining our strategy and taking that time to engage with customers to drive business. Operator: [Operator Instructions] Our next question comes from the line of Bret Jordan with Jefferies. Bret Jordan: Could you talk about the B2B and sort of what the white space you see there? I mean I think you talked about sort of doing more with some of the big parts retailers, traditional mechanical guys, but sort of good growth there, how do you see the run rate? Matthew Stevenson: Yes, Bret, on a strategic initiative tracker, we call out a number of things there. We think there's still a lot of runway in our existing relationships, of course, with whether it's e-tailers, wholesale distributors, but some of the areas you referenced, national retailers is something we're continuing to engage in strongly. We feel that, that channel is accretive in our omnichannel strategy that in-store impulse purchase being able to provide enthusiast products that they want, being able to just go in and pick up something from one of our brands. We also see continued opportunity in export markets, and you see some of the expansion that we're doing in Mexico and other areas. And we continue to work with OEMs on programs for their aftermarket, not OE production, but their aftermarket performance teams and providing them solutions for enthusiasts. So there are a number of ways we're continuing to drive the B2B growth for the long term. Bret Jordan: And I guess, you called out -- I think in the past, you've talked about the events generally being self-funding but you mentioned that LS Fest East was probably lower traffic. Were the events in the third quarter generally neutral to earnings or was there a headwind in the period? Matthew Stevenson: No, no, Bret. They're positive. I think just -- we get a lot of questions always on attendance and how they're trending, right? And as I mentioned on the prepared remarks, the engagement was great this year but of course, there's always weather, at our largest event, that can impact things. And when you have 40,000-plus people when you get a rainy Friday afternoon and a rainy Friday or Saturday morning, it affects things but no, the profitability was in line as expected. Operator: Our next question comes from the line of Joe Feldman with Telsey Advisory Group. Joseph Feldman: I wanted to ask, go back to the guidance, I think somebody had asked this as well, but something similar. What would happen for you guys or have to happen to get to the high-end of the guide versus the low-end? Like is there a subtle difference or is it you would really need a couple of things to really go right to get to the high-end versus the low-end? Jesse Weaver: Yes. I mean, I think, Joe, to get to the high end, we're coming up on our holidays event and just having a really strong merchandising calendar and participation by our B2B partners with great sellout would really allow us to get to the high-end. I think on the other end, it's obviously that not hitting in conjunction with distribution partners potentially getting even more conservative on what their forecast is for the coming year because that does impact their in stocks that they hold. So there could be some destocking there in that low-end scenario. Joseph Feldman: Got it. Okay. That's helpful. And then I wanted to follow up. I think you guys -- you mentioned working with the B2B and having better sharing of data, and I think data product adoption is how you framed it in the prepared remarks. Can you just share any more color there as what's going on with that, how that's been accepted and what -- how the B2B partners are actually using that data? And it seems like it's working to help, but I'm just curious just to get a little more understanding of it. Matthew Stevenson: Yes, Joe, it's Matt. Happy to answer that. This has been a company-wide initiative for well over a year now. And when we say data, it's product data. So of course, in today's e-commerce world, whether it's going direct to consumer or one of our wholesale partners is selling it to an installer, what have you, it's about the product information they're able to display on -- through their merchandising efforts online. And so that is a very robust set of information that is required. It's photos, it's videos. Of course, it's dimensions in and out of the box, it's features advantage benefits, it's comparisons, compatible with this replaces that kind of thing. And it was something that previously, there wasn't an approach in place to be really proactive on offering the best-in-class product data. And I'd say that our teams have done a tremendous job increasing the quality of our data. We grade the data of every category, of every brand, and we continuously improve that weekly as the product teams continue to enhance the information. So ultimately, it makes the job of our B2B customers easier to merchandise the products to their customers. Operator: Our next question comes from the line of Mike Baker with D.A. Davidson. Michael Baker: Can I ask about just the overall spending environment in the consumer? It sounds like there's great energy at SEMA. So you took share clearly. Any idea or any metrics on the overall market? Is your growth just share gains or have you started to see any kind of recovery in spending in the consumer and all that kind of stuff? Jesse Weaver: It's a great question, Michael. I think as it relates to just the general industry, we -- it's a very difficult industry to get real-time information on. But in our discussions with distribution partners, I feel like out-the-door sales have been pretty strong throughout the year, obviously, on our products, but just consistently across their broader portfolio, they've seen a much better result for this year than they had expected coming into the year but obviously, we've continued to take share. And I think right now, in our guidance, we're assuming these trends continue. Michael Baker: So to that point, and that's my follow-up. When you say the trends continue, are you referring to your share gains or industry trends? And I guess what I'm getting at is for a lot of consumer type of names, we saw really strong sales results through July and August and then something seems to have changed in terms of spending September, October and even into November, for a lot of different macro government reasons. So I'm wondering if you can comment on that and any trend that you're seeing throughout the quarter and early into this year or this quarter? Matthew Stevenson: Yes, Mike, it's Matt. Generally speaking, how our industry has played out this year, the first quarter was pretty soft. And then the overall industry started to pick up through the balance of the year. And I think to Jesse's point, through that whole period, we've been taking share. Now I just sat down with no less than a dozen of our key partners over 2 days. And generally speaking, they're seeing the out-the-door trends be very consistent in demand. And so there are no indications coming from our key partners or, of course, from ourselves that anything has really changed at this point and to which it does in the future, who knows. Operator: Our final question this morning comes from the line of Mike Albanese with The Benchmark Company. Michael Albanese: Nice quarter. When I look at, I guess, what you've taken for price, where your volumes are and your ability to expand margins, it really seems like you've done a nice job at mitigating tariffs and managing supply chain. And I'm just wondering if you could provide some color on what you're seeing across the competitive landscape. And I know it's tough -- Jesse, you mentioned it's tough to get kind of incremental data. And we're talking about a lot of different brands and SKUs here, but I'm wondering essentially how much of the share gain is a result of the kind of current macro dynamics from, I guess, a cost standpoint and whether or not really your competitive positioning has improved as a result of that? Matthew Stevenson: Yes, Mike, I think you're meaning competitive position relative to pricing? Michael Albanese: Correct. Matthew Stevenson: Yes. Really, it's a category by category. There's no broad-based statement that covers it. Our job is to ensure we remain competitive, not only in our value proposition for the consumer, but to also make sure our distributors have healthy margins to be able to market and merchandise our products. But generally speaking, our share gains are -- whether you say outhustling, outperforming, increasing our capabilities, all the above throughout the year on both our D2C and B2B. And as I mentioned, some of the things, whether it's our product data or enhancing our relationships and the way we work with our key partners, those all have been big contributors to our share gains. Operator: Ladies and gentlemen, this concludes our question-and-answer session. I'll turn the floor back to Mr. Stevenson for any final comments. Matthew Stevenson: Okay. Thank you, Melissa. Slide 17 underscores the compelling investment story behind Holley Performance brands. This market, fueled by automotive enthusiasts goes far beyond a past time. It's a passion and it's a lifestyle for our customers. With an addressable market in the U.S. approaching $40 billion, Holley stands at the forefront, backed by a portfolio of iconic brands with a rich legacy of innovation. As we wrap up on today's discussion, I'd like to reflect on what this quarter signifies for Holley. The third quarter showcased broad-based strength across our operations with solid growth in every division and sustained momentum in both B2B and direct-to-consumer channels. Our disciplined execution, operational enhancements and commitment to innovation continue to deliver tangible results from margin expansion and efficiency gains to deeper engagement with our enthusiast community. We also achieved a key financial milestone this quarter, reducing net leverage below 4x for the first time since 2022 and generating positive free cash flow during what is typically a slower seasonal period. These achievements highlight the impact of our transformation and the dedication of our teams to building a stronger and more resilient Holley. Through our strategic framework, we remain focused on initiatives that matter most, advancing digital capabilities, driving product innovation, strengthening partnerships and laying the foundation for sustainable, profitable growth. Looking ahead, our outlook remains consistent. We are committed to delivering steady organic top line growth, maintaining gross margins above 40% and achieving adjusted EBITDA margins of 20%. Our goal is to generate sustainable free cash flow and continue creating value through strategic acquisitions that complement our portfolio. The combination of a vibrant automotive enthusiast marketplace and Holley's legendary brand family positions us as a unique investment opportunity in a passionate segment. In closing, I want to express my gratitude to our team members for their dedication and execution, to our consumers for their unwavering passion for performance and to our distribution partners, many of whom have stood with us for decades. Together, we're building a stronger, more innovative Holley for the future. I want to thank you for your attendance on our call today and wish you all a great morning. Thank you. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good afternoon, and welcome to Banco de Chile's Third Quarter 202 Results Conference Call. If you need a copy of the financial management review, it is available on the company's website. Today with us, we have Mr. Rodrigo Aravena, Chief Economist and Institutional Relations Officer; Mr. Pablo Mejia, Head of Investor Relations; and Daniel Galarce, Head of Financial Control and Capital. Before we begin, I'd like to remind you that this call is being recorded, and the information discussed today may include forward-looking statements regarding the company's financial and operating performance. All projections are subject to risks and uncertainties, and actual results may differ materially. Please refer to the detailed notes in the company's press release regarding forward-looking statements. I will now turn the call over to Mr. Rodrigo Aravena. Please go ahead. Rodrigo Aravena: Good afternoon, everyone. Thank you for joining this conference call, where we will present the key results and developments achieved by our bank during the third quarter of this year. We are pleased to report that Banco de Chile has once again delivered strong results, reaffirming our solid market position. Our performance this quarter reflects not only robust financial outcomes, but also meaningful progress in a strategic initiative that strengthens our long-term competitiveness. Key highlights for the quarter include net income as of September 2025 reached CLP 927 million, representing a year-on-year growth of 1.9% that resulted in an ROAC of 22.3%. These results were driven by strong customer income, fund asset quality and ongoing efficiency improvements. These achievements are particularly significant given the challenging macroeconomic and political environment marked by subdued loan growth, especially among corporations. In times of uncertainty, solid fundamentals and proven risk management become critical differentiators. Banco de Chile continues to stand out among peers in asset quality, additional provisions and capital strength, providing resilience and a solid basis for the future. Let's now turn to the macroeconomic context. Please refer to Slide #3. Consistent with the trend observed in previous quarters, the Chilean economy continues to show signs of recovery, particularly in consumption and investments. As illustrated in the graph on the left, GDP growth has maintained an upward trajectory since the second half of 2024, supported by a notable rebound in domestic demand. In the second quarter of this year, GDP expanded by 3.1% year-on-year, remaining above the estimated long-term potential growth rate of around 2%, which resulted in a 2.8% year-on-year expansion in the first half of this year. It is worth noting that this acceleration occurred despite a moderation in external demand. Export growth slowed to 5.4% year-on-year in the second quarter, down from 10.5% in the previous quarter. This reflects the trends of domestic demand, which improved significantly from 1.6% year-on-year in the first quarter to 5.8% year-on-year in the second quarter. A key driver behind this performance was the sharp increase in investment, particularly in machinery and equipment, which surged by 11.4% year-on-year during the period. These indicators confirm that the positive trend in domestic demand has persisted into the second half of this year. As shown in the chart on the upper right, imports have accelerated in recent months, driven by stronger domestic expenditure, particularly investments, evident in the sharp increase in capital goods imports. Furthermore, weighted investments for the next 5 years according to the corporation of capital goods rose by 19% in the second quarter, reflecting a substantial expansion in the pipeline of new projects across the mining and energy sectors as illustrated in the chart on the bottom right. All these figures would result in improved economic performance over the next period while positively impacting loan growth and banking activity. Please go to Slide #4 to analyze inflation and interest rate evolution. Inflation remains above the Central Bank target at the chart on the left displays. In September, headline inflation increased to 4.4% from 4.1% in June. The measure that excludes volatile items was relatively stable, rising just 10 basis points to 3.9% in the same period. This suggests inflation is still driven by volatile items such as energy, which increased 11.4% year-on-year in September. In response, the Central Bank maintained the interest rate at 4.75% in the monetary policy meeting held in October. According to the statement released after the meeting, the persistence of some inflationary risk and the slight improvement of macro conditions require more information before continuing to reduce the interest rate towards neutral levels. Despite this decision, it's important to mention that the Central Bank of Chile has already reduced the interest rate by 650 basis points from the peak of 11.25% reached in 2023, positioning it among the most proactive central banks in terms of monetary easing. The Chilean peso has remained volatile, hovering around CLP 150 per dollar in recent months. However, as shown in the bottom right chart, the U.S. dollar measured by the DXY index has globally weakened this year, a trend not yet reflected in the local exchange rate, partly due to faster pace of interest rate cuts. Now I'd like to present our base scenario for this year. Please go to Slide #5. We have revised our GDP forecast up for 2025 from 2.3% in the previous call to 2.5% now. This adjustment is due to stronger-than-expected growth in domestic demand and improvement in some leading indicators, as mentioned earlier. As a result, the economy will likely achieve a similar expansion as compared to 2024 despite weaker global activity, which is expected to reduce the export pace of growth. However, the better outlook for domestic demand has offset this external drag. This scenario is consistent with a gradual decline in hyperinflation to 3.9% by December 2025, assuming no relevant shocks or significant depreciation of the Chilean peso in the coming months. Under this condition, we expect the Central Bank will likely cut the monetary policy interest rate once more in the fourth quarter to end the year in 4.5%. Finally, it's important to reiterate the unusually high level of uncertainty we face, particularly from global factors. Domestically, attention will also be focused on the upcoming presidential and parliamentary election scheduled for November and the presidential runoff expected in December 2025. Before reviewing the bank's results in detail, let's take a brief look at industry trends. As shown in the chart on the top left, the banking industry delivered another solid quarter. Net income reached CLP 1.3 trillion and the return on average equity stood at 14.7%. While below the previous quarter, this figure confirmed the central ability to sustain healthy profitability despite lower inflation. This performance reflects the resilience of core banking activity, particularly concentrated in commercial banking after a long period that was dominated by the extraordinary revenues coming from treasury activities on the ground of extremely high levels of inflation and higher-than-normal interest rate, among others. Turning to asset quality. The chart on the top right shows that nonperforming loans remain relatively stable for the industry at 2.5% with a coverage ratio of 143%, consistent with recent quarters. Despite a challenging macroeconomic backdrop marked by elevated borrowing costs and labor market pressures, banks have managed to keep delinquency under control while maintaining prudent provisioning and strong buffers to absorb potential increases in credit risk. On the credit side, the bottom left chart highlights that the loan-to-GDP ratio stood at 76% as of September 2025, continuing a below-trend behavior from pre-pandemic highs. This reflects the subdued pace of credit expansion relative to economic activity in recent years. Finally, the bottom right chart further illustrated the persistent weakness in real loan growth across all segments. Since December 2019, total loans have contracted 2.3% with consumer lending showing the sharpest decline of 18%, followed by commercial loans at 9.5%. This slow demand for credit has been driven by, firstly, by liquidity surplus caused by pension fund withdrawal in 2021, 2022, which was after followed by high interest rates, increased inflation and cautious corporate borrowing amid economic and political uncertainty and persistent labor market challenges more recently. In summary, while profitability and asset quality remains strong, lending activity continues to lag. Looking ahead, a gradual recovery in loan growth could materialize as uncertainty eases, particularly regarding external risk and in the local front, the outcome of upcoming presidential and parliamentary election, together with revised approval procedures for large-scale investment projects, allowing the industry to return closer to historical GDP multiples. Next, Pablo will share information regarding Banco de Chile developments and financial results. Pablo Ricci: Thank you, Rodrigo. Let's turn to Slide 8, which brings our strategy and ambitions into focus. It's our road map for growth and leadership. The core of our strategy is guided by a well-defined purpose, which is to contribute to the progress of Chile, its people and its companies. Supporting this are our guiding principles that shape how we operate in the medium term, efficiency, collaboration and a customer-first mindset and a focus on creating value in the areas we compete. These elements ensure our agility, innovation and long-term sustainability. On the right, our midterm targets show where we're heading. industry-leading profitability, market leadership in lending and local currency deposits, superior service quality as reflected by a top Net Promoter Score and a strong corporate reputation among the top 3 companies in Chile. We're also committed to efficiency, which translates into a cost-to-income ratio that must remain below 42%, driven by digital transformation and continuous improvements in technology and operational processes. In short, this strategy enables us to deliver sustainable growth and create lasting value for all of our stakeholders. Please move to Slide 9, where we will go over our key business achievements. In the third quarter of 2025, we continued advancing initiatives that strengthen our position as a more efficient digital and sustainable institution. A major milestone this quarter was the successful integration of our former collection services subsidiary, SOCOFIN, into the bank's operations. This merger was completed without affecting productivity metrics for the collection of overdue loans and has generated important cost and operational synergies that have translated into increased efficiency and enhanced customer experience. Productivity also continued to rise in the third quarter of 2025, driven by technological innovation and digital solutions. In consumer loan originations, executives increased productivity by 13% in the number of operations and 11% in the amounts sold compared to the same period last year. These results highlight the positive impact of our digital transformation on overall performance. We also worked to optimize our physical branch network and strengthen customer service. Through branch efficiencies, we aim to keep our service line aligned with clients' evolving needs while improving efficiency and delivering a better experience. On the digital front, we expanded the use of AI virtual assistants for both customers and employees. FANi, our chatbot now supports all FAN accounts, including SMEs through the FAN and Print the Plan. Additionally, we introduced AI tools to assist staff with internal processes, boosting productivity and service quality. To deepen partnerships with businesses, we launched the API store, a platform that enables secure technological integration with corporate clients. This initiative allows companies to automate operations directly with our financial services, adding value to our offerings. In line with this is our sustainability commitment. We introduced a training plan to promote responsible supplier management. As part of this effort, we are developing educational capsules to inform suppliers about our revised purchasing procedures and encourage best practices within their organizations. Another highlight of this quarter was the 4270 project, an unprecedented audiovisual initiative that captured Chile's 4,270 kilometers from north to south through a 90-day drone journey. By documenting the country's diverse landscapes, traditions and cultural richness, this project aims to strengthen national identity and reconnect Chileans with their shared heritage. Beyond its artistic value, this initiative reinforces our brand positioning by associating Banco de Chile with pride, unity and long-term commitment to the country. The project was conceived as a gift to Chile, offering more than 500 royalty-free high-quality images for education and cultural use and has earned international recognition, including a Gold Lion at the Cannes Festival and the showcase at Expo Osaka 2025. Finally, our customer-focused strategy continues to deliver solid results. For the third year in a row, we ranked first in customer satisfaction at the Procalidad Awards, and we were honored as the best of the best among large financial institutions, the only bank to achieve this distinction. These recognitions confirm the success of our strategy and their commitment to serving clients with excellence. Please turn to Slide 11 to begin our discussion on our results. We continue to deliver strong results in the third quarter of 2025, posting a net income of CLP 293 billion, equivalent to a return on average capital of 22.4%, as shown on the chart and table to the left. This represents a net income increase of 1.7% compared to the same period last year despite a sequential decline from the previous quarter, reflecting the impact of lower inflation on margins. It's important to highlight that we outperformed our peers in both net income market share and return on average assets, as illustrated on the charts to the right. Specifically, as of September 2025, our market share in net income reached 22%, well above the closest -- our closest competitors and our return on average assets stood at 2.3%, maintaining a wide gap over peers. These results underscore our consistent focus on customer engagement, prudent risk management, disciplined cost control and above all, the resilience of our core business and recurrent income-generating capacity, particularly centered on customer income, which has continued to grow steadily and enabled us to deal with the expected normalization of key market factors. Our strategy remains firmly oriented towards building a sustainable and profitable bank, and we continue to aspire to be the industry benchmark in profitability. Let's take a closer look at the operating income performance on the next Slide 12. We continue to demonstrate the strongest operating revenue-generating capacity in the local industry, reaffirming the resilience of our superior business model through different market cycles. As shown on the chart to the left, operating revenues totaled CLP 736 billion in the third quarter of 2025, representing a 2.1% increase year-on-year despite a backdrop of subdued business activity and the effect of lower inflation on treasury revenues. This performance was supported by solid customer income of CLP 630 billion, which grew 5.4% year-on-year, while noncustomer income amounted to CLP 105 billion, reflecting a 14.1% decline compared to the same quarter last year. The contraction in noncustomer income was mainly explained by lower inflation-related revenues from the management of our structural UF net asset exposure that hedges our equity from changes in inflation as UF variation dropped to 0.6% this quarter from 0.9% recorded in the same quarter last year. To a lesser extent, revenues coming from the management of our trading and debt securities portfolios also recorded a slight decrease year-on-year due to both lower market mark-to-market revenues due to unfavorable changes in interest rates and a decrease in revenues coming from the management of our intraday FX position. In turn, customer income has continued to grow, supported by a robust performance in income from loans and net fees, which helped offset the pressure from lower inflation-related revenues. Within loans, better lending spreads and growth in average balances drove income generation, particularly concentrated in consumer and commercial loans as our loan book has continued to return to more normalized margins to the extent FOGAPE loans keep on amortizing. Furthermore, net fee income expanded by 10% compared to the third quarter of 2024, led by mutual fund management fees, which increased 19% and transactional services up 6%, together with increased contributions from insurance and stock brokerage fees due to improved cross-selling and credit-related insurance and the participation of our stock brokerage subsidiary in a couple of important transactions carried out in the local capital market this quarter. This performance highlights the strength of our diversified revenue base beyond traditional lending activities. As a result, our net interest margin stood at 4.65% for the 9-month period ended September 30, 2025, maintaining a clear market-leading position in the industry despite margin compression caused by inflation and the financial environment marked by lower interest rates. Furthermore, our fee margin as a percentage of interest-earning assets reached 1.3%, which enabled us to further drive our operating margin to the level of 6.4%, well above the industry average and our main peers, demonstrating the effectiveness of our strategy and our ability to consistently deliver value to our customers and shareholders regardless of prevailing economic conditions. Please turn to Slide 13, where we will review the evolution of our loan portfolio. As shown on the left, total loans reached CLP 39.6 trillion as of September 2025, representing a 3.7% year-on-year increase and a 0.6% sequential growth. This expansion remains contained and continues to reflect subdued credit dynamics across the industry, consistent with the Central Bank's latest credit survey, which indicates that overall demand and supply conditions remain stable, although noticing some signs of recovery in certain segments. Breaking this down by product, mortgage loans grew 7.3% year-on-year, well above inflation, supported by stronger demand through selective origination in middle- and upper-income segments and demand for housing that continues to be driven by demographic issues rather than economic cycle. Consumer loans increased 3.7% year-on-year amid cautious borrowing behavior and interest rates that remain above neutral levels as well as the profile of our customers characterized by liquidity levels above our peers would partly explain our performance in consumer loans. While loan growth in this lending family has been slower than the industry, it's important to note that our strategic focus continues to be centered into the higher income segments, avoiding aggressive expansion into lower income markets targeted by some market players, which explains an overall loss in market share that, however, is consistent with our long-term strategic view. Regarding commercial loans, we posted a 1.3% year-on-year increase in September 2025, constrained by weak investment and uncertainty. However, we'd like to emphasize that we are seeing some early signs of recovery, particularly in the SMEs and certain wholesale banking units, such as the large companies area, which is consistent with higher-than-expected capital expenditures in some industries earlier this year as reported by the Central Bank and national accounts. On the right side of this slide, you can see that retail banking continues to be the main commercial focus by accounting for 66% of total loans with personal banking representing 52% of the whole book. Accordingly, wholesale loans represent 34% of our book and is split between corporate clients, representing 20% and large companies, representing 14%. When looking at the loan growth by segment, we can see some interesting trends. Personal banking expanded 5.8%, driven by mortgage loans, while SMEs and large company segment have also posted positive year-on-year growth levels of 4.8% and 7.1%, both above 12-month inflation. SME loan expansion was supported by demand from non-FOGAPE loans that continues to grow steadily by expanding 8% year-on-year, while the large companies banking unit has managed to grow positively for the third quarter in a row on the grounds of commercial leasing and trade finance loans. Corporate loans, however, contracted 4.3% year-on-year, reflecting lagged investment activity and selective credit demand among corporations, which is highly aligned with findings released by the Central Bank in the last quarterly credit survey. It's important to note that our loan growth remains slightly below the 12-month inflation, and we have experienced a minor decline in overall market share over the last year, mainly due to competitors expanding into segments outside our strategic scope and the countercyclical role played by the state-owned bank BancoEstado. Positively, we gained share in mortgage loans, thanks to our competitive funding and strong customer relationships. Overall, our portfolio remains well diversified and positioned to capture opportunities as business sentiment improves, interest rates continue to converge to neutral levels and the domestic demand strengthens. Slide 14 highlights our strong balance sheet mix supported by long-term financial stability. As shown on the chart to the left, loans represented 71.4% of total assets as of September 2025, while our securities portfolio reached 12.5% of total assets, up 54% from a year earlier. The increase in our securities portfolio was primarily driven by the funding strategy carried out by our treasury in the third quarter, which resulted in long-term bond placements aimed at replacing upcoming amortizations, reducing term spread and currency mismatches in the banking book and supporting future loan growth. In the short run, part of this funding has been invested in high-quality fixed income securities, which has translated into improved liquidity metrics over the last couple of months. In this regard, our securities portfolio is mainly composed of securities issued by the Chilean Central Bank and government, which accounted for 65% of the total amount, followed by local bank instruments, mostly certificates of deposits, representing 28%. As a percentage of total assets, available-for-sale securities represented 5.9%, trading securities amounted to 5.8%, while held-to-maturity represented only 0.8% of total assets, all as of September 30, 2025. On the funding side, deposits remain our main source of financing, representing 53.1% of the total assets with demand deposits accounting for 25.8% and time deposits representing 27%. Given these figures, our noninterest-bearing demand deposits fund 36% of our loan book, which is a key competitive advantage that supports our leading net interest margin, as shown on the chart on the top right. More importantly, our deposit base is highly concentrated in retail banking counterparties, which provide us with more stable sources of funding over time. Regarding debt issued, it increased significantly during the third quarter of 2025, rising from 19% of our total liabilities in the third quarter of 2024 to 20% in the third quarter of 2025 as a result of recent placements. This growth was mainly driven by senior bond issuances in the local market, particularly this quarter, which added CLP 1.6 trillion to our former balances, representing a year-on-year increase of 16%. Prior to this quarter, long-term bond placements had primarily been focused on replacing scheduled maturities of previously issued bonds. However, beginning this quarter of 2025, we reassessed our funding strategy in light of the gradual rebound expected for lending activity, particularly in longer-term loans. Similarly, the gradual convergence of key market factors such as the monetary policy rate and inflation towards neutral levels significantly reduces the opportunity to benefit from temporary balance sheet mismatches. With this outlook in mind, during this quarter, we carried out several placements of bonds in the local market for an amount of CLP 1.1 trillion with an average interest rate of approximately 3% and an average maturity of 11.1 years and a 5-year bond denominated in Mexican pesos equivalent to CLP 50 billion, bearing an interest rate of 9.75% in Mexican currency. Together with raising long-term funding for future loan growth, these bond issuances also allowed us to reduce our structural UF gap from the peak of CLP 9.7 trillion in March 2025 to CLP 8.3 trillion in September 2025, implying a sensitivity of roughly CLP 83 billion in net interest income for every 1% change in inflation. This is aligned with our revised view on inflation that does not significantly differ from the market ones. The placement of long-term bonds also had a positive effect on interest rate mismatches in the banking book as bonds issued were mostly denominated in U.S. with tenures above 10 years, which closed the gap generated by steady growth in residential mortgage loans. As a result, regulatory and internal rate risk in the banking book metrics for short- and long-term rate risk posted a significant sequential decrease of around 20% Furthermore, our liquidity ratios remained well above the regulatory requirements with an LCR of 207% and NSFR of 120%, both well above the prevailing regulatory thresholds of 100% and 90%, respectively, reflecting prudent liquidity management and the positive impact of recent bond placements on this matter. Please turn to Slide 15 for our capital position. As illustrated, Banco de Chile continues to demonstrate a strong capital foundation, comfortably above regulatory thresholds and peer averages. Our CET1 ratio reached 14.2%, reflecting our leadership in the industry. When including Tier 2 instruments, our total Basel III capital ratio stood at 18%, providing wide room to support organic and inorganic growth initiatives and absorb potential market volatility. The solid capital position reflects a disciplined approach to profitability and sustained earnings retention over recent years. Additionally, the modest loan growth has also contributed to maintaining positive capital gaps. Our capital strategy was designed to navigate the final stages of Basel III implementation while preserving flexibility for both organic expansion and potential strategic opportunities. It's worth highlighting that Chile operates under one of the most demanding regulatory environments globally, characterized by higher risk-weighted asset density as compared to jurisdictions where internal models play a significant role. In fact, risk-weighted asset calculations under Basel III in Chile resemble those under the formal Basel I framework. Furthermore, local regulations impose capital requirements similar to those in markets with lower risk-weighted asset densities, including systemic surcharges, Pillar 2 charges and the conservation and countercyclical buffers, all working together and on a fully loaded basis. Despite these stringent conditions, Banco de Chile consistently exceeds all capital requirements, underscoring once again the resilience and the strength of our business and balance sheet by delivering a unique combination of lower risk and higher capital and outpacing in profitability. Please turn to Slide 16 to review our asset quality. We continue to set the benchmark in asset quality, supported by disciplined risk management and a conservative provisioning framework. In the third quarter, expected credit losses only reached CLP 80 billion, marking a sequential decline and reinforcing the positive trend we saw during the year. Despite the year-on-year figure remained almost unchanged, there were notable shifts in the composition of expected credit losses. Specifically, the Wholesale Banking segment recorded a net provision release of CLP 18 billion, mainly driven by a comparison base effect following the deterioration of asset quality of certain customers belonging to the real estate construction and financial services industries during the third quarter of 2024 as well as an improvement in the credit profile of a manufacturing client this quarter. Conversely, the Retail Banking segment posted a year-on-year increase of CLP 4 billion in risk expenses, primarily due to higher level of overdue loans above 30 days when compared to the same quarter last year. These movements were largely offset by a rise of CLP 5 billion of impairment of financial assets explained by a comparison base effect related to lower probabilities of default for fixed income securities issued by local financial institutions in the third quarter last year, a loan growth effect of CLP 5 billion, driven by a 4.2% year-on-year increase in average loan balances, mainly fostered by residential mortgages and a year-on-year increase of CLP 2 billion in provisions for cross-border loans. Mostly driven by a comparison base effect associated with the lower exposures to offshore banking counterparties and Chilean peso appreciation of 4.7% in the third quarter of 2024. As a result, this performance translated into a cost of risk of 0.8% in the third quarter of 2025, which remains below our historical average and highlights the resilience of our diversified loan portfolio amid a still-adjusting credit cycle. Nonperforming loans across the industry remained above pre-pandemic levels, as shown in the top right chart. Our delinquency ratio stood at 1.6%, significantly below peers. This gap underscores the strength of our underwriting standards and the proactive risk management. From a forward-looking perspective, despite fluctuations observed in 2025, we believe that the delinquency indicators will continue to converge to historical levels in both retail and wholesale banking segments. Now in terms of coverage, we maintain the highest ratio in the industry. As of September, total provisions amounted to CLP 1.5 trillion, including CLP 821 billion in specific credit risk allowances and CLP 631 billion in additional provisions. As a result, our total coverage ratio stands at 234%, positioning us with the highest coverage among peers. In summary, our strong asset quality metrics, exceptional coverage levels and prudent risk practices continue to differentiate Banco de Chile and position us to navigate evolving credit conditions with confidence. Please turn to Slide 17. Operating expenses totaled CLP 276 billion this quarter, representing a modest increase of 1.2% when compared to the third quarter of 2024. This growth remains well below the UF variation rate of 4.2% over the last 12 months, highlighting our disciplined approach to cost management. The contained increase reflects our continued efforts to optimize resources and drive efficiency through strategic initiatives and diverse digital transformation projects across the organization. The top chart provides a detailed breakdown of the annual variation expenses. Personnel expenses decreased by 1%, supported by headcount optimization of 5.7% over the last 12 months, which helped offset inflationary pressures on salaries. On the other hand, administration expenses rose by 5.3%, mainly due to higher marketing expenses linked to sponsorship activities aligned with our commercial strategy, increased IT-related costs and to a lesser extent, higher ATM rental costs due to relocations of part of our network. As shown on the chart on the bottom right, our efficiency ratio reached 36.8% for the 9-month period ended September 30, 2025, which significantly outperforms historical levels and competes closely with the market leader in this indicator. This achievement underscores the effectiveness of our ongoing productivity initiatives, which should provide further efficiency gains in the future. Looking ahead, we remain confident that our strong cost discipline, branch optimization efforts and continued investment in technology will allow us to sustain this positive trend. Please turn to Slide 18. Before we conclude, I want to highlight a few ideas presented in this call. First, we have adjusted our GDP forecast for 2025 to 2.5%, up from 2.3%, reflecting a more positive outlook for the Chilean economy. Chile continues to stand out for its strong macro fundamentals, a resilient financial system and a credible policy framework, making it a reliable destination for long-term investment even amid global uncertainty. Second, Banco de Chile remains the clear leader in profitability and capital strength. As shown on the left, we delivered CLP 927 billion in net income with a CET1 ratio of 14.2% and a return on average assets of 2.3%, significantly ahead of our peers. These achievements reinforce our ability to combine strong earnings with robust capital levels. Third, we have revised our guidance for the full year 2025. We expect our return on average capital to be around 22.5%, efficiency near 37% and cost of risk close to 0.9%. These metrics reflect our disciplined approach to both risk management and operational efficiency. Finally, we're confident in our capacity to remain the most profitable bank in Chile over the long term, supported by a strong customer base, solid asset quality and sound capital levels. Thank you. And if you have any questions, we'd be happy to answer them. Operator: [Operator Instructions] So our first question is from Daniel Vaz from Banco Safra. Daniel Vaz: I just want to touch base on your midterm targets. I think the only thing a little bit more distance that we see is the top 1 market share for commercial loans and consumer loans, and we see some stable market shares like in the past few months when we look at the big tables. Just wondering, you're a bank that focused a lot on profitability and focus on maintaining the discipline of the underwriting process. Trying to understand how are you going to tackle this top 1 commercial loans and consumer loans going forward, especially considering that the Chilean market is probably going to a better outlook for commercial loans. We see a little bit more appetite for consumer as well. So how exactly you're going to tackle this first position on both market shares? Like is going to the same clients or going to a more attractive position versus your competitors to still clients or any other things that you would highlight? Pablo Ricci: Daniel, thanks for the question. Maybe Rodrigo will start on the first part there. Rodrigo Aravena: Perfect. Well, thank you very much for the question. Today, we have a more positive view of the Chilean economy in the future. Even though the economic growth expected for this year, which is around 2.3%, 2.5% and probably in the next year, the economic growth will be similar. It's very important to pay attention to the composition of the growth because, for example, in the last year, when the economy grew by 2.6%, we have to remember that the key driver were exports, which are not very relevant as a driver for loan growth, for example, right? More recently, we have seen some positive signs for investment including the acceleration for capital good imports and also the pipeline of expected projects for the next 5 years is also improving a lot, especially in the last quarter. In terms of consumption, we see that the lower trend for inflation is also a positive news for the perspective for consumption as well. So at the end of the day, in our baseline scenario, we're going to have a more dynamic domestic demand, especially on the investment side which will be a positive driver for loan growth in the future. Even though we are not expecting an important acceleration in part of investment because we have to remember that in Chile, between 50% and 55% of investment is related with construction. That part of investment will likely recover not in the short term, but the 45% remaining of investment, which is related with machinery and equipment today is getting better. So that's why even though we are not expecting important changes in the GDP forecast for the next year, we are expecting a more -- a different composition of growth with a more dynamism in domestic demand, which is a good news for loan growth in the future. Also, we have to pay attention to the evolution and the final results of elections in Chile. We're going to have election from the President for the Senate for the lower house as well. So at the end of the day, there are important factors that could accelerate or not the economic growth in the future. But I think that so far, the most important aspect to keep in mind is the potential recovery in domestic demand. Pablo Ricci: So yes, in terms of our midterm targets, these are midterm targets that go beyond not only 2026, but it's a midterm aspiration. And those aspirations, as shown on the slide, we want to be #1 in terms of total commercial loans and consumer loans. So our growth strategy is focused on 3 key ideas. So the first, and we'll go into each one of these a little bit, is digital transformation as a growth engine for the bank. Also as a second area of focus is focus on the high potential segments, notwithstanding all the entire commercial loan book is interesting for us, but it's been more challenging in this environment. And third is operational productivity. So in the digital transformation area, what we've been focusing is leveraging technology to scale the efficiency, enhance customer experience and really drive new growth opportunities across the bank in all the segments. So in that regard, what we're seeing is an increase on digital onboarding. Most of transactions are being done online, and we're expanding our digital capabilities in order to capture this new growth through different channels of the bank in order to grow consumer loans in the middle- and upper-income segments. And we're also implementing the use of AI across the bank in order to improve the service, improve the understanding of our customers and risk management as well. So all of this is improving the customer experience and operational efficiencies and the ability to grow. And in the high potential customer segments or high potential segments, what we're looking to do is to grow and create a larger value creation. And in that area where we're focused on in commercial loans, especially as SMEs, where we see potential to continue growing in the medium term. We've seen good levels of growth recently, especially if we exclude certain government-guaranteed loans. Consumer loans as well, there's a large area to grow. If we look at what's happened today versus prior to the pandemic, this segment has decreased its importance in the overall proportion of loans in Chile. So the loans to GDP penetration has come from levels above 90% to around the 75%. And one of the strongest hit not the most important in the total loan book of the industry is consumer loans. So the strongest hit with a lower percentage in the mix is consumer loans that dropped somewhere almost 20%, 18%. So this area, we think will continue to grow once the economy improves, once unemployment reduces, there's better growth in labor across the board. So here is a very interesting area to grow. SME is very interesting because it's also very cyclical in terms of the economy. So as long as the economy continues to improve, better unemployment, we should see a better activity in these segments and with a better overall view -- business view of Chile, there should be more demand for loans in these 2 segments. And finally, in the large corporate segment, we've seen very little growth, very little demand. But as Rodrigo said, there's a lot of projects in the pipeline with a positive evolution in the future. This should also help drive loan growth for the industry. Saying that, we're in a very good position to capture this growth in organically or inorganically because we have a huge level of capital that allows us to do this. We don't have any impediments that make us more reluctant to grow and take on growth because we have a very good level of capital in order to do this, and that's the idea of the capital that we have. And finally, operational productivity, which is what we mentioned in the presentation, this helps all the areas improve overall and maintain our profitability high. Operator: Our next question is from Tito Labarta from Goldman Sachs. Daer Labarta: Just with the upcoming presidential elections, just kind of curious sort of where you think things stand from here? And depending on which candidates when -- how do you see that potentially impacting the macro-outlook for next year and then also trickling down to the bank's profitability? Rodrigo Aravena: Thank you for the question. I'm Rodrigo Aravena. I think that it's very important to be aware that in Chile, we have a political system, which is based on important counterweight between the central government, the Congress, the system, et cetera. So that's why it's not only a matter of who's going to be the next in Chile. We have also take into consideration the future composition of the Congress as well. According to the surveys, there's going to be a runoff in December, but we're going to have the final results of the Congress in November in the next week. Even though there is uncertainty about the final composition of the Congress and also in terms of who's going to win the election. I think that it's worth mentioning that today, which is an important difference compared to the election that we had 4 years ago, that there are some consensus in Chile between different candidates and different political factors as well. In terms of put on the table, I would say, 3 important aspects in the policy agenda. First of all, there is a consensus in Chile in terms of the need to improve the long-term sources of economic growth. When we analyze all the different proposals, they are aware about the importance to promote more economic growth mainly investment, especially considering that the external environment will be a bit more challenging in the future. So we don't have important differences in terms of the diagnosis of the importance of economic growth. Also, today, there are not important proposals with higher tax rates. In fact, there are some proposals that are based on lower corporate tax rate, for example, which is a good news as well for the future. And also, we also have an important consensus in terms of the importance to improve, for example, the licenses and permit system that we have in Chile, which is an important factor to promote investment in the future. So all in all, today, I, which is the main difference compared to the elections that we had 4 years ago, there are not important differences in terms of proposals for economic growth for taxes, et cetera. So when we consider this scenario and also the recent improvement in some leading indicators, I think that we have good reason to expect a more dynamism in domestic demand in the future, especially in investment and consumption, even though we have uncertainty for the final result of the presidential elections. Pablo Ricci: And in terms of the bank, the most important result of this is more demand and activity in Chile, which should drive loan growth in all the segments. So in commercial loans, large corporates and multinationals concessions and SMEs, consumer loans, et cetera. So what we've seen is a period of low growth, high interest rates. And now we're moving into a more attractive period with better business confidence, hopefully, better consumer confidence, and that should lead to stronger loan growth, and we have the capital in order to grow. So we don't need more capital. So that means additional points in terms of the bottom line for ROE. Operator: Our next question is from Neha Agarwala from HSBC. Neha Agarwala: Congratulations on the results. Just a quick one on the outlook for 2026. What kind of pickup should we -- can we expect in the coming quarters in terms of loan growth? And what would be the drivers for earnings for 2026, given that there should be some pressure on the NIMs with easing inflation? Pablo Ricci: Neha, I think in 2026, well, today, we don't have guidance yet because it's -- we're working on the budget, and it's something that's being discussed internally in the bank. But what we can say is similar to what we've said in the other questions is what we're foreseeing is a better overall aspect of Chile in the next years. And this should allow us to have in the banking industry to have better results in terms of loan growth, the main area, the main driver for growth for us in the following year. The inflation level, what we expect is to return to levels closer to 3%, somewhere similar in terms of the overnight rate, not too much lower. We're already close to the long-term levels there. So in order to really generate a stronger bottom line over the next years, we should see loan growth is the main driver. So what we have and what's very positive for Banco de Chile is that we have an attractive level of CET1 total base ratio, and this is allowing us to grow when the opportunities arise. And hopefully, that's sooner than later. Rodrigo Aravena: And also Neha, this is Rodrigo Gara. Important to mention as well that we are not expecting important changes in interest rate for the next year. Today, it's likely that the Central Bank will reduce interest rate by 25 basis points the next meeting or probably in the first quarter of the next year. Today, the annual inflation is at 3.4%. So for the next year, it's reasonable to expect a convergence towards the target, which is 3%. So I mean we are not expecting important adjustment in the key factors behind the ROE and NIM as well since we are not seeing important room for adjustment in both interest rate and inflation as well. Operator: [Operator Instructions] Our next question is from Andres Soto from Santander. Andres Soto: My first question is for your loan growth next year, which I will assume you are expecting an acceleration versus 2025. Which segments are you expecting to see faster growth? Is going to be commercial lending in your comments about the third quarter results. You mentioned some market share losses in consumer as other players are focusing in the lower segments of the population. So I would like to understand what is missing for you guys to take a more optimistic view on consumer lending. You have mentioned in this call, this is a segment that is still depressed compared to the pre-pandemic levels. So what is missing for you to see faster growth in the consumer? And overall, what is going to be the driver in 2026 for the total loan growth? Pablo Ricci: Well, in terms of loan growth, what we're seeing the main driver, as you know, commercial loans is the largest mix of the portfolio. So -- and what's been most impacted over the last 5, 6 years has been commercial loans as importance in terms of volumes. So in terms of volumes, we should see a recovery in terms of commercial loans. Within that, we're expecting with better business confidence with more -- less uncertainty, we should see a return of larger corporate demand in Chile. SMEs as well should have a very good activity in this environment with a better global activity in GDP, unemployment, they're much more cyclical, as I mentioned. And in consumer loans, we should see slowly as we should continue to see slowly that the consumer loans will continue to improve in line with unemployment rates. For what's happened in the consumer loan segment is that some players in Chile have implemented or have focused on the lower income segments where we're not active today, penetrating that market more than us. Probably we have a customer base that's a higher net worth customer base. as well that it's not demanding as much loans. But we continue to grow well. So in a new environment next year with better business and consumer confidence, we should see more attractive loan growth in this segment, and we're implementing different digital initiatives to understand the customers in order to offer them products to the channels that they desire with business intelligence, much more focused on each customer rather than global plans that are focused over the entire segment. So we're trying to personalize much more of the information that's going to these customers. Next year should be a more positive year overall. Andres Soto: My next question is regarding capital. Your core equity Tier 1 is 400 basis points above all your peers, basically. What level do you guys feel necessary for the growth that you see ahead? And how you imagine the capital normalization of Banco de Chile taking place? How long is going to take place for you to get to a level you see as the adequate level for capital? Daniel Ignacio Galarce Toro: Andres, this is Daniel Galarce. From the capital point of view, as we have said, of course, we have today important buffers and favorable gaps over the regulatory limits. Basically, everything depends on how the portfolio will normalize in terms of loan growth in the future. And basically, in which products we will increase and we will expand our portfolio in the future as well. As Pablo said, we are expecting to grow more in commercial and consumer loans. We want to be leaders in those lending products and those products are more intensive in terms of use of capital, of course. So everything depends on the evolution of loan growth in the future. So probably we will have a normalization in terms of capital buffers probably over the midterm, 3 years or something like that, depending on the economic activity in the country. Andres Soto: And which level will be that? Daniel Ignacio Galarce Toro: Well, we don't have any specific target, but in the long run, we will -- we need and our aim is to be always at least 1.5%, 2%, something like that in the range of 1% to 2% above regulatory limits. Operator: We would like to thank everyone for the questions and the participation. I will now hand it back to the Banco de Chile team for the closing remarks. Pablo Ricci: Thanks for listening, and we look forward to speaking with you for our full-year results next year. Operator: That concludes the call for today. Thank you and have a nice day.
Operator: Good morning, and welcome to the CNH 2025 Third Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I will now turn the call over to Jason Omerza, Vice President of Investor Relations. Jason Omerza: Thank you, Julianne, and hello, everyone. We would like to welcome you to CNH's third quarter earnings presentation for the period ending September 30, 2025. This live webcast is copyrighted by CNH and any recording, transmission or other use of any portion of it without the written consent of CNH is strictly prohibited. Hosting today's call are CNH CEO, Gerrit Marx; and CFO, Jim Nickolas. They will reference the material available for download from our website. Please note that any forward-looking statements that we make during today's call are subject to risks and uncertainties mentioned in the safe harbor statement included in the presentation material. Additional information pertaining to factors that could cause actual results to differ materially is contained in the company's most recent annual report on Form 10-K as well as other periodic reports and filings with the U.S. Securities and Exchange Commission. Our presentation includes certain non-GAAP financial measures. Additional information, including reconciliations to the most directly comparable U.S. GAAP financial measures is included in the presentation material. I will now turn the call over to Gerrit. Gerrit Marx: Thank you, Jason, and welcome to everyone joining the call. Our third quarter ended in an evolving world of global trade, but with progress along our articulated priorities, to lighten channel inventory, reduce our quality and product costs, break new grounds across our lineup of iron and technology and build a solid foundation for our recently announced 2030 mid-cycle margin commitment. Since the very early days of our industry, farmers have seen many cycles and shifts in global trade, some even larger and more disruptive than this one. As we look forward beyond the current cycle, it is certain that most arable lands around the world will be used for technology-led crop production and livestock farming to feed the growing population even if it requires growing different crops. As the only other truly global full-line agriculture machinery provider, CNH is going to play an even larger role in helping feed the world as we will showcase next week during our Tech Day at the Agritechnica Fair in Hannover, Germany. We are thoughtfully transforming our global supply chain footprint and dealer network to mitigate the risks of further volatility that may emerge in the -- in our industry. With this clear direction in mind, we have maintained the overall low levels of production that we initiated in the third quarter of 2024 to help reduce CNH steel inventories and clear aged products while still defending and in some cases, growing market shares. Both ag and construction production was flattish year-over-year, but large ag production was down 10%, while small ag was mostly up. Our ag dealers' new inventory levels saw another sequential decline of over $200 million, putting them on track to achieve our targeted levels over the next 3 to 4 months. Our North American dealers' used inventory also saw another sequential decline in the quarter. While it's all good news for CNH, market fundamentals remain uncertain and challenging for our farmers. And it is difficult to say if we would enter 2026 with more visibility or even more momentum. Conditions in South America and Brazil, in particular, continue to be a headwind for our farmers. While we had expected to see this region as the first to emerge from the downturn, difficult geopolitical and market circumstances have persisted. Similarly, conditions in North America have been difficult for farmers as they see the global trade shifts impact their very own operating bottom line. Even with the recent announcements around the trade deal with China, material subsidies for farmers in their different forms are needed while the leveling of the global trade playing field is progressing. So in the meantime, we use all these shifts, changes and drags on global framework conditions as an opportunity to invest our resources in building a better and higher performing CNH during these slow quarters. We can prepare for upcoming product launches and define new ways of working more efficiently. This business has always been very cyclical and maintaining a through cycle perspective on what matters accompanied with consistently delivering profits and cash flows make all the difference. We're advancing our investments in iron and technology all the way to Agentic AI applications for our digital farm management system, FieldOps. We continue to take obsolete costs out of the operations to improve our underlying margin profile outside of the near-term tariff impacts. And we continue to make progress on our new go-to-market network development strategy with regionally important steps to emerge over the next year. So while we thoughtfully navigate near-term challenges, our focus remains on investing in the business to secure leading positions across all our major markets. In full alignment with our Board of Directors, we are pursuing the path we laid out on May 8 with determination and a healthy dose of flexibility as we navigate near-term challenges. We are CNH and we will deliver. With that, let's turn to the results. As expected and projected, our Q3 results now reflect the delayed impact of tariffs on our costs, which did not yet have a material impact in Q2. As a reminder, we introduced additional pricing adjustments effective with new orders received after May 1, and we also started to see some of that benefit in Q3. It is our intention that we will eventually offset all the tariff cost impact through cost mitigation, structure realignment and pricing actions. In 2025, however, we are absorbing some of the impact alongside our suppliers, network partners, farmers and builders as we navigate these new trade realities. The changed conditions for purchase components and ship machines impact the entire industry and relative differences in exposure and footprint will impact near-term results differently. 2026 will be a year of alignment and adjustments for our industry, and we expect those to play out fully for the 2027 season. Consolidated revenues for the quarter were down 5% at $4.4 billion. Our Global Ag segment sales were down 11%, with North America down 29%, but EMEA up 16%. While the geographic mix shift has a negative effect on our margins, it is encouraging to see some bright spots in EMEA sales, particularly tractors, especially in Eastern Europe and in the Middle East and to some extent also in Germany. Some of our product launches to be revealed next week in Hannover are precisely targeted to fill gaps and gain more ground in those markets for CNH. We will explain these step changes in greater detail next week. Industrial EBIT -- industrial adjusted EBIT was $104 million, down 69% compared to last year, mainly reflecting the impact of lower industry demand, tariffs and geographic mix. Adjusted net income was $109 million with adjusted EPS for the quarter at $0.08. While the markets are not helpful to our farmers, growers and builders these days, we remain more committed than ever to strengthening the company and prioritizing long-term value creation. Our company strategy is centered around 5 key strategic pillars. Expanding product leadership, advancing our iron and tech integration, driving commercial excellence, operational excellence and quality as a mindset. These pillars remain front and center to ensure we stay aligned with our long-term strategic objectives. And our team remains focused and united in our shared purpose to feed and build the world we all live in. Today, I would like to focus on a few of these items that demonstrate our commitment to the future. While we turn the challenges of the present into opportunities for the future. First, in the area of expanding product leadership, I'm revisiting a chart that we showed at our Investor Day in May. It shows a sample of our extensive product offering across many different farming applications. At the 2025 Agritechnica show next week, we will be unveiling several new products highlighted here with key launches across our tractor and hay and forage lineup. Furthermore, we will be launching significant upgrades across our full product portfolio in terms of both iron and technology. Stay tuned as more news will be revealed about these products next week, but we are very excited about the advancements that we are making here. Speaking of Agritechnica, in advance of the show, we received 2 innovation awards -- Silver medals for our corn header automation and ForageCam. The corn header automation system uses advanced AI and automation to enhance corn harvesting, which ultimately results in more high-quality grain in the tank. ForageCam uses a camera to instantly analyze crop flow and kernel fragments delivering real-time kernel processing scores and helping to boost livestock nutrition. These technologies, which deliver significant agronomic advantages demonstrate how CNH continues to deliver the tools and innovations that create the most value and the greatest impact for farmers. We have transformed how we think about quality within CNH. We are taking a 360-degree view of quality, spanning product development, supply chain, manufacturing and our dealer network. Let me give you a few examples. We have embedded quality into everything we do, and our suppliers are a big part of that. Through our strategic sourcing program, we are selecting suppliers who meet our stringent quality standards. These collaborative partnerships yield more reliable, durable parts that directly enhance our machines performance. In an industry downturn, it's tempting to focus only on the purchase price of our components, but we are maintaining a holistic view of quality throughout the sourcing process, while we still take cost out from our purchase goods. Programs that we piloted at our Racine plant, such as no fault forward and dynamic vehicle validation testing are now being deployed at other facilities. I'm happy to report that, as measured by our dealers, we are now achieving the highest delivered quality scores for our large tractors that we have seen in over a decade. Our dealers recognize the difference and our customers are seeing it too. We never want to have machine downtime. But when problems do occur, our motto is fix right first time. Our diagnostic AI tech assistant tool is providing dealer technicians with the real-time insights at their fingertips. It has significantly reduced the time it takes to identify solutions, and we see that in our dealer help desk efficiency. We already see the benefits in our bottom line. Year-to-date, we have reduced our quality costs by over $60 million, and there's a lot more to go as we discussed during the Investor Day. But perhaps more importantly, this commitment to a quality mindset reinforces the trust our customers have in our brand and lays the foundation for achieving a higher net price realization for new and used machines over time. With that, I will now turn the call over to Jim to take us through the details of our financial results. James A. Nickolas: Thank you, Gerrit. Third quarter industrial net sales were $3.7 billion, down 7% year-over-year, mainly driven by decreased agricultural shipment volumes on lower industry demand, compounded by reduced ag dealer inventory requirements. Adjusted net income decreased by nearly 2/3 with adjusted diluted earnings per share down from $0.24 to $0.08. The decrease was mainly due to lower sales levels, tariff impacts, unfavorable geographic mix and increased risk costs in financial services. Q3 free cash flow from industrial activities was an outflow of $188 million, roughly in line with Q3 last year, as the lower year-over-year EBIT was offset by better net working capital and cash taxes. Agriculture Q3 net sales were just under $3 billion, down 10% year-over-year, driven by the 29% decrease in our higher-margin North American market, where we are experiencing both a weak retail demand coupled with dealer inventory destocking. The year-over-year net sales increase in the EMEA region was mostly driven by higher demand in Eastern Europe and in Middle East, Africa. Pricing was favorable overall with North America positive 3%, and which starts to include some tariff-related price adjustments. This was partially offset by some negative pricing in South America, where we have seen aggressive competitive incentives. Third quarter adjusted gross margin was 20.6%, down from 22.7% in Q3 2024, affected by the lower volumes, tariff costs and unfavorable geographic mix, partially offset by purchasing efficiencies and lower warranty expenses. Product costs were favorable, $33 million year-over-year despite including $45 million of unfavorable tariff costs after FIFO inventory offsets. Manufacturing and warranty quality costs were lower by $44 million in the quarter. The supply chain efficiency is making up the remainder of the favorable year-over-year results. So despite the tariff headwind, we are making good progress on our underlying margin improvement initiatives, and this remains central to our path to 2030 strategy. We'll provide a more thorough progress report on our long-term goals during our Q4 call. SG&A expenses were $36 million higher than in the third quarter last year mainly due to higher variable compensation accruals in 2025 and labor inflation. As a reminder, we took out over 10% of our white collar head count in late 2023 and early 2024. And since then, the levels have been essentially flat while we work on improving our organizational effectiveness. Adjusted EBIT margin for agriculture was 4.6%, a sequential decline from Q2 2025 levels as a result of the increase in tariffs and our normal quarterly business seasonality. CNH enjoys the distinction of being the most geographically balanced of all the ag OEMs in terms of our sales mix, and we've been profitable in every reach of the world so far this year despite the consistently depressed markets. We expect that trend to continue in the fourth quarter. The EMEA region is weaker than North and South America in terms of margins, but we know what needs to be done to raise its profitability profile. Many of the improvements discussed at our Investor Day such as improving dealer network presence and improving operating performance, along with the private launches mentioned by Gerrit earlier, are designed to improve the fortunes of the EMEA region with our focus on this critical area that will yield benefits for the entire agricultural segment. Construction third quarter net sales were $739 million, up 8% year-over-year, driven by higher sales in North America and EMEA. The increase is mainly due to the low sales level last year as we had cut production aggressively in 2024. Gross margin for the quarter was 14.5%, down from 16.6% in Q3 2024, mainly as a result of the tariffs. Purchasing and manufacturing efficiencies of $12 million favorable were more than offset by $26 million of tariff costs. It's important to point out that we seem to have been a bit more aggressive on price increases as a result of the tariffs that we have seen from our competitors. Like in agriculture, construction SG&A was unfavorable due to variable compensation accruals and labor inflation. We closed the third quarter with an adjusted EBIT margin of 1.9%. I would also like to note that earlier this week, we finalized our previously announced plan to stop production at our construction plant in Burlington, Iowa by the second quarter of 2026 due to declining demand and underutilization. Production will be moved to other existing CNH facilities, including our plant in Wichita, Kansas. This is part of construction's manufacturing optimization effort that was discussed at the Investor Day. Moving to Financial Services. Third quarter net income was $47 million, the $31 million year-over-year decrease was driven by higher risk costs in Brazil, partially offset by better margins in all regions. Retail originations in the third quarter were $2.7 billion, down 6% year-over-year, reflecting the lower equipment sales environment. The managed portfolio ended the quarter at $28.5 billion. The wholesale portfolio was down nearly $1.5 billion since 12 months ago on a constant currency basis, mainly driven by the lower dealer inventory levels. While credit collection rates have been relatively steady in most regions, despite the market downturn, we, along with others in the industry, are experiencing persistent delinquencies in Brazil. Accordingly, we increased our credit reserves again in the quarter. We believe that our reserves are adequate, and we work with farmers in the region so they can continue to operate their farms and pay for their equipment. Our experience from past cycles is that most farmers in delinquent status will eventually catch up on their commitments, but this increase in risk reserves is a needed measure while observing how the market environment unfolds. Our capital allocation priorities remain unchanged. We will continue to reinvest in our business while maintaining a healthy balance sheet. During the third quarter, we repurchased $50 million worth of CNH stock at an average price of $11.25 per share. Before I turn the call back to Gerrit, I want to give you an update on our net tariff assumptions for this year as well as a view of the gross run rate impact of the tariffs. The numbers on this page reflect the expanded Section 232 steel and aluminum tariffs, which were not factored into our previous guidance and reflect that China tariffs will be lowered by 10 percentage points on Monday. For 2025, we estimate the net impact of agriculture at around $100 million at the midpoint and construction at $40 million at the midpoint. In the fourth quarter, that will be around $60 million for ag and $20 million for construction. In the short term, we are working diligently to offset as much of the tariff impact as we can. This includes collaborating with our suppliers to identify alternative sourcing options and consuming pre-tariff inventories. The price adjustments implemented to date do not fully offset the gross tariff impact, as we have chosen to share the burden alongside our suppliers, network partners, farmers and builders, while the trade environment is in flux. The 2025 impact is only a partial year impact as the ramp-up in tariff levels and our FIFO accounting pushed most of the impact into the second half. If we annualize the gross impacts still at 2025 volumes, we estimate approximately $250 million of impact in agriculture and $125 million impact in construction. That is approximately 200 basis points of agriculture margin headwind and 425 basis points of construction margin headwind. I'm only showing the gross cost run rate impact here because as Gerrit said, we do intend to be able to fully offset the tariff impact over the long run. We will take advantage of our ongoing strategic sourcing program to identify the right suppliers with a global footprint to help us identify the most favorable countries of origin. Likewise, we will leverage our global manufacturing footprint to identify the ideal production locations. And ultimately, we will pass through the remaining incremental costs through our pricing and has been done across the industry in the past. Our 2030 margin targets will not be jeopardized by the tariffs. With that update, I will turn it back to Gerrit. Gerrit Marx: Thank you, Jim. And now let's review our latest outlook for agriculture in 2025. Global industry retail demand is expected to be down around 10% from 2024. We have narrowed our net sales guidance as we approach the end of the year. Full year pricing will be positive about 1%, and there is no expected currency translation impact. We've also updated our margin guidance. As you recall, last quarter, we said that margins would likely fall somewhere below the midpoint and the guidance. However, since our last call, additional Section 232 tariffs on steel and aluminum were introduced. As such, our revised guidance now reflects those tariffs as well as the geographic mix shift between North America and EMEA and product mix between large ag and small ag. The Section 232 tariffs will impact all players in the industry, whether they are components imported or locally sourced as domestic steel and aluminum prices will rise as well. We expect to recover those impacts through pricing of our products. In Construction, overall industry retail volumes are expected to be down about 5% from 2024. As with ag, we have also narrowed our net sales outlook for the year and lowered our margin expectations. We are still working on our 2026 industry estimates, and we'll need to see how some of the larger market players react on pricing before we are able to finalize an opinion here. With the narrowed sales estimates in ag and construction, we are guiding total industry net sales to down 10% to 12% year-over-year with margins reflective of the net tariff exposure between 3.4% to 3.9%. Free cash flow is now expected in the $200 million to $500 million range. EPS is now forecasted to be between $0.44 and $0.50, again, reflecting the latest net tariff impact. I will end our prepared remarks by looking at our priorities for the remainder of the year as we close out 2025 and position ourselves for success in a likely transition year in 2026. We are carefully observing the different leading demand indicators. At the same time, while we are dealing with a rapidly changing trade environment, we are working very closely with our network partners and suppliers to ensure that we are responsive to ongoing shifts in the market. We are taking orders for model year 2026 products now at new prices, reflecting another round of cost recovery. Each region has their own cadence for order collection, typically North America ahead of the other regions. Production order slots are full for the remainder of 2025, and we are about half full for the first quarter of 2026. Some products in some regions are a bit further out than that. North America's Q1 slots are already full. For example, we are monitoring order collection closely to understand overall industry retail demand in 2026 and to make the appropriate shift in our production cadence when needed. Besides our order collection, other factors that we are evaluating include commodity prices, stocks-to-use ratios, progress on trade deals, especially a finalization of the recently announced agreement between the United States and China, clarity on renewable fuel standards in the U.S., used inventory levels and their values and competitive pricing dynamics. As of right now, we would expect global industry retail demand to be flat to possibly slightly down in 2026 when compared to 2025, that likely includes EMEA being slightly up, North America, slightly down in large ag and South America and Asia Pacific somewhere in between. As year-end approaches, we'll assess market developments to refine our industry forecast with greater precision. As I discussed earlier, we will continue to produce at our current low levels through the end of 2025 and likely into the beginning of 2026, given continued soft demand. Our North American dealers are on pace to achieve our inventory targets for new equipment within the next few months, whereas improving sentiment in Europe will allow dealers to increase their stock somewhat. Like our continued dedication to investing in the future through iron and tech R&D, we are not taking our eyes off our margin improvement initiatives regardless of the market environment. We are maintaining our relentless focus on our homework and executing the cost management strategy that we presented to you in May. We are pursuing productivity improvement and the strategic sourcing program to drive further cost reductions with a particular focus on delivering the highest quality products to our customers. I want to reiterate what Jim said, our 2030 targets are not jeopardized by the current trade environment or status of the ag cycle. Things are very positive for CNH. And during times like these, continuity through dedication and consistent execution are more than ever important. At our Tech Days next week, we will exhibit our latest products, technology applications and solutions. We are excited to show you how our technology evolves to serve farmers on their field and to preserve their soil health. Our solutions help them rise to everyday challenges, particularly the unexpected ones. We hope to see you in person in Hannover or connected to the webcast. That concludes our prepared remarks, and we are ready for the Q&A. Operator: [Operator Instructions] We will take our first question from Kristen Owen from Oppenheimer. Kristen Owen: A lot of discussion this morning on the ag margin bridge, and you hit on some of the points, but I'll ask you to articulate on 3 particular items that stood out to us. First, can I ask you on the decremental margin on the volume mix? How much of that was the decline in North America as the total percent? And how should we think about that decremental going forward? The second item here is on the SG&A and the $37 million drag? And then finally, I'll just ask you to unpack some of the product cost puts and takes, tariffs versus some of that underlying quality work that you addressed. I realize there's a lot there, but I appreciate you addressing that bridge. James A. Nickolas: Okay. Kristen, happy to answer those questions. The decremental in ag was really driven by the declining sales in North America, 29% decline in North America, EMEA, up 16%. So you've got a fairly sizable geographic mix element in there. SG&A did grow. To answer both parts of your question with here, the ag EBIT margin decline -- 12% of that decline was from higher SG&A due to the variable compensation. So last year, very low bonus accruals. This year normalized, rate of bonus accruals is being accrued. So you've got the SG&A growth. Tariffs were a meaningful portion of that as well, than geographic mix I mentioned. And then to a lesser extent, our ag JVs are delivering lower profits this quarter than it did a year ago. So those are the 4 primary buckets. If you take those out, you are back to the normalized 25%, 30% decremental. So that answers the ag question. Gerrit? Gerrit Marx: Yes, I just would like to -- on the first one on the mix point, Kristen, I would like to add that in EMEA, particularly the tractor segment was up while harvesting segment was still behind in the overall mix. And I think as you might recall, we -- while strong on tractors, we are particularly pronounced on harvesting equipment and I mean large combines. So that was in another -- it's not a regional mix. It's like an in-region product mix to some extent. And as Jim and I alluded to is Europe is -- or EMEA is for us from a marginality, a trailing region is actually at the bottom. And we have launched quite some substantial turnaround and restructuring actions across the region starting as well from the product side that you will see next week in order to regain momentum and share in a region that shall be no weaker than any of our margins in North or South America. So this is very much in focus, and we are going to talk you through those things next week when we stand in front of our local new product lineup with tractors that we -- and the serve segments that we never had, okay? So high horsepower midrange tractors, we never had and now we have, and we'll show that next week as another measure to turn around Europe. James A. Nickolas: Yes. And then continuing to answer your question, so the product cost unpacking, that really is $33 million of favorable product costs, excluding $44 million of tariff costs. So without the tariffs, that number would have been $77 million of favorability. That breaks down as $44 million in quality improvements, $17 million in purchasing and manufacturing improvements and $60 million of other improvements. So that sort of, I think, shows the good work we've been doing on our path to 2030 from an operational perspective. The tariff supports our headwind that weren't there previously. And tariffs are growing a bit in Q4. Q4, we expect tariff costs to be $60 million in ag and $20 million in CE, but we'll give you a more detailed breakdown of the full year cost improvements toward our Investor Day targets when we report out in Q4. So I think that addressed all 3 of your questions. Operator: Our next question comes from Angel Castillo from Morgan Stanley. Angel Castillo Malpica: Just 2 factors impacting fiscal year '26, I was hoping to get a little bit more color on. First, in terms of the annualized tariff gross headwind that you laid out, I just want to triple check, I guess, it seems to me a rough math that, that implies maybe a 2% to 3% kind of incremental headwind in terms of your North America sales next year. So just one, is that correct? And kind of second, based on pricing you're putting out through your orders right now for next year and the preliminary kind of cost inflation you see. I guess how much of that 2% to 3%, do you think you can offset your pricing versus other kind of cost initiatives that you laid out? And how much do you -- basically you already have covered versus you still need to go out and get a kind of enact initiatives? And then the second piece of fiscal year '26, just under production, what gives you confidence in being able to achieve desired dealer levels in 3 to 4 months? And basically, how much more inventory do you need to kind of work down and how much of a tailwind that could be next year? That would be helpful. James A. Nickolas: Yes. Let me tackle the first one, Angel. So the -- I think you're about right on the headwind effect of the tariffs -- the basis point headwind. And the pricing that we put out, if you couple the tariff costs with normal inflation costs, the list price growth that we put out is not adequate to cover 100% of the tariff costs. However, we're working to -- over the course of 2026, we'll be working to cover that through various means, further cost cutting. And there's also -- we can adjust our discounting to some degree as well to maybe help offset. So from a list price perspective, not there, but through other actions we'll be endeavoring to get through throughout the course of 2026. And as it relates to the production question. Gerrit Marx: Yes. And relating -- related to the production question. When we look at 2026, and it's consistent with what we, I think, we said also during the last 1 or 2 calls is we expect that the production pace equals retail pace. And in next year, we expect in terms of production hours versus a 2026 production hours over '25 production hours to be up around mid-single-digit percentages basically across all regions, across all products because we do see, as we mentioned, that we will achieve the target of about $1 billion inventory reduction in 2025 that gets us to a much better place by this year-end. So we plan to increase production hours next year. And that might entail even a further inventory reduction at the same time, if needed. And that is not a general statement across the world because, as I mentioned earlier. I mean EMEA show signs of momentum in some markets, which means depending on where we are in the season that we are going to stock up some machines in those markets. Again, depending on the season, why we have here and there still some pockets of machines where we might continue to see a further destocking next year. But in large, we have achieved the target of $1 billion destocking this year over the next couple of months. And with that, we see space now to restart production in the mid-single digit up. Operator: Our next question comes from Tami Zakaria from JPMorgan. Tami Zakaria: I wanted to touch on tariffs a little more. Is there a way to think about how much of the total tariff costs you quantified, I think, $205 million to $225 million. How much of that is tied to AEPA versus Section 232 versus the baseline? Should the industry get some relief from any Supreme Court ruling in the coming weeks, months? Just wanted to get some sense what could be the opportunity there? James A. Nickolas: Yes. About 20% of the tariff costs are from Section 232. So any release is granted, that would be wonderful. We're not counting on that or taking that into our plans at this point, but we'll wait and see where that goes. Operator: Our next question comes from Kyle Menges from Citi. Kyle Menges: I wanted to follow up on some of the pricing comments on the comments that maybe you've been a little bit more aggressive on price increases versus competitors this year. And just how that's influencing how your pricing model your '26 machines as your opening order books for next year. Curious what the customer feedback has been on pricing as you start to price model your '26 machines and feedback on maybe where you're priced versus competitors in some of your different markets as you're opening order books for next year? James A. Nickolas: Yes, just to clarify, Kyle, the -- where we are more quick to raise prices was on the construction side, where we didn't see really much else happening with our competitors. So we were probably out in front on that one. As it relates to ag, I would say we're 3% to 4% list price you put out there for the early order program that's -- that's translating well. We think that's where the market is, and we're -- it seems to be working as planned. And you can see it from our production slots being filled. That's encouraging. It's tracking as we would have expected. So that's lined up, I'd say. So construction pricing, we're a little bit more aggressive on increases. Ag, I think we're in line with the market, and that seems to have been well received by the market. Operator: Our next question comes from Jamie Cook from Truist Securities. Jamie Cook: I mean, if you look at your guide, your fourth quarter sales implies we're finally up year-over-year versus decline. So I'm just trying to think about that and the backdrop for 2026. It sounds like you broadly think industry demand is sort of flattish in ag, different pockets, obviously, and construction is probably up. Just trying to think of the company-specific items that you can control. And to what degree do you think your earnings could grow next year in a flat market as like next year, you would produce in line with retail demand or potentially better, quality should be an incremental savings potentially supply chain, I guess, tariffs a headwind. But just the big puts and takes there, the things that you can control to hopefully get us comfortable or maybe not that that 2025 would represent the trough of earnings? James A. Nickolas: Yes. Great question, Jamie. So the production increases that Gerrit outlined in 2026 are not because of the industry is rebounding, it's because we're producing closer to the retail. So under producing less than we did in 2025. So we will get some absorption benefit from that, from the higher production rates. We will, of course, continue and amplify our ID2025 targets that we put out around quality, around supply chain efficiencies. Those areas are sort of working. We're seeing it, strategic sourcing. These are all things that are coming through, as we talked about in Q3. We expect those to keep growing and building. So those are the sources of tailwinds that we're looking towards. And the headwind that you'd point out is the one that we have less control over in the short term, and that's the tariffs. So as I mentioned on my question we answered Angel, we'll be looking for ways to help offset those tariff costs, but those right now are probably the most significant headwind we've got to grapple with. Operator: Our next question comes from Steven Fisher from UBS. Steven Fisher: Just maybe to follow up on that. I'm just curious what the drivers are of the smaller declines in revenue guidance for 2025 and maybe some of the regional color on what you have embedded for Q4 because it seems like ag overall looks like it's implying around 4% growth and construction in the -- and perhaps in the mid-teens. So just a little color on those changes and what's implied? James A. Nickolas: Yes. So in ag, EMEA will continue to be more strongly performing versus other regions. And construction industries also -- equipment is also to be the one that's driving it forward. The end markets there have been improving. And so those are the 2 areas where we see the sales growth coming from. Part of it also is the -- we're producing -- we're underproducing retail less in Q4 on the ag side, that would also help above and beyond sort of the EMEA improvement. So hopefully, that answers your question, Steven. Operator: Our next question comes from Tim Thein from Raymond James. Timothy Thein: Maybe just coming back to the concept of production versus retail in '26. And we covered a lot of ground there earlier, but I just want to make sure I heard correctly with respect to large ag in North America, as I think back in recent months and the commentary for '25 has suggested that in many cases where inventory was a bit heavier, it was more on the small ag side. So I would assume that that gives you more of a production tailwind as we're thinking about into '26, i.e., if there's more upside pressure to production, it would be on the large side versus small, just given the fact that more of the inventory issue has been on the small ag in North America. So again, kind of bouncing around ideas here, but is that a fair kind of characterization as we think about the outlook -- potential outlook for production in North America split between large versus small? Gerrit Marx: Yes. I think you're directionally correct, will be a few percentage points -- in the current planning will be a few percentage points higher in large ag than in small ag, when we look at production hours, '26 over '25. Operator: Our next question comes from Daniela Costa from Goldman Sachs. Daniela Costa: I have a follow-up on the -- what's implied for Q4 in the guidance because most years, we have a negative seasonality into Q4. I understand you have a little bit of delivery growth here. But even when we have delivery growth, we tend to have negative and you mentioned you don't offset the tariffs entirely. They're higher in Q4, and there's sort of all the other headwinds. So can you walk us a little bit through the tailwinds that drive you to a better than usual seasonality in Q4? James A. Nickolas: Yes. Yes. Good question. From a margin perspective, the improvement versus history is we've got, again, a line of sight improvement in quality costs and our manufacturing cost. So we're looking for good product cost improvement in Q4. And of course, those are growing. So that's something we're -- we're expecting when you compare it versus 2024 levels. So everything we talked about before, the ID2025 targets you put out, those initiatives are underway, they're delivering. We expect that to continue in Q4. Operator: Our next question comes from Mig Dobre from Baird. Mircea Dobre: Just a clarification, if I may. I'm a little bit confused about moving pieces to the guidance here. So I'm looking at Slide 17, right? So if I look there on an 11% revenue decline you used to expect 6.5% margin. Now on an 11% revenue decline, we're looking at something more like 3.7% margin. So just the rough math would be we're cutting EBIT here by $430 million, give or take. And this is all second half of 2025. What are the moving pieces here? Because as I understand the tariff assumptions, that alone does not account for this move. So maybe specifically, within this, how -- what dollar figure is associated with tariffs? And what are some of the other elements here? James A. Nickolas: Yes. It's a good question. So Page 17 is corporate, right, the entire enterprise. What's not broken out there is the mix effect. So we've got construction -- the CE business sales growing. Those are incredibly low margins. So I'm happy with where those are at, but that's not delivering the margin with those earnings or that revenue. And the ag business is not growing at the same pace. So you're seeing a sort of within a segment -- between segment mix happening there. So that also explains why the industrial activities decrementals were so poor in this quarter. CE sales were up. Ag sales were down. And that has that same dynamic. So that's what you're seeing. Part of what you're seeing on Page 17 is what we experienced in Q3, and that will continue in Q4. Operator: Our next question comes from Mike Shlisky from D.A. Davidson. Michael Shlisky: It sounds like, as you've been saying you're a few months away from getting to the right level of new inventories in the channel. Are you also a few months away on the used inventory side. Just update us on what's happening there? And is that the point where both new and used are at decent levels at optimal levels, we'll start to see your wholesale sales to be above your retail sales and some kind of restocking again happening at the dealership level? James A. Nickolas: Yes, great question, Mike. So I think we've seen good success on dealer -- on the used inventory side. I think there's been 3 quarters in a row for CNH Ag dealers declines in the used inventory. So we're pleased with that trend. I wouldn't say it's done at the end of this year, though. It's still higher than historical norms would imply. And so I think there's more work to be done there. That's always been less of a concern for us though. I think it's more of a -- I think your broader industry concern, a bigger concern for CNH and CNH dealers, but it's higher than we'd like. We're making progress over the last few quarters. We think it will continue, but we won't be done. That effort won't be done into Q4. Operator: Our next question comes from Joel Jackson from BMO Capital Markets. Joel Jackson: Definitely a couple of months ago, there was some optimism, I know expressed by the management team around South America maybe turning, wasn't clear, but there was optimism a couple of months out later now as you mentioned earlier, the optimism is sort of died down a bit. Can you talk about what you're thinking then and what you're thinking now, what you've seen in the last couple of months? Gerrit Marx: Well, look, the South American market experienced a higher attention from China when it comes to not only soy, sorghum and other commodities. And we had the sentiment there that overall, when trade clarity comes up that this region would react first to this increased level of certainty when it comes to global trade. As we are still in a moment of uncertainty, I mean, there is a deal announced between the U.S. and China, about 25 million metric tons of soy over the next couple of years, 3 years. We still await the exact numbers, and we will still need to see as an industry, not as only CNH, what are the actual purchase volumes of China when it comes to South American soybeans and other commodities. That will then refuel farmer sentiment in the region when it comes to 2026 planting season, and related equipment sale or purchase consideration. So it's really around continued ambiguity of global trade and a still existing lack of certainty because I mean you have heard many trade deals being announced, but then the details are not yet disclosed and are not there yet until our farmers are and so are we, we are curious to see those details coming through, which will then lead to more certainty, and that will also then lead to a higher level of predictability when it comes to purchase equipment sales, I mean, equipment purchases. So that is the difference. We haven't really improved on certainty as it comes to global trade conditions. That's the main driver. Jim alluded also to an increase in -- Latin American increase in delinquencies. Our farmers were expecting a payout from the -- from the local Brazilian farm bill as it comes to purchase of seeds and fertilizer. That was delayed. And so farmers preferenced or basically prioritized purchase of seed fertilizer and imports that purchased rather those instead of, let's say, giving priority to our equipment or the industry's equipment rates. And so that is another drag in the market that is another indicator for uncertainty that has very much unfolded in the third quarter. And we are taking a very cautious view here and so do the farmer. So more uncertainty and wait and see mentality in Brazil, that's really what has changed. And we need to see what China really buys in the end. One thing is a deal, the other thing is the actual purchase and the consistency of such purchases month after month. Operator: Our next question comes from Ted Jackson from Northland. Edward Jackson: Two questions for you. One, with regards to the tariff guidance and what is it -- is it $80 million, I think you said you were going to have in the fourth quarter. What was -- when you -- at the second quarter, what was the view for the tariff impact for the remainder of the year? Honestly, I don't recall what it was when I looked at the past presentation, I didn't see anything in [indiscernible] -- is this -- are the costs that you're putting forth there, is that incremental relative to what your view was, exiting the second quarter going into third? James A. Nickolas: Yes. Good question. The Section 232 costs were not part of our guidance at Q2. I think we indicated $110 million to $120 million of full year net tariff costs, and then we bumped that up to the current view. So that's -- the biggest reduction in guidance is not from tariffs. Tariffs were a small piece of that. The bigger reduction was more of the items we've gone through were the SG&A increases and the mix effects. Geographic mix came in tougher than we thought. Edward Jackson: My next and last question obviously is, even with all the stuff and you look at the change in guidance, you did take your sales number up. At the midpoint, it would be up $650 million to $700 million. In your third quarter, at least relative to consensus was a bit higher this year ongoing. So even if we just say, okay, well, third quarter was better and just use consensus as a proxy, you can back that out. There's another $200 million of sales in the fourth quarter relative to kind of what would have been expected to do something like this with prior guidance. It sounds like it's construction in EMEA that's driving that. And then how much of that increase is, am I right with that, and then is there -- how much of that pickup in revenue is from you being able to push along pricing as you're compensating for things like tariffs and such? James A. Nickolas: Yes. Yes. So pricing remains a positive driver of revenue in Q4. So that's definitely a favorable item that we've got baked in. The second half change in the guidance that you're seeing though was, again, mostly driven by higher volume sales with -- in sales areas with sort of lagging margins. So the margin that you would associate with any given dollar of sale, just wasn't there given where the sales occurred. So higher sales without the margin delivery coming through it. That's what's really affecting the -- what appear to be a bad incremental or decremental. It's really just the sales mix. Operator: Our final question today will come from David Raso from Evercore ISI. David Raso: When you speak to global industry retail next year being flat to slightly down, the order books as they sit today, where are the order books right now versus a year ago? An ideal if you can help us between the North American large ag commentary for next year in EMEA. If you can give us some sense of the order patterns in those 2 regions would be great. Gerrit Marx: Yes. I think the order coverage we see right now is basically, as I said, Q4 is basically covered everywhere. Q1 largely, let's say, very well on track. We have a bit more order coverage on the North American side than in other regions, but this is pretty comparable, I would say, to prior years. I think there's not a particular pattern here. We are working through, obviously, the other programs, and we're working through, which will be quite exciting for us to showcase the machines next week at the Agritechnica. We have a full lineup of renewed tractors on offer and similar upgrades also on the combines side. So I think the Agritechnica as well will be another stimulating moment when our farmers will see what great machines we are putting out there. And so we're pretty excited to walk you around and show you what we have on offer, but the order books are very much in line with expectations. James A. Nickolas: David, one more data point that we're excited about, and it's very comforting and validating our flagship combines in North America. The production slots are sold out for the entire year. I think that's evidence of how well that machine is performing, how well it's been received and the value proposition. So that's another good sign about building the right products and markets receiving them quite well. Operator: That concludes today's conference call. You may now disconnect.
Operator: Thank you for standing by. My name is Gary, and I will be your conference operator today. At this time, I would like to welcome everyone to the Miami International Holdings, Inc. Third Quarter Earnings Call. [Operator Instructions] Please note this event is being recorded. It is now my pleasure to turn the call over to Andy Nybo, Chief Communications Officer. You may begin your conference. Andy Nybo: Good afternoon, and thank you all for joining us today for MIAX's third quarter earnings conference call and our first earnings call as a public company. With us today are your host, Thomas P. Gallagher, Chairman and Chief Executive Officer; and Lance Emmons, Chief Financial Officer. We also have Douglas Schafer, Chief Information Officer; and Shelly Brown, Chief Strategy Officer on the call, who will participate in the Q&A session today. Everyone should have access to our earnings announcement, which was released prior to this call. We have also published a slide presentation to accompany the press release. In addition, this call is being webcast and an archived version will be available shortly after the call ends. All of these materials can be found on the Investor Relations section of our website at ir.miaxglobal.com. We want to remind everyone that part of our discussion today includes forward-looking statements, which are based on the expectations, estimates and projections regarding the company's future performance, anticipated events or trends and other matters that are not historical facts. The forward-looking statements in our discussion are subject to various assumptions, risks, uncertainties and other factors that are difficult to predict and which could cause actual results to differ materially from those expressed or implied in the forward-looking statements. These statements are not guarantees of future performance, and therefore, undue reliance should not be placed upon them. We refer all of you to our press releases and filings with the SEC for a more detailed discussion of the risks and uncertainties that could impact the future operating results, financial condition of MIAX. We undertake no obligation to update any forward-looking statements made in this announcement to reflect events or circumstances after today or to reflect new information or the occurrence of unanticipated events, except as required by law. During the call today, we will be referring to non-GAAP measures as defined and reconciled in our earnings materials. With that, I'd now like to turn the call over to Tom. Please go ahead, Tom. Thomas Gallagher: Thanks, Andy, and welcome to our third quarter 2025 earnings call. We're excited to have you join us for our first call as a public company and appreciate your interest in MIAX. Today, I will provide high-level third quarter results and a brief overview of MIAX, followed by Lance walking through our third quarter 2025 financial highlights, and then we'll open it up to your questions. For the third quarter, MIAX delivered strong results, growing net revenues 57% year-over-year to a record $109.5 million. These results were primarily driven by elevated industry options volumes and increased MIAX market share. Our market share in multi-listed options grew to a record 17.2% in the third quarter, up 24% from the prior year period. Furthermore, our successful IPO in August of this year represented a significant milestone that increased our access to capital markets and further enhanced our brand awareness. The proceeds from the offering allowed us to retire $140 million of debt and build a strong cash position. I'll now take a few minutes to walk through our value proposition and the factors supporting our long-term growth. MIAX is a technology-driven leader in building and operating regulated financial markets across multiple asset classes. Since our inception, we have built and launched 4 Options exchanges and 1 Equities exchange. We've also grown strategically through acquisitions. And since 2020, we've acquired 2 futures exchanges and clearing houses, 2 international exchanges and a futures commission merchant. This broad portfolio of licenses supports our growth initiatives and allows us to offer new products designed to meet the needs of a multitude of investor segments, both domestically and internationally. Our vision remains to cater to the needs of our customers and trading community and serve as the exchange of choice by delivering best-in-class technology, customer support, risk protections and reliability. A critical differentiator for MIAX is our commitment and focus on technology, which is the lifeblood of an exchange. Importantly, MIAX differentiates its technology by providing low latency, high throughput and industry-leading determinism, which serves as the foundation of our technology-first customer-centric approach to building innovative marketplaces. When we built our technology infrastructure, I'd like to say we built the church for Easter Sunday. Even when volume and quote traffic spikes in periods of extreme volatility such as the 2020 COVID outbreak or what was experienced in April of this year, we were ready and our technology performed without issue. In fact, these high volatility events reinforce our reputation for providing best-in-class technology. We understand the importance of continuing to invest in order to provide our members with high-performance technology to support their activity in today's rapidly evolving derivatives markets. Broadly, the options market is experiencing significant growth. Multi-listed options volumes are surging to record levels, with industry third quarter 2025 average daily volume of 56 million contracts, up 26% year-over-year. September industry ADV reached 61 million contracts while October ADV reached 67 million contracts. This growth has been driven by periods of elevated volatility in certain market sectors as well as continued strong demand from a range of market participants, especially for shorter exploration options products. While many industries and businesses are volatility adverse. For MIAX, volatility creates an increased need for risk management tools. As we look ahead, we continue to expect elevated volatility due to geopolitical tensions, uncertain trade policy and an evolving interest rate policy. Additionally, structural tailwinds, including increased retail participation which has begun extending into the futures markets and growing international investor demand are creating secular growth opportunities as we launch new futures products. Just as retail trading growth has fueled record options volume, expanding retail participation in futures represents another significant opportunity alongside our comprehensive product expansion pipeline. Our focus remains on offering technology designed to support the needs of our market makers by providing high throughput, low latency and highly deterministic technology with industry-leading risk protections, we allow our market makers to have greater confidence in their ability to properly manage their quotes and risk during volatile markets, offering those market makers the ability to quote more aggressively. For the retail investor, this means tighter and deeper markets, not just during normal trading, but also during times of volatility when liquidity is most in demand. In options, we see additional growth potential from a number of areas, including short-dated expirations for the most actively traded stocks, options listings on new IPOs and the use of options in structured product listings, all of which support higher industry volumes. Furthermore, we launched our new MIAX Sapphire trading floor in Miami in September. This state-of-the-art facility, which we built to address customer demand allows us to capture the additional volume opportunity in multi-listed options while bringing greater efficiencies to floor brokers and market makers. Miami has emerged as a major global financial center and is quickly becoming Wall Street South, and we're proud to have expanded our presence in our namesake City. We remain excited about the substantial growth opportunities in options as an asset class, driven by continued elevated global volatility issues that support the ongoing use of options for dynamic risk management. Moving to our growth initiatives. We continue to cultivate collaborative and strategic relationships across the industry that we are leveraging to introduce new and innovative proprietary products. In our Futures business, the launch of the new MIAX Futures Onyx trading platform at the end of June brings the MIAX technology advantage to this new asset class and offers MIAX the ability to list a range of new futures products. We plan to list futures on the Bloomberg 500 Index in collaboration with Bloomberg, starting in Q1 2026 with futures on the Bloomberg 100 Index to follow. Importantly, the new financial products will trade in a data center located in close proximity to U.S. equity markets, allowing our market participants to reduce potential latency in their trading strategies. Additionally, the Bloomberg 500 Index and Bloomberg 100 Index Futures products will clear at the Options Clearing Corporation, which is the central clearinghouse for all U.S. listed options. This provides our members with improved margin efficiencies in their equity derivative trading strategies. We believe these Bloomberg Index futures will provide the foundation for a broad portfolio of equity index derivatives we plan to offer on MIAX futures. Now moving to our Equities business. Our current focus is to maximize revenue by continuing to improve our capture rate and profitability. We continue to believe our presence in U.S. equity markets positions us to leverage a range of opportunities, including market data and adjacent assets. With the acquisition of the International Stock Exchange, or TISE, in Guernsey, we have expanded our ability to offer listing services to global debt issuers beyond what we currently provide through the Bermuda Stock Exchange. The TISE acquisition provides us with access to the European and U.K. markets and a valuable license in a respected regulatory jurisdiction. This helps accelerate our growth strategy by utilizing both BSX's and TISE's numerous international recognition and expertise in their respective products and markets. Now I'll turn over the call to Lance to provide details on our third quarter financial performance. Lance Emmons: Thanks, Tom, and good afternoon. As Tom mentioned, we had a strong quarter across our business. I will briefly discuss MIAX's revenue model before I jump into the financial details. We generate revenue from transaction and nontransaction fees. Our key performance drivers for transaction fees include industry trading volumes, market share and revenue per contract or share, which measures the average revenue we earn per contracts or shares traded. Beginning this month, we will publish RPC and capture rates on a 3-month rolling average basis on our website, in conjunction with our monthly volume press release. In terms of non-transaction fees, we generate revenue from access fees, which we charge to customers to connect to our exchanges. From market data, which we earned through direct subscriptions and through our participation in the U.S. pay plans and from listing fees in our International segment. For the third quarter, on a consolidated basis, total net revenue grew 57% year-over-year to $109 million. This was driven primarily by strong performance in our Options business. The third quarter also includes a full quarter contribution from the June 2025 acquisition of TISE, which contributed $4.7 million in revenue. Our adjusted EBITDA increased 157% year-over-year to $48 million for the quarter with an adjusted EBITDA margin of 44%, a significant improvement from the 27% margin in the prior year period. This performance demonstrates our ability to scale efficiently while also continuing to invest in our growth initiatives. Adjusted earnings significantly increased to $40 million compared to $8 million in the prior year period. Our adjusted operating expenses in the third quarter were $61.6 million compared to $51.1 million in the prior year period. The increase was primarily due to higher compensation benefits driven by planned increases in headcount to support our growth initiatives as well as the acquisition of TISE. Also contributing to the increase were investments in IT and communications costs due to the build-out of the MIAX Sapphire Exchange and the new technology platforms we rolled out for MIAX Futures and BSX. Moving to performance by segment. Our Options segment delivered strong results with net revenue of $94.5 million, up 55% year-over-year. Market share was 17.2%, up from 13.9% in the prior year period. This, along with elevated options industry volume led to MIAX average daily volume of 9.6 million contracts for the third quarter, representing a 56% increase year-over-year. Although we are still early in the fourth quarter, the momentum carried into October with our options ADV reaching 13.1 million contracts and our market share reaching 19.4%. Our Equities segment net revenue reached $4.4 million, up from $2.2 million in the prior year period, primarily due to improved capture rate as we continue to focus on maximizing total net revenues in this segment. Our Futures segment net revenue was $4.8 million compared to $5.3 million in the prior year period. Hard Red Spring Wheat revenues decreased during the third quarter as trading volumes were negatively impacted by participant migrations to our new MIAX Futures Onyx platform, as well as lower commodity market volatility. Our International segment net revenue was $5.5 million compared to $0.8 million in the prior year period, which was due to the acquisition of TISE in June of this year. The IPO enhanced our balance sheet. With a quarter end cash balance reaching $401 million and outstanding debt reduces $6.5 million following the payoff of our senior secured term loan. Additionally, our outstanding foot liabilities were terminated upon the IPO, further improving our balance sheet. In summary, we delivered strong financial results while investing in our technology platforms and expanding our product offerings. We believe that MIAX is well positioned to capitalize on the growing demand for innovative exchange solutions. With that, I will turn it back over to Tom. Thomas Gallagher: Thanks, Lance. We believe MIAX's differentiated technology, exceptional customer experience, track record of building innovative marketplaces and disciplined growth strategy positions us to deliver long-term shareholder value. To sum up, we now have in place a solid foundation to enable continued growth as the global technology-driven multi-asset class market leader that is anchored by 4 key pillars that I'd like to highlight next. First, we have now completed all of our purpose-built scalable technology platforms, which are differentiated by throughput, latency determinism and reliability. Second, we have a broad range of regulatory licenses, allowing us to operate across multiple asset classes and in multiple jurisdictions around the world. Third, we have secured a broad range of products that are diverse and expanding with multiple opportunities to launch new products across our exchanges. Fourth and most importantly, we have long-standing relationships with customers that we intend to leverage as we move into new asset classes together. These 4 pillars are technology, regulatory licenses, broad product range and relationships with our customers are real competitive advantages that we believe will continue to drive our performance. I'll now turn over the call back to Andy. Andy Nybo: Thank you, Tom. We will now open the call up for questions. Operator, first question please. Operator: [Operator Instructions] Our first question today comes from Michael Cyprys with Morgan Stanley. Michael Cyprys: Welcome to being a public company. Congratulations on your first quarter out of the gate here. I was just hoping to ask more of a bigger picture question. You mentioned just a moment ago around a lot of different licenses, aspirations for new products, asset classes, geographies. I was hoping you could unpack that a little bit more elaborate on your ambitions there. I think there may be some aspirations for crypto event contracts. So maybe you could help flesh out how you're thinking about new product opportunities, asset classes, geographies, you mentioned licenses. What are your ambitions and aspirations as you look out over the next 3 to 5 years? How might MIAX look compared to the MIAX today? Thomas Gallagher: Thanks, Michael, for that question. I think given where we are today, Michael, our primary focus is on the products we've already announced. We've got so many good things on our plate now in our primary businesses. That's going to remain my near-term focus in terms of opportunities. Having said that, if and when an opportunity presents itself that is compelling. Based on what we've built over the last 3 or 4 years, we have the technology infrastructure. We have the licenses and the various tools, so we could jump in, in areas such as economic or political or sports-related events-based contracts. But the near-term focus for us with the licenses that we have in both options and futures, is to exploit the opportunities that we've secured, including the opportunities as a result of the recent licensing of the B500 and the B100 from Bloomberg. Operator: The next question is from Ken Worthington with JPMorgan. Kenneth Worthington: I'll echo my congratulations. On the multi-listed market share, you rose to a new record during the quarter. We look at October. And as you mentioned, it had another step up again this past month. Can you talk about the launch of the Sapphire trading floor and help us better understand the dynamics that have driven the acceleration in market share gains that we've been seeing over the last quarter plus? Thomas Gallagher: Thanks, Ken, and I appreciate the kind words. I'm going to turn this one over to Shelly Brown. Shelly? Shelly Brown: Thank you, Ken, and thank you, Tom. So Options continue to be our most mature market segment, but we believe there's still room for additional growth. There are strong secular tailwinds in the industry, growing industry ADV, new optionable classes resulting from a robust IPO market and innovative products like short-dated equity options. That being said, we are very excited about the new Sapphire trading floor volume, but is a fractional portion of our recent market share growth. The Sapphire trading floor captured about 6.5% of the industry trading floor volume in October, our first full month of trading or about 0.35% of total multi-list volume. We are 1 of 6 trading floors, so we understand and believe there's lots of room to grow in that segment. We are not managing our current market conditions for the short term, but for the long term. We believe that there's going to be additional flow and there's plenty of room to grow. We're very happy with the trend for our market share. Operator: The next question is from Kyle Voigt with KBW. Kyle Voigt: Maybe just a question on single stock options. There have been some exchange filings in the past couple of quarters to offer additional expiries weekly for larger cap single stocks, I think, paving the way towards an eventual single-stock 0DTE type of launch. Can you just remind us what you see as the pathway to being able to offer single stock options with everyday expirations? And from a timing perspective, can you just kind of lay out a pathway in terms of how far away you think that ultimately will be? Thomas Gallagher: Yes. Thank you very much for that question, Kyle. It's certainly an area that we're well positioned for. So I'm going to turn it over to Shelly Brown, and maybe, Shelly, you could talk about the response here. Shelly Brown: Yes. Thank you for the question. With regards to 0DTE options, the timing for that depends on regulatory approvals, there's already an initiative with the commission, to list short-dated options initially just from Mondays -- ending Mondays and Wednesdays to the existing Fridays. Once these multi-list products are approved, we will certainly list them and all 4 of our options exchanges, meaning that they are multi-list options. Our exchange technology already supports rapid product innovation and launches such as this, and we're ready to support an expansion of the multi-listed options, 0DTEs and single stock options. Our system speed, throughput, and risk protections allow liquidity providers to offer tighter and deeper markets for these products. So we think we'll be able to gather an outsized market share. We do believe that the 0DTE actions in single stocks represent a significant growth opportunity across the industry, especially in the retail trading segment. But timing really depends on regulatory approval and market demand. Operator: The next question is from Jeff Schmitt with William Blair. Jeffrey Schmitt: A question about your October market share. It jumped quite a bit to 19.4%. Growth was obviously really strong. And just curious if you can maybe talk about what drove that sharp increase? And did you see a rise in complex trades at all during the month? Thomas Gallagher: Well, Jeff, thanks for that question. At the risk of overworking Shelly here. Shelly, do you want to just talk about the October market share gains? Thank you very much. Shelly Brown: The October gains were across the board. As you know, we have 4 options exchanges. We saw growth in all segments across those exchanges. There has been growth -- continued growth in complex orders. That's a focus for us due to capture, and we continue to be the second largest exchange in complex orders and continue to grow that segment. We've seen growth across all the different segments, including the price improvement auctions. I believe it comes back to the use of our technology. Operator: [Operator Instructions] The next question is from Chris Brendler with Rosenblatt. Christopher Brendler: Just wanted to drill down a second on seeing such strong market share gains and revenue per contract has been trending in an upward direction, ticked down a little bit this quarter, which I imagine is mixed. But is there any opportunity for you to lean into your success? I think like the market tailwinds are behind you and maybe extract a little more out of your revenue per contract in the options business? Or is it just naturally falling out of other successes you're having in the areas? I love to see if you get any more detail there? Thomas Gallagher: I really appreciate the question, Chris. I'm going to ask Lance to talk about the revenue per contract to the extent that he can. But I will say that as our market participants need to provide greater and greater liquidity to their retail customers, the investments we've made over the last 3 or 4 years in technology in terms of the latency, the throughput and the determinism, we really feel that we've differentiated ourselves and we're a partner that can help firms provide this liquidity to their retail customers. And because we can provide this assistance through the technology infrastructure, we're getting more and more volumes. Now in terms of your second part of your question. Lance? Lance Emmons: Yes, Chris. So yes, there's -- you know that there are some mix shifts between the second quarter and the third quarter. We haven't done any major fee changes other than we did do a change to the regulatory fee, a temporary reduction from September to December, which had a slight impact for the quarter. I'll also note that we continue to focus on, again, on maximizing revenue. So if there is business out there that is positive to us, even if it's a lower capture rate as long as it's positive, we will focus on it. And just also just to highlight again that beginning with today's monthly volume release, we are putting out the capture rates on a trailing basis. So I'll provide some additional transparency there. Operator: The next question is from Patrick O'Shaughnessy with Raymond James. Patrick O'Shaughnessy: As we are seeing more participation in the options space by retail investors, do you have a sense for how your market share might differ between retail versus institutional customers? Thomas Gallagher: Patrick, thank you very much for the question. Shelly, do you want to address that in terms of the retail versus institutional mix? Shelly Brown: Certainly. Thank you, and I appreciate the question, Patrick. The retail versus institutional mix, obviously, we can't drive the demand from the end user. We're here to respond to that demand. Our focus has always been on giving the market makers the ability to provide liquidity, provide deeper markets, tighter markets and the tighter markets are what draw that -- those orders from both the institutional market and the retail market to our exchange. So it's all about the customer experience. We continue to roll out new technology and improve our customer service to continue that offering the premium product to those customers. Operator: Our final question today is a follow-up from Michael Cyprys with Morgan Stanley. Michael Cyprys: Just wanted to ask about the expense outlook. I was hoping maybe you could unpack how you anticipate the pace of expense growth to trend from here, how that might evolve or flex with volumes and revenues? And then if you could maybe just elaborate on the stock-based comp in the quarter, I think it looked like maybe $29 million was more recurring. Maybe you can elaborate on that, how much we can expect on a go-forward basis? And any other broadly notables to speak of in the quarter? Thomas Gallagher: Yes. Thank you, Michael. Lance? Lance Emmons: Yes. I can cover that, Michael. So in terms of total expenses, I think as you look at the third quarter, we did -- first quarter as a public company, so a little uplift in terms of like D&O and board fees and things like that. So maybe a little bit more in the fourth quarter as you kind of get a full quarter effect into that. I think that what you've seen also in the quarter is a pretty high incremental margin as we've sort of really completed the build-out, as sort of mentioned, right, we finished the build-out of Sapphire, both the electronic and the floor. We finished the rollout of the Onyx Futures trading platform earlier sort of middle of this year. So we would expect to see sort of less expense growth going forward. But look, we're still growing the top line pretty heavily. So I think that should be a consideration as well. In terms of share-based comp, yes, certainly a lot of noise in the quarter, a lot of uneven expenses. There was a lot of RSAs that vested at the time of the IPO and some additionals that kind of accelerate or vest over the next 180 days following the -- or up until the expiration of the lockup. But on Slide 23 of our deck, we provided sort of a breakout of the share-based comp, and that includes sort of the restricted stock awards, the options and some -- a little bit of warrant expense and I would probably consider the option expense to be sort of more recurring. Now that may change form. But in terms of the dollar amount, I would consider that more a recurring type of expense only because, as I mentioned, the RSAs as a private company, we're a little lumpy, and a lot of them vested either at the time of the IPO or over the period of the lockup. So hopefully, that gives you some good color there. Operator: The next question is from Patrick Moley with Piper Sandler. Patrick Moley: I just had a broad one on options market growth. We've seen very strong strength over the last few years. So just wondering how you guys are thinking about the setup from here, and I apologize if this was addressed earlier, we jug on a few calls, but just the outlook. And then heading into next year, what are one of -- some of the major themes that you're kind of focused on or expect to play out in options? Thomas Gallagher: Patrick, thank you very much for the question. I'll start it, and then I'll ask Shelly to add to it. But -- we -- when you look historically at what's happened in our industry, back in 2012, we were doing 15 million contracts a day. And then we hit 54 million contracts a day last year, only to see ourselves in October at 67 million contracts today. I feel that the industry tailwinds, particularly the growing retail base of market participants bodes very well for continued growth in our Options segment. When you couple that with some of the new filings from some of our competitors with respect to short-dated options, I see continued growth opportunities. Yes, this is our more mature business segment, but we still think there's robust growth because of the industry tailwinds, the infrastructure that we've invested in and the very recent launch of the MIAX Sapphire trading floor. Maybe Shelly, you could fill in a little more details as we talk about the opportunities for our more mature business. Shelly Brown: Thank you, Tom, and thank you for the question, Patrick. The growth in retail, I believe, will continue. The experience they have by the offerings from the retail firms, the ability to trade basically for free will fuel further growth with the market rising, I think there's more exuberance in the marketplace. There's more ability for people to get involved in the marketplace and the short-dated options bring prices -- options that are priced lower and can -- the retail can reach easier. So we think that the retail experience will continue to expand going forward. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Tom Gallagher for any closing remarks. Thomas Gallagher: Thank you very much. Obviously, we're very excited to have just released our third quarter earnings, and we're very grateful for the support that our member-based community of our members in options, equities and now futures. We're very excited about the opportunities going forward. And we really feel good about having a fortress-type balance sheet now as a result of the IPO. So thank you for your time today, and we're looking forward to future calls as we move forward as a public company. Thank you, and have a nice evening. 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 SANUWAVE earnings call. [Operator Instructions] Please note, this call may be recorded. [Operator Instructions]. It is now my pleasure to turn the conference over to Morgan Frank, Chairman and CEO of SANUWAVE. Please go ahead. Morgan Frank: Thank you. Good morning, and welcome to the SANUWAVE's Third Quarter 2025 Earnings Call. Our Form 10-Q was filed with the SEC last night. Our earnings release was issued this morning, and our updated presentation was made available on the website in the Investors section. Please refer to that during the presentation, we really try to make it useful. Thanks. So joining in the call today is Peter Sorensen, our CFO. And after the presentation, we will open the call up to Q&A. So let me begin with the forward-looking statements and other disclosures. This call may contain forward-looking statements such as statements relating to future financial results, production expectations and plans future business development activities. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, many of which are beyond the company's ability to control. Description of these risks and uncertainties and other factors that could affect our financial results is included in our SEC filings. Actual results may differ materially from those projected in the forward-looking statements. The company undertakes no obligation to update any forward-looking statements. Certain percentages discussed in this call are calculated for the underlying whole dollar amounts and therefore, may not recalculate from rounded numbers used for disclosure purposes. As a reminder, our discussion today will include non-GAAP numbers. Reconciliation between our GAAP and non-GAAP results can be found in our recently filed 10-Q for the period ended September 30, 2025. All right. So now we have that out of the way, let's dig into other part. Our Q3 was an all-time record revenue quarter for SANUWAVE, up 22% versus the challenging Pigtail Python quarter last year, when a large order drove 89% year-on-year growth. The quarter was also up 13% sequentially from Q2. This brings the year-on-year growth for the first 9 months of 2025 to 39% versus the same period last year. We sold 155 UlTraMIST systems in Q3, also an all-time record and up from 124 last year, again, the Pigtail Python quarter and 116 last quarter. This took us to 1,416 units in the field, 504 of which that's 36% have been sold in the trailing 12 months. Applicator revenue was $6.8 million in the quarter, also an all-time record, up 26% year-on-year and 6% sequentially from Q2. At 59% of revenues for the quarter, this was in line with the 55% to 65% target range we have discussed on previous calls. We had 2 customers of about 5% in the quarter and 1 customer, a reseller that slightly exceeded that. No other customers exceeded 3% for the quarter. Gross margins were healthy 77.9% in the quarter, slightly down from 78.2% last quarter, but up from 75.5% a year ago. This was primarily as a result of slightly lower overall ASP for UltraMIST systems as a result of beginning to work with some larger resellers with whom we deal on a wholesale basis, where we sell systems at lower prices and allow them to mark the systems up when resold as opposed to selling at full price and paying commission. This works out about the same, maybe slightly better for us on the operating line, but it does impact gross margins a bit. This was offset by slightly higher prices on applicators and some ongoing cost reductions to the production of the UltraMIST system. The qualification of our new four-cavity mold for applicators and the new more manufacturable applicator process continues. We expect to have that process up and running for commercial production in January, though if we do really well, it could be as soon as December. But I think at this point, January is probably a better bet. The clean room and equipment are in and qualified. We just need to get through the design verification performance and shelf life testing stages. And unfortunately, things like shelf life testing are inherently time-based. We use a blended cost basis for calculating our cost of goods sold. So it will take a few quarters for this new process to show through fully. But we expect it to ultimately drive a few extra points of applicator margin as it reaches scale in the back half of 2026. So Q3 has been a productive time for SANUWAVE. We received $5 million payment for the exercise of IP licensing related to our intravascular Shockwave patent portfolio, and we refinanced our debt, reducing $27.5 million of debt, closer to $29 million with closing costs to $24 million and our interest rate from 19.5% to SOFR plus 350, which is currently about 7.63%. This placed the company on excellent financial footing and positions it well to pay down this debt from cash flow as the facility contains no prepayment penalties or fees. We also moved to our new larger headquarters back in August. And one last piece of good news based on the refi and our ongoing financial performance, I'm pleased to announce that SANUWAVE has alleviated its substantial doubt to continuous concern for at least 12 months as of this 10-Q. So moving on to the part I'm sure everybody wants to get to. The wound care market was a bit unsettled in Q3 as many practitioners seem to be taking the sort of wait-and-see attitude to what turned out to be some pretty substantial changes in the skin sub and allograft reimbursement market. These have been long mooted by CMS, and this seems to lead to a widespread taking the foot off the gas in the industry due to the uncertainty. While these changes, which were made final on Friday 31 did not affect any of our reimbursement for the 97610 code remains essentially unchanged, perhaps slightly up for 2026. It does affect many of our users and this in combination and perhaps particularly because of heightened fears about CMS audits and clawbacks in wound care led many providers to simply sort of back off a little and to use advanced wound care treatments on fewer patients at the margin. This uptick in audit and price sensitivity seems to be part and parcel to the broader CMS strategy of driving toward more on the lines of evidence-based medicine requiring more data on efficacy, product differentiation and value for money in treatment regardless of any near-term disruption, we think this is an overall positive trend for SANUWAVE and for UltraMIST, and we suspect that this is a paradigm in which our products can really thrive. It's only been a week since the final rule came out. And so it is perhaps a little early in making too many strong pronouncements about exactly how this all is going to play out. But in our experience, any certainty is better than huge uncertainty. And with the market having really no idea if reimbursement was going to be $2,500 or $500 or $127 per square centimeter in skin subs, this is simply too much variance for people to make decisions around. So now that answer is known, we expect people will rapidly adapt to this new reality and get moving. But we've had a flurry of calls this week from distributors, partners, prospective salespeople, and we believe that the weeks and months ahead will represent a profound opportunity to make some moves to improve our marketing and our sales positions. I mean you really sort of feel the market starting to crack back open again as soon as everybody knew that to which they were planning. During our September all-hands call, like I literally threw a picture of little finger from Game of Thrones and told the team, chaos is not a pit, it's a latter. And so we're in a climate. I mean while perhaps the hope that MAX disruption was behind us in the last call was a little bit optimistic, this seems like one of those moments in a market where the ones who figure out how to climb fastest can gain a lot of ground. And we are engaged currently with the most qualitatively and quantitatively promising sales funnel, I've ever seen in my tenure here. It's been a little bit frustratingly slow to move, but it feels like that may be rapidly starting to change. So this is an exciting time here and one that should be very good for SANUWAVE. With that, I'll now turn you over to Peter Sorensen, our CFO, who can walk you through the rest of our financials. Peter Sorensen: Thank you, Morgan. We had a strong third quarter at SANUWAVE with revenue reaching a new all-time quarterly record and up 22% year-over-year. This performance reflects the continued momentum of our commercial strategy and the growing demand for UltraMIST. Gross margins expanded meaningfully year-over-year, reflecting both the inherent leverage in our model and our disciplined approach to managing costs. Looking ahead, our focus remains on driving sustainable profitable growth. So with that, let's take a closer look at the financial results of the quarter. Revenue for the 3 months ended September 30, 2025, totaled $11.5 million, an increase of 22% as compared to $9.4 million for the same period of 2024. This growth was below our guidance for the quarter, but right in the midpoint of the preliminary range of results we disclosed on October 6 of $11.4 million to $11.6 million. Gross margin as a percentage of revenue for the 3 months ended September 30, 2025, came in at 77.9%, up over 240 basis points year-over-year, driven by lower UltraMIST system production costs and our strategic pricing initiatives across systems and applicators. For the 3 months ended September 30, 2025, operating income totaled $1.5 million, which is down by $0.5 million compared to the same period last year. However, operating expenses for the 3 months ended September 30, 2025, amounted to $7.5 million compared to $5.1 million for the same period last year, an increase of $2.4 million. This change was largely driven by an increase in noncash stock-based compensation expense of $1.4 million versus Q3 2024, in which there was no stock comp expense. Increased headcount expenses of $0.8 million, increased marketing expenses of $0.2 million, increased legal expenses of $0.2 million and R&D increased expenses of $0.1 million, partially offset by decreased commission expense of $0.8 million. Net income for the 3 months ended September 30, 2025, was $10.3 million compared to net loss of $20.7 million for the same period in 2024, an increase of $31 million. The increase in net income was primarily driven by the change in fair value of derivative liabilities, which resulted in a noncash gain of $6.1 million in Q3 2025 versus $18.8 million loss in Q3 2024, representing a $25 million year-over-year variance. In addition, we had a $5 million gain related to a patent sale as noted on our previous 8-K and in our most recent 10-Q. We also had lower interest expense of $1.6 million in Q3 2025, primarily due to the conversion of our previous outstanding notes into common stock in Q4 2024 as part of the note and warrant exchange. These impacts were partially offset by nonrecurring costs of $0.5 million related to the repayment of our senior secured debt. EBITDA for the 3 months ended September 30, 2025, was $12.4 million. Adjusted EBITDA was $3.5 million versus $2.1 million for the same period last year, an improvement of $1.3 million year-over-year. Total current assets amounted to $22.6 million as of September 30, 2025, versus $18.4 million as of December 31, 2024. Cash totaled $9.6 million as of September 30, 2025. We're grateful for the continued trust and support of our stakeholders. Q3 2025 was another excellent quarter for SANUWAVE, and we're pleased with the progress we've achieved across our business. As we head into the final quarter of the year, we remain committed to executing with discipline, driving growth and creating long-term value for our stockholders. With that, I'll turn the call back over to Morgan. Morgan Frank: Thanks, Peter. So moving on to guidance. As we stated in our press release, we are guiding to $13 million to $14 million in Q3 revenues, up 26% to 36% year-on-year and also representing -- which would represent another all-time high revenue quarter for SANUWAVE. We're starting to see significant cause for optimism now that the market concern around reimbursement in wound is alleviating because we now finally have some certainty rather than vast uncertainty. Obviously, it's only been a few days since the final rule was announced. But as I said earlier, we already feel some movement beginning and some of the log jams breaking free. So as ever, I want to express my gratitude to the SANUWAVE team for all the hard work and their commitment and trust. I'd also like to thank them for routinely following for my the highest reward for good work is more work, stick and pretending that, that's insightful and motivational. Well done, guys, and thank you. So with that, thanks, everyone, and we will open the call up to questions. Operator: [Operator Instructions] We'll take our first question from Ian Cassel with IFCM. Ian Cassel: I just had a couple of questions, mainly around the reseller model that seems to be picking up some steam. Maybe the first question, though, is due to the disruption in skin substitutes, I was curious if the resellers or distributors of those skin substitutes -- now the revenues are probably down 90% versus last year. And I'm curious if you're seeing any inbound interest from those resellers who are now kind of scrambling to pick up additional products to fill that revenue gap in their businesses. Morgan Frank: Okay. So I mean the short answer to that question is, yes. It feels like there is a substantial realignment beginning in the space. And obviously, this is a very significant change to a large product category. We've definitely seen some inbound interest. I think a bunch of it started even well before the rule came out and was sort of -- and some were sort of predicating the -- well, maybe we'd be interested in picking this up depending on what happens. I think it's a little bit premature to say, well, okay, this is going to result in a ton of new deals. But what I will say is distribution is an important part of this space. A lot of -- some of these distributors are very sophisticated. They have good account control. They do good work with the providers to help them even down to the level of selecting patients and determining care. It's something that we've been sort of stripping down and rebuilding this year. Our average sales through distributors and resellers was about 36% in 2024. In this quarter, it was about 25%. So that's up a little from last quarter, but still kind of not to levels where it used to be. And so we're kind of assessing what the right level of -- we're sort of assessing what the right mix for us is going to be. Ian Cassel: And how do you kind of blend that distributor channel with your direct sales force? How do you think about that? Morgan Frank: Yes. It's always -- that's always sort of the tricky bit. And we're doing it through sort of a deconflicting structure where if our reps are chasing something, it's theirs. And we don't -- what we want to avoid is are the 2 channels stepping on each other. And so it's sort of -- if a distributor wants to go after a customer, they'll come to us and say, "Hey, we think this is an interesting prospect. And we'll deconflict it through our internal -- we'll deconflict it through our internal list and say, yes, we don't have anybody who's working on that. Go ahead. Ian Cassel: And maybe last question on the reseller and distributor model, how do you handle inventory management? Are they kind of want to be stuffing the channel, so to speak, where they're buying 9 months' worth of inventory? How do you think about those inventory turns? Morgan Frank: Yes. Yes, yes. That's a great question. And that's something we've given a lot of thought to and something we worry about a lot. When you're dealing with stocking distributors, you always sort of run this risk of -- do you have too much inventory in the channel and will you wind up kind of choking on it? We've been trying to be sort of measured with this and not putting too much inventory into the channel to really avoid that problem. I think the first major distributor we dealt with on a stocking basis this year was back kind of towards the end of Q2. They took about 15 systems from us into inventory. And at the time, I was actually pretty worried about that. They came back 6 weeks later and said, yes, we've sold them. Can we have 10 more. Took 10 more and then went out and sold those again in another 8 weeks. And so I think if we can kind of keep those turns in the sort of 8 to -- if we can keep the inventory turns there in the sort of 8 to 12 weeks range, I think that's healthy. I think once we start seeing it bump up against that kind of like 10 to 12 area, we're going to start to get nervous for any given distributor. And then to look at them overall, obviously, I think we'd like to keep it more towards the sort of range. Operator: Our next question comes from Kyle Bauser with ROTH Capital Partners. Kyle Bauser: Maybe just following up a little bit on that. What's the latest rep headcount? Morgan Frank: Rep headcount is still 13, same as it was last quarter. We've rejiggered it a little bit. We changed the shape of a couple of territories, moved it to 12 national territories. And now have 2 full-time kind of national key account managers, but overall count is the same. Kyle Bauser: Got it. And how are you feeling about that heading into '26, you had a pretty good number in addition to having the distributors, as you mentioned? Morgan Frank: Yes. I think, obviously, given a lot of what's happening in the industry right now, as you can imagine, there are resumes. So I think we're going to kind of do this on a -- we're doing this on sort of a -- let's see what we see basis. I mean, obviously, we plan to grow this rep headcount as we go forward. Exactly how we do it right now is something that we are -- doing a lot of work to assess internally. Do we want to start bringing in some reps to just manage distributors? Do we want more key account reps? Do we want more national territories? Do we want to bring in a set of more kind of inside sales folks to either just handle customers or to just set appointments, right? So that we're having -- we can get our closers more time closing. Like that's really -- those are really the discussions we're having internally at the moment. I think we'll be continuing to add to the sales force on kind of a measured basis. Kyle Bauser: Got it. Yes. Makes sense. And just curious what sort of annual revenue some of your more productive reps are doing and maybe also kind of what's the reasonable run rate for reps to achieve? Morgan Frank: Yes. I mean it's -- to some extent, that's always going to be a little bit territory specific, right? So -- and a function of how well developed a territory is. I mean we had a rep exceed $2 million of sales in Q3. We had a couple of others over $1 million. And so as these ramp up, getting to this kind of $4 million to $6 million annual sales rate, I mean, it doesn't -- it's certainly not impossible. I think given the difference -- we have a couple of markets that are more developed than others. And so it's a question of kind of how long does it take to get an undeveloped market to look more like a developed market. But ultimately, I mean, rep productivity here can be very high. Kyle Bauser: Got it. And internationally, were any of the 155 systems sold were any of those into international markets in the quarter? Morgan Frank: No. Kyle Bauser: Okay. And maybe just lastly, on that point, how are you thinking about the international opportunity for UltraMIST? Would you ever I know you've got a lot to focus on in the U.S., but just curious if you'd be interested in looking to take on distribution partners in OES market. Morgan Frank: I mean it's certainly something we'd look at. It's always -- I mean, we sort of refer to this internally as the Golden retriever and a tennis ball factory problem, where you like what are you going to chase. And I think at the moment, there's so much domestic opportunity that it just -- this hasn't really gotten top of the pile. I mean if there were a really compelling distributor who could basically handle all of this without a whole lot of intervention from us in a market where there was where there was an easy regulatory pathway, I mean, I suppose we'd look at it, but it just isn't something we've spent a lot of cycle time on yet. Operator: Our next question comes from Carl Byrnes with Northland Capital Markets. Carl Byrnes: Again, considering the CMS fixed rate 127, 28 per square centimeter, would you expect that the private physician practices would look to UltraMIST as an additional line of revenue? And on that, I mean, how long do you think that takes to play out? And then I have a follow-up as well. Morgan Frank: I mean short answer is yes, right? I mean I think physicians are often maximizing 2 things, right? They're maximizing their desire to provide good patient care and for the patients to get better. And obviously, they're running business. And so to the extent that they find both revenue and care gaps, this becomes a very interesting option. I mean by -- on a relative basis, the attractiveness of UltraMIST seems to have increased a great deal, particularly from a -- if your goal is revenue maximization. Exactly how long that takes to play through is an interesting question. I'm not really sure how to answer it with any like rigor. It seems to vary a great deal by folks. I mean people just -- people respond to new realities with differing time frames. We've certainly seen a change in inbound. And we've certainly seen -- I mean there were -- we've certainly seen people who are sort of like on the fence saying, well, maybe let's see suddenly get more interested. And so I think there's definitely going to be some of that. Exactly how it plays out is complex. Carl Byrnes: Got it. And then just one follow-up question. Looking at mobile wound care, what do you think happens there given the CMS change? And kind of how does that affect your business? What percent of your business is tied into the mobile space? Morgan Frank: I think -- I mean, the mobile is experiencing a lot of the same issues as others. And they are widely divergent practices within mobile. And we've been doing some looking at this and kind of tearing into the CMS data just to get a look at what we think the interrelationships are between skin subs and UltraMIST. One of the things we discovered is that 55% of the practitioners who bill UltraMIST don't build any -- haven't built any skin sub at all in the last 4 years. So of the 45% of do, most are -- a lot of times, it's not the same patient or it's -- you can't build the 2 in the same visit. So from a standpoint of like what's mobile going to do, I think some of the folks who were most aggressively using skin subs may see their practices either change dramatically or terminate. But I think -- I mean, just speaking hypothetically, if my goal as a provider were to do the maximum number of skin sub applications, I wouldn't be using UltraMIST, right, because the wound would heal more quickly and you would wind up doing fewer applications. And so I think there's been sort of an inherent sorting here where the folks most interested in doing the most skin sub have also tended to be the folks who were not using a lot of UltraMIST. Operator: Our next question comes from Alex Silverman with AWM Investments. Alex Silverman: Two questions. One, can you give us a sense of what kind of toeholds or trialing you're doing in some of the very, very large wound centers? And then I'll ask my second question after. Morgan Frank: Well, certainly an interesting question. I mean we've -- we're starting to get -- I mean, we're starting to spread through a couple of hospital networks in particular or at least these are things that have been going on us, I think we could talk about them. One in particular is one of the larger hospital networks in the U.S. We've been in at a couple of their flagship facilities now for several months. It's gone really well. I think they are using the product in a similar fashion to some other large hospital chains, predominantly around treating half eyes and incipient half eyes -- sorry, that's hospital-acquired pressure injury. Essentially, you lay on your hip for your back too long, it turns into a pressure ulcer in a patient with suppressed immune system or health, those can be very, very serious, even life-threatening. And so we're starting to spread there. We're starting to work on how do we become a -- we were added to their approved vendor list. And so they're kind of 150-ish hospitals and 2,200 facilities are now free to buy. We're definitely working on some other large opportunities. Nothing I can really talk about by name here right now, but give you a little time on that, and I may have something for you. Alex Silverman: Okay. Great. And then second question, have you guys thought about how to get around the capital approval process, which can be so painful at some of these bigger buyers, the hospitals and the large wound care centers that have just painful processes? Morgan Frank: We have. In fact, it's something we've been giving a lot of thought to. And obviously, starting to have a bit of a balance sheet helps. The -- as we look at a -- hospitals, in particular, tend to have very difficult capital cycles and their capital budgets are highly segregated from their operating budgets. And so I mean, you walk into a hospital, you'll see tracking codes like even on computer monitors because those are leased, right? Like that's how aggressive the -- like the cap budgets are protected there. And so I think moving to something along the lines of a rental model at prices that make sense for both sides, particularly if you could tie it to some sort of usage minimums makes a lot of sense. Some hospitals don't seem to care. I mean we've seen a number that are just like great, let us buy the thing. But there are many others for whom the cap budgets are tight. So it seems to vary a lot hospital to hospital. But yes, we're definitely starting to consider the -- can we rent these to hospitals that we believe will be sort of high-use environments, like that can be a great model for us. Alex Silverman: I assume with a, I don't know, $5,000-ish cost for a system -- the payback of placing one of these is -- could be a pretty quick payback for you. Morgan Frank: Obviously, depending on -- I'm sure you can do the math, right, if we price it at various points. But the real -- I mean, obviously, the real fun for us is if you're selling -- if you're getting people to use 3, 4 cases of applicators a month, the value of the consumables rapidly exceeds the price of the capital sale. Operator: [Operator Instructions] We'll take a question from Andrew Rem with Odinson Partners. Andrew Rem: I just wanted to go back to this -- the reseller. And is there a way that you guys can kind of bifurcate the market where maybe direct you go to large accounts, heavy users and use resellers to get to kind of the fragmented small customers that would be less efficient to service on a direct basis? Morgan Frank: Yes. So you're speaking very much to an internal discussion we have frequently. We refer to them internally as Bunnies, Dear, Elephants and Wales. And the -- it's hard to have high-priced reps chasing bunnies. And so -- and a lot of the distributors know a lot of the smaller customers really well. So it's certainly something we're looking at and whether that ultimate -- whether that ultimately turns out to be the solution, it's certainly possible. It's an idea we're exploring. I think we're just trying to get some experience with it and see how it works. I mean we made a lot of changes in our distribution network and sort of tried to do -- try to move to a more engaged, more hands-on, more value-add channel. And so we're still getting some experience with it and seeing how it works and what it's good at and how to how to integrate it with our sales force most productively. But yes, I mean, the idea you discussed is certainly one we've been looking at. Andrew Rem: And would applicator sales also run through the reseller? Or would you just use them to sell systems? Morgan Frank: It's going to be -- I mean, ultimately, it depends on the distributor or reseller. Like from -- many of the folks we're starting to talk to now have much more sophisticated ERP systems and systems that can integrate with our own. So what we're really looking for is to make sure we understand exactly how many applicators would be in the channel and exactly what the flow through to end customers winds up being, we're very sensitive to that attach rate, like how many cases of applicators per week is a given user consuming. And so to the extent that we can sustain adequate visibility to that, we can allow sort of applicators into the channel. I mean, predominantly, what we've done with these distributors is at least in the past, is to -- they'll set up the customer. That customer will then come and order applicators from our portal. So we have a direct relationship with them. We're directly drop shipping to them. And then we'll pay commission to a distributor based on those applicators. But we're starting to look more at the -- many of these folks just want to do stocking entirely themselves. The question just becomes, can we sufficiently integrate it that it makes sense for both sides. Andrew Rem: And then maybe lastly, I'm not sure if this is a competitive, if it is, you don't need to answer. But it does seem like the current environment lends itself to leverage from -- for you guys in terms of negotiating with resellers. So -- and maybe that speaks a little bit to your increased sense of urgency, but maybe can you comment on that at all? Morgan Frank: I don't know that I really want to speak to something like leverage. We're -- this is one of those moments where there's kind of a sorting hat going on. And I think like some of the key salience in this market just changed and people are adapting to this new situation. And I think that provides a lot of opportunity. I think it's made a lot of people more interested in engaging with SANUWAVE. We've had a lot of inbound interest. And it feels like this is a great time to -- it feels like this is a great time to kind of make some new friends. Operator: It appears we have no further questions at this time. I'll turn the program back to the speakers for any additional or closing remarks. Morgan Frank: Well, thanks, everyone. I appreciate your making the time, first thing on a Friday morning, and we look forward to updating you further in the future. Thanks again. Operator: This does conclude today's program. Thank you for your participation, and you may disconnect at anytime.
Operator: Good morning, everyone, and thanks for waiting. Welcome to the conference for the disclosure of results of the third quarter '25 of Cogna Educação. [Operator Instructions] We inform you that this conference is being recorded and will be available in the RI site of the company, www.cogna.com.br, where you can find the whole material for this result disclosure. You can also download the presentation in the chat icon even in English. [Operator Instructions] Before going on, we would like to clear that eventual declarations being made in this conference regarding the business perspectives of Cogna, projections, operational and financial targets are the beliefs and premises of the company and the management as well as the information available for Cogna. Future information are not guarantee performance, and they depend on circumstances that may happen or not. So you have to understand that the general conditions, the sector conditions and other operational factors may affect the future results of Cogna and may lead to results that will be materially different from those expressed in future conditions. I'd like now to pass on the floor to Roberto Valério, CEO of Cogna to start his presentation. Mr. Roberto, please, the floor is yours. Roberto Valério: Good morning, everyone. Thank you for participating on the conference to discuss the results of the third quarter of '25. As we always do, we have Frederico Villa, our CFO here; Guilherme Melega, the Head of Vasta. This call will last 1 hour in which we'll have a 40-minute presentation and 20 minutes for the Q&A. So I'd like to start this meeting by saying once again that we understand this is one more quarter with great results in our understanding. We keep growing with the ability of operational delivery in a quite good way. It grows in a fast pace in double digits in the quarter and in the 9 months. So we are growing almost 19% of revenue in the third quarter and 13% in the 9 months. And I'd like to say that both the core business, therefore, higher education and basic education are growing double digits, and we keep investing in new fronts and future opportunities as it is the case of our business line for governmental sales as another example with our franchise starting. So from the point of view of growth, we understand that the core has a lot of capacity to deliver results. We are growing double digits with the same assets. Since the beginning of the structure in 2021, we understand that the core business still have a lot of opportunity to grow, basically refining and improving processes and the client experience. But we keep here planting and seeding new business to grow the company. The same way, the operational results keeps growing in double digits, basically 10% in the quarter and 12.4% in the year in the accumulated of the year. So this is the 18th consecutive quarter with the EBITDA growing. I'd like to reinforce our concern with consistency and it's a structural growth. So it's been 4.5 years that we are consecutively growing operational results. From the point of view of EBITDA margin, this quarter is pressured by an increase in the PCLD regarding Pague Fácil that was something that we did in Kroton in the commercial cycle. We will explore in the next slides as well as lower margin in Saber due to seasonality. And as you know, Saber, as Somos has the fourth quarter and the first quarter as strong quarters from the point of view of results and the third quarter is a smaller one. But in this case here of Saber, it pressured a little, but we'll talk specifically about PCLD later on. Now talking about the net revenue, we had BRL 405 million in the 9 months accumulated. So in spite the delta growth in the quarter to the net income was BRL 220 million because we had losses in the third quarter of '24. And when we analyze the 9 months, the delta of the net income is BRL 450 million. Obviously, it's being fostered by the improvement in operational results that we emphasize in the quarters we are talking about, but not especially, but also due to the reduction in the financial expenses to reduce the debt and our liability management strategies that allow the cost of debt to be lower. Therefore, the operational results with the lower expenses is happening in the net income. In terms of cash generation, we reached BRL 392 million with BRL 1.9 million less compared to last year. And as we always do, we let you judge if these points are one-offs or not. But in the third quarter of '24, we recovered taxes in cash of more than BRL 115 million. Obviously, if we compare operational to operational in the recover of taxes, our growth in the GCO would be 38%, therefore, quite a strong one. In the accumulated 33% of growth, almost BRL 940 million in post OGC. So the highlight of the quarter and the 9 months is the free cash flow. We reached BRL 300 million in this quarter, BRL 583 million in the 9 months accumulated. Just to emphasize, there's almost BRL 584 million in 9 months. This is 50% more than all the free cash flow generation in the whole year of '24. So in 9 months, as we generated more cash, 50% more of free cash flow than the whole year of '24. Now going to the debt, we reduced the net debt in BRL 474 million in the 12 months. I emphasize that only in the second quarter here, our reduction was more than BRL 220 million. So the cash generation is, in fact, being used to reduce debt. And then Fred will explain that aside from the reduction, we can also have important reductions in the average cost of the debt. Regarding leverage, we reached 1.1x the EBITDA, the lowest one in the last 7 years. The last time we had this level of leverage was in 2018. Therefore, we are quite satisfied with the results and prospectively thinking for the fourth quarter into '26, we keep having the same -- we keep optimistic and trusting that we have everything to have consistent results. Now going to Slide 5, we will talk about the operational performance of Kroton. And I think I can start by emphasizing the growth in intake more than 7% in the period. I would like to emphasize specifically the growth of the presential one. That is not the first cycle of intake. It's the third cycle that we have growth in the presential. And with the growth, I'll talk later, but with the growth specifically in the high LBV, I mean the most expensive courses, which help us in the ticket. And I relate this growth and the presential to our commercial model that is fine-tuned in the campy and is allowing this growth. And in distance education with a growth of 6.4% that is specifically to the change in the regulation for GL that fostered the course, mainly the health care courses that bring not only the benefits of growth, but also the improvement of the average ticket. So in the mix, it helps a lot. Obviously, we have a lot of evolution in the team, improvement of processes, systems and commercial strategies, but I reinforce that in the presential, this fine-tuned model in the campus helped a lot and the change in the regulation of DL fostered the enrollment, mainly in the health care courses that are the most impacted by the new regulations. The student base grew 2.7% in total. But if we consider only ProUni and ex ProUni, the ones that, in fact, pay and generate cash to us, the student base grew 4%, quite important and consistent as it's been over the last years. From the point of view of average ticket I also have emphasis here in this quarter because the Kroton as a whole is growing 11.7% in 3 segments: presential, DL and on-site -- I'm sorry, KrotonMed, and we have 2 points helping the average ticket. Newcomers, as I mentioned, in on-site, we have more enrollment in the most expensive tickets and in DL, also more newcomers in the health care courses on average with a greater ticket. But I also have to mention that we can repass the inflation to the old students in KrotonMed on-site and DL. So we have both old and new students with an increase in the average ticket, which pushed this growth to almost 12 points. Now in Slide 6, talking about the net revenue. Obviously, if we have more enrollment. And I forgot to say something important here about intake reinforcing that, obviously, the volume of intake is important to us, but the balance between volume and ticket is very relevant. We are always analyzing take analyzing the revenue in the period and the revenue grew 41% in this period. When you have a new period growing the revenue, and we know that the students will be with us for many semesters. In perspective, we have quite a positive result regarding the revenue for the next months and quarters. Now talking about revenue specifically. So we grew almost 21%, growing a lot on-site and online education. So we grew a lot in both front. So to be completely transparent, even if we reclassify the discounts that, as you know, we have a complete disclosure with all the items we are using since we reclassified the discount with inactive students for IDD with a neutral impact in the EBITDA, but adjusting the revenue, this growth instead of 20.9% would be 15.9%, but even though quite a strong double-digit growth. I'm talking about the accumulated, it's the same, 17% in on-site and DL. And here, we see the effect of Pague Fácil that we'll talk later is more diluted. Therefore, the delta between the growth we see of 17.4% and the growth ex Pague Fácil is smoother. Now in Slide 7 and talking about the gross profit as a whole, it grew 21.5% with a small increase in the gross margin from 79.4% to 79.9%. And in the same way in the accumulated in the year, we had an important growth in gross profit and a slight growth in the gross margin, which shows that the growth in operation in its core that is revenue minus cost is quite positive, and we are gaining on efficiency when we analyze the 9 months. The gross margin improved 0.7% with a small reduction in the margin of KrotonMed, and it's important to emphasize that in the 18 courses that we have, the medicine courses that we have, 3 are new. And as they mature, they increase the base of cost as we hire more professors. So the amount of hours increased, the general cost increase. So it pressures a little the margin, but according to expected and completely in line with our plans. So in Slide 8, costs and expenses. As you can see when we analyze cost and expenses with the percentage of net revenue, we have a gain in performance in all lines. So corporate expenses with a small gain in performance, the operational ones gaining more than 3 point percent of market and sales with diluting 1 point percent as the cost, as I mentioned in the previous slide. So the company grows and grows keeping the costs controlled and specifically the expenses controlled, which makes us gain efficiency and diluted with the percentage of net revenue. The only difference is PCLD that I'll explore in 2 slides because in the third quarter of '24, it was 6.2% growing 7.6% going to 13.8% due to 2 factors, both the reclassification of the discounts for inactive students as well as the greater penetration of Pague Fácil, but I will talk about it in other slides. When we look at the accumulated, you see that we keep growing in efficiency with no operational expenses and marketing and cost and I'm in Slide 9. So we have more -- 2 points more of dilution and marketing, 1.4%. So gaining efficiency, we see that the operation is quite adjusted. Now in Slide 10, so that we take more time here explaining those differences in the PCLD, we made this diagram to be easier to understand. So I am on the left and considering the third quarter of '24 with the first information, you can see the net revenue, BRL 939 million, which was published in the third quarter '24. The PCLD was BRL 58 million. Therefore, the percentage would be 6.2%. With the reclassification of the discounts that is so that we didn't have a reduction in the revenue every time we renegotiated with an inactive student, we would start classifying the discounts in the PDA. So in the pro forma of the third quarter of '24, the PDA would be BRL 98 million and not BRL 58 million, but the revenue would increase from BRL 939 million to BRL 980 million. So in the pro forma comparing it, the third quarter of '24 to '25, the PDA divided by the NOR would be 13.4% and 13.8%. Therefore, an increase of 3.7% in the PDA. So I explained the first delta of the 6.2% that adjusted by the reclassification of discount would be 10.1%. And if we consider delta for Pague Fácil, that is the offer that we implemented in this quarter, the PDA would be stable. And why would it be stable? Because our inadequacy is not increasing. It's kept the same. The fact is that when we offer more offers in Pague Fácil, that is the facility to pay the first installments. We don't have the history of credit of the students. So we provision more than students that we already have their history so that you have a reference. The level of provisioning is close to 10% to the student with the history. And in this case here of the students coming with this offer of Pague Fácil, we provision 47%, therefore, a greater provision. So that's the explanation, so why the PDA is growing. So it increases in this quarter because this is when we give the offer to the student. And in the fourth quarter, we don't have the offer anymore because we don't have newcomers anymore. So you see a convergence of the PDA to the closer number of pro forma. So explaining the movements, I would like to take some minutes here for you to understand the offer itself. So with the change of the regulatory framework, many players among us started communicating that they should take the period before the regulatory framework change to enrolling courses that won't be available anymore. But during the intake process, we realized that many players were offering discounts in the monthly payment. So in practice, it reduces the LTV of the student because all the payments that we come along the life of the student will be with a lower ticket. So we decided another offer. So to keep the average ticket, but offering to pay the second -- first and second payments in July and August in our case, installment. So the student enrolls because they are making the enrollment in middle of August when classes started. So they didn't pay July and they didn't pay August. They are starting to pay from August on. So these 2 parcels were not a bonus. So we divided them installments during the period of the student course. So in this case, the students in 4 years would be divided into 46 months. So as we don't know the credit profile of the students, they are new. So we provision more with these 2 payments that we booked and we are receiving month by month. So for you to understand clearly the offer, that's it. And it makes sense because we don't give up on the average ticket. We don't reduce the LTV of the student. We simply consider installments for the payment of 1 or 2 monthly payments along their course of time. So if you have more doubts regarding that, we can discuss in the Q&A. And we have a second table that is the deadline for receiving, which shows that the default is still positive. That's why we are decreasing the average deadline from 47 to 34 days. So this is the clear proof that is the P&L because we see that the student is, in fact, generating cash. Now going to Slide 11. The consequence of all that is the EBITDA result. Therefore, the EBITDA in the quarter grew 10% in the year accumulated 15.8%. So you can see a drop in the margin between the third quarter of '24 and '25 going from 37% to 36%. So the reclassification of discounts and the additional provision of Pague Fácil is pressuring the margin because it is increasing the PDA, but all the other costs like marketing, operations, corporate is all -- they are all diluted and gaining on efficiency, and we see that clearly in the results and in the cash generation. With that, I finish the explanation of Kroton, and I'd like to pass on the floor to Guilherme Melega for the comments on Vasta. Guilherme Melega: Thank you, Roberto. I'll go on with Slide 13 on the net revenue. I'll concentrate on the graph on the right with the commercial cycle because the third quarter is the one finishing what we call the commercial cycle of Somos Educação that goes from October to September. So here, we have the total idea of how the classroom behaved and everything that happened and will -- that happened in '25. So we reached BRL 1.737 billion, which is 13.6% considering the cycle of '24. The highlight is the subscription products with the teaching and complementary solutions that grew 14.3%, reaching BRL 1.32 billion. And now the non-subscription had an increase of 17%, reaching BRL 118.6 million result of the growth of our 2 flagships all in Anglo, one in São José do Rio Preto and the Pasteur Institute also with a growth in the pre-SAT courses in the year. So we acknowledge the growth in the 2 main business lines of the company. I also emphasize the B2G, bringing a natural volatility, but we could with new contracts keep the balance in this line of revenue, also keeping a similar level to '24, reaching BRL 76.2 million, BRL 66.8 million, I'm sorry. In Slide 14, I'll show our subscription sector. So we start on the right, where we have the breakdown of the core segments that are the learning and teaching segment. The complementares, the social emotional bilingual, makers and other complementary activities to the basic subjects, our growth was quite robust, reaching 14.3% in total. But the core segments grew 12.5% and the complementary segments, 25% as we can see a faster growth in the complementary over the years. And I'd also like to emphasize something that Roberto commented that is quite important to us. That is our consistency over the years, delivering that. So on the left, we see the first ACV of Vasta that is in 2020 when we acknowledge BRL 692 million compared to BRL 1.552 billion that we are delivering by the end of this semester. It represents 2.3x more, so a figure of 17.5%. So we are quite satisfied with the performance we can reach with the gain in market share and the penetration that our products are having on the private market. Now going to Slide 15, talking about the EBITDA, we grew 10.6% in our EBITDA, focusing here also in the cycle. We reached BRL 480.9 million EBITDA, the greatest one of Vasta in the commercial cycle, representing a margin of about 28%, in line with the previous year. And here, we will decompose a little our expenses going to Slide 16. I'll talk briefly because the third quarter to Vasta is not so significant, but it is important to note when we look at the table, our recurring gain in lower provisioning of PCLD. So we had a provisioning here, a lower one as we observed in other quarters. And we have more investments in marketing and sales because we are in the peak of the campaign for '26. But when we analyze the next slide, 17, we have an idea on how our expenses behaved in a complete cycle. So here, we have our total expenses when we analyze the table with the percentage of revenue, keeping in 71% with emphasis to the gains in productivity that we have in corporate expenses, operational expenses and PDA, as I mentioned in the previous slides. We have small investments in marketing and sales that should keep the double digit of the revenue. And in costs, I call your attention to the impact of 2.1% result of a mix that comprises more and more complementary products that we pay royalties for. So they have a higher cost like bilingual and social emotional as well as the Mackenzie system that grows in a fast pace. So these products have royalty, they increment a little our costs. On the other hand, we do not deliver capital to develop the product. So when you look at the benefit that we have in the cash, it's much greater than the small points of margin that we observed in the total costs. And lastly, I would like to emphasize that we are in the peak of the commercial campaign for the cycle of '26. We are quite optimistic with this period to keep the growth and keep the history of ACV as we saw before, we will have probably quite a good '26. I emphasize that we reached more than 50 contracts and we are operating 6 units this year. Next year will be 8 as franchising with a total of 14 units and the B2G is a big path of growth that we have with a lot of prospection at this moment, and we hope to have quite a hot fourth quarter to supply the cycle of '26. Now I pass on the floor to Fred to go on the presentation. Frederico da Cunha Villa: Thank you, Guilherme. Good morning, everyone. I'll start the presentation of Saber. And remember that Saber has some businesses, the national program of didactic books, languages, other services encompassing governmental solutions and so on. So note the graph on the left that in the quarter, we grew the revenue from -- of 9.4%. So this growth was fostered by the hitting of 2 business. First of all, 17% in languages; and secondly, the growth of Acerta Brasil that is governmental solutions with a growth of about 38%. It's important to remember that in '25, this is the year of purchase for high school and repurchase for elementary school. In high school, we had a gain of 8% in market share, which shows the growth that we have in our products with the program of didactic books. However, we see that there is no representativity in the quarter. We had a displacement from the third to the fourth quarter. Now going to the graph on the right, in the accumulated, I had a reduction of 9% in 9 months comparing '24 to '25. So this reduction, as I mentioned before, is only a reflect of the displacement and the reduction of the PDA, but it's according to the fourth quarter, and we had businesses with a positive impact of about BRL 32 million in 9 months in '24. And in the year, in the 9 months, the big effect here was in the first quarter that we've had a revenue that walked back in about BRL 60 million, but our expectations, as I mentioned before, is that we will have a stronger fourth quarter with the displacement of the didactic books program. So going to Slide 20, talking about the recurring EBITDA and margin EBITDA. As we said before, this is a year to grow the margin, but with the EBITDA growing and it shouldn't mainly due to the effects of investments that we will have in the material for marketing and all the commercial part, mainly, as I mentioned before, due to the repurchase program of high school and in the accumulated of 9 months that finishing September 30, we saw a growth in our EBITDA of 16%, leaving from -- going from 67.5% to 78.5% with an expansion of margin and 4.7%. So it's a neutral semester with a growth in revenue, but without growing the EBITDA, but this is due mainly to the displacement of the PDA. Our expectation is to have quite a positive fourth quarter. Finishing the presentation of Saber, I start now Cogna. Cogna represents our 3 main businesses like Kroton and Somos and Vasta, and I just mentioned Saber. So just a brief summary going to the final presentation. We had a growth in the revenue in the quarter in Cogna of 18.9%, reaching BRL 1.523 billion. So we grew revenue in all businesses. And in the accumulated, we also reached BRL 4.816 billion with a robust growth. That going to Slide 23, we have the demonstration in the recurring EBITDA and margin EBITDA. So we grew the EBITDA in the third quarter 9.8%, reaching an EBITDA of almost BRL 423 million. And as I mentioned, we grew the revenue in our 3 main businesses in Saber. We decreased the EBITDA, but we have the effect, as Roberto mentioned before, the effect of our commercial strategy in Kroton for intakes via Pague Fácil. And the main goal here was to keep the average ticket. You can see in our release that we can keep and have even growth in our intakes, and we had an impact in the PDA. We grew with the program to pay installments in Kroton, and in this way, we grew the PDA in the accumulator of 9 months, we grew 12.4% reaching an EBITDA of BRL 1.530 billion. Now going to Slide 24 with net profit and margin. In the quarter, the third quarter of '24, we had losses of BRL 29 million, and now we reached a net profit of BRL 192 million with a growth of more than 700% and a growth in the margin of net profit. And this comes from the growth of our operational results and it grew about 10%. We had a reduction of our financial results. So with many initiatives here in liability management and renegotiation, we reduced our financial results in 13%. And the main effect here is the effect of taxes of BRL 126 million and the reason we demonstrated this continuation and the operational effects and what are these effects mainly here with the reversion in the contingency that is not going over our EBITDA and the recurrent results, and we had the condition of the income that I briefly explain means that we had a company, Saber that had the tax losses in revenue income. And we incorporated this company so that we had this benefit in this year and future benefits. So look at this year, we had accountability effect of BRL 126 million. But in the fourth quarter, we will compensate BRL 11 million in taxes. So this operation brings not only accountant benefits, but in the cash of '25 and the years to come. If the accumulated, we reached almost BRL 406 million next year -- last year, in December 31, '24, we had a profit of BRL 879 million. Just remember that part would come from a reversion of contingency and our net profit of the operation was BRL 120 million. So in 9 months, ex effect of the income taxes, we reached the net profit of the operation compared to the previous year. And finishing that, the most important to us in the company is as we manage the company and we look a lot that for getting EBITDA and now analyzing the net profit and the cash generation and free cash. So we can see that in the operational cash generation, we had a slight reduction of 12%, reaching -- going from BRL 392 million last year. And last year, we had a positive effect of BRL 150 million of receivables of taxes from the federal revenue, and we had this benefit last year. We didn't have the benefit this year, but it's part of the game. So there is no adjustment. We are not proposing that. We are just explaining. But the most important to us is the free cash flow that we grew in the free cash flow. And when I say that, it is the generation of operational cash post CapEx and debt. So we reached BRL 300 million with a growth of about 3%. I'd like to mention also that the company analyzing the risks, we kept the second quarter of '24, '25 compared to the third one or the third of '24 with the third quarter of '25, we had a risk neutral with a small decrease of about BRL 9 million regarding the second quarter of '25 and BRL 17 million compared to the third quarter of '24. So you can see that the cash -- the free cash flow is not coming from postponing the risk. We are reducing our risk. And just to finish the free cash flow, an important data is that in the accumulated, we reached BRL 584 million last year. We had a generation of BRL 395 million. So remember that our fourth quarter, as I mentioned, is strong here in the national program of didactic books, and it's also a strong quarter in Somos Educação. So we are thrilled with what is about to come to the fourth quarter. Now going to the end of the presentation, our cash position and debt, we -- in Slide 26, I would show that the important is that we are reducing the net debt. So we reached BRL 2,576 million. We finished the third quarter in a strong cash position with BRL 1.277 billion. And the message here is analyzing the amortization schedule. In '26, we don't need to do any debt, and we have no amortization for '26, which is generally a difficult year because it's the elections year. Now going to Slide 27, the last one of my presentation, I'd like to show the leverage of the company. We reached the leverage of 1.11x, our lowest level of leverage since the fourth quarter 2018. Considering the third quarter of '24, our leverage would be 1.58x. We had a reduction and more than leverage. We monitor also the net debt. So we had a reduction of net debt compared to the last year, BRL 474 million. And regarding the second quarter of '25 compared to the third one, a reduction of BRL 230 million, which shows that in the last 4 years, we are doing what we say, what we committed to hit the revenue and generate EBITDA that will do the deleverage of the company, free cash flow and reduction of net debt. And last but not least, our average cost of debt is reducing. So in the third quarter '24, we had an average cost of 1.82%. And in the third quarter, it's 1.52%. And as we understand the market and our rating that we maintain that, but with a positive prognostic. We have cost of an eventual debt for future liability management in a lower cost than this one that I mentioned of 1.52%. So we are still thrilled with more execution, more work. And I pass on the floor to Roberto Valério for the final considerations. Roberto Valério: Thank you. Now going to Slide 28. I reaffirm our pillars and growth is one of the pillars. It's not by chance, it's the first in the list. As we showed, we grow in all operations, and we are planting and developing new pathways of growth to the future. As Fred mentioned, we are thrilled to the end of the year, the fourth quarter that is generally with no news in Kroton, but given the diversity of our portfolio, we have good quarters in Vasta and Saber with a positive perspective to the year. And we see no different challenge to '26. We see the level of unemployment very low, people with good income. This is -- next year is electoral year, which benefits our businesses. We are quite positive to this item of growth. From the point of view of efficiency, it's in the DNA of the company. We have quite well designed all the processes. We are converging systems to 1 or 2 single systems to gain on synergy and speed. So we are working in improvement of processes, automation systems, implementing AI. That is something we've been doing since '23. So basically 2 years, almost 3. And this is something that is spreading in our value chain, and it will keep bringing efficiency in gross margin and reduction of expenses. So this is another front that we see opportunities. Experience, the client experience is something that is the core of our decisions. We keep improving the NPS of students and partners. So just for you to understand in this third quarter, we had 4 important awards that are related to customer experience in many segments. So it is still our focus, and we understand that we serve well to reduce the churn and improve the growth. And culture -- people and culture is an important pillar. We are investing a lot in training and development and assessing performance and skills and feedback of our workers so that they know how to develop and external trainings and courses, I think we are progressing a lot in this front. And it's not by chance that we could be in the ranking of the best companies -- Great Places to Work. So we have the GPTW, still, we've had that, but being in the ranking is very difficult, and we are there at the 12th position, and we are in the 6th position, I'm sorry. And it's quite nice and innovation, we are supporting the business areas of the company, speeding up the B2G and new ideas that are under discovery in the initial steps, but I'm pretty sure are the seeds for our growth in education that is a big segment, and our approach is not only one segment. We have a multi-segmentary strategy. We have a broad portfolio, which in fact increases the options of growth to us. From the point of view of ESG, it is still important in the agenda. We held the V Education & ESG Forum this quarter. We were acknowledged in the ranking besides being acknowledged for being the best companies in customer satisfaction by the MESC Institute and some awards among which the best legal department in the education sector. So it's said by other people, which is also more important because it's not our opinion. It's the experts in the sector saying that to us. With that, I finish our presentation, and I open for the Q&A. Thank you. Operator: [Operator Instructions] The first question is from Marcelo Santos, sell-side analyst, JPMorgan. Marcelo Santos: I have 2 questions. First, I'd like to mention Pague Fácil because you've always had the PMT. So I understand that, in fact, you increased the amount of that, but the program would be the same. So I'd like to be sure of that. And was it more focused in DL? Is it -- does it have something to do with competition? I would like to understand why it's stronger in the divisions that you showed. And I would like to know if next year, it will be more normalized. And the second question is related to the cash generation because the fourth quarter last year was very good. So is there any event, any effect to change the seasonality for this year? Or you would bet to say that it would be the same as last year? Roberto Valério: Well, Marcelo, thank you for the question. So regarding Pague Fácil, you are correct. It's the same program we already had. So the mechanism is the same. The only thing is that now we are offering to more students. In general, we would offer the benefits to the students later on in the course when they enter in August or September, and we offer now since the beginning of the intake process when we start offering the benefit beforehand, more students make use of this. So the penetration of the program increases. So it's the same program with the same -- greater penetration for newcomers, which means that looking ahead, we should then see new growth. It should be more stable when comparing the quarters because the penetration was almost absolute, let's say, quite high. Basically, all students enrolled took advantage of Pague Fácil in the period. And regarding the cash generation, Fred will say. Frederico da Cunha Villa: Well, Marcelo, thank you for your question. In the fourth quarter last year, we had a strong operational cash generation. This is the beauty of our business, the diversity that we have. So last year, we had a positive effect of the national program of didactic books and also governmental solutions. And the cash here wouldn't have anything different compared to what happened in Kroton last year. And our expectation is to have a positive cash, and it comes with the same effect that we've had last year with the national program of the didactic books. A point of attention here is that we are a little late. We would imagine that our third quarter would be stronger. The government is late. So it may bring some impact to the cash in the fourth quarter, but our expectation is not different from previous years. It is to receive in the fourth quarter. But if we don't, Marcelo, then we should receive in the first 15 days or the first 2 any -- first days in January '26. But as I mentioned, it is our daily life. Marcelo Santos: Just a follow-up in Pague Fácil, Roberto, it is more concentrated in some of the units due to the competition, it was more in DL or is it general? I would like to understand this point. Roberto Valério: Sorry, you asked this question, and I didn't answer. It's generated. It's not focused in DL, both on-site and DL and the corresponding courses of KrotonMed. Operator: The next question comes from Vinicius Figueiredo, the sell-side analyst, Itaú BBA. Vinicius Figueiredo: I'd like to discuss a little bit about this quarter because we had a more concentrated effect. You mentioned a lot PDA in Pague Fácil that reached the margin. But having that said, a good behavior of all lines in this quarter, along with the fourth quarter not being with such a strong PDD due to the lower intake. So does it make sense that this quarter was quite atypical regarding the performance comparing the margins of the years, and we would see the cycle again an expansion in the fourth quarter? And then in the context of next year, will this effect along with the investments to adequate to regulation, how is that as a whole? And the second point is a follow-up to Marcelo's question. What would you see here as the balance point to Pague Fácil? Outside this context -- this is a typical context of the second semester and looking ahead, what is the participation it should have as a whole? Roberto Valério: Vinicius, thank you for your questions. I think it is quite an important topic to us that you have it quite clear in Pague Fácil and PDD. So as basically all students came via Pague Fácil, there shouldn't have any additional impact in any other quarters. So let's consider that in the third quarter '26, if all students have Pague Fácil, the delta should be only the growth of the enrollment and not the take rate of Pague Fácil. So we have nowhere to go because basically all students took Pague Fácil, whatever grows in the PCLD is related to the intake for the future. So this is the first point. The second point, you are correct. As in the fourth quarter, we don't have newcomers. Therefore, we don't have the pressure of Pague Fácil. The trend is that PCLD comes to the average and reduces to a lower level like the inadequacy and the numbers that we have here, as Fred always mentioned, a PDA of processes of inadequacy would convert to that, therefore, remove the pressure of the PDA improving the margin trend. And you are perfect in your observation. Obviously, we cannot predict -- we cannot give a specific guidance, but this is the specification. I don't know, Fred, do you have any additional comments? Frederico da Cunha Villa: Well, no comments. It's exactly that. The comment I would make is that that as we collected more with Pague Fácil because Pague Fácil and PMT are only different commercial names, but basically, it's the same. So the important is that the PDA is high due to the payment installments if our inadequacy is in X. So this effect is in line and close to 10%. So we'll see the quarters and understand that there's nothing new because it's already provision if we improve the inadequacy and improve the dropout, we will have an upside to the future. Otherwise, the PDD is already correct. So regarding the perspectives for DL, considering the regulation, it's difficult to predict, but we can have some ideas considering 2 important aspects. One that in the beginning -- in May, when it was disclosed, how much of restriction of courses that were DL and now are semi-presential and how it could restrict the movement of the student, I mean, going from DL to on-site. So this is the first doubt. We are seeing that, yes, there is quite a positive migration effect in the first weeks, we are in the beginning of the cycle. But in the first weeks where the nursing courses are not available in DL, we don't have the regulation defined. We see quite a strong growth of the courses, especially nursing in on-site. So the first doubt, well, if the fact we don't have cheap DL, the students won't be able to study. Therefore, we won't have so many enrollments. We don't see that. We see a strong growth in the on-site, which is positive from the growth point of view with the pressures on the margin because the on-site courses have lower margin, but the nominal contribution is much greater. The final benefit to the cash generation is quite positive. So this is the first element. The second one that is in the air, and we expect to have more information in the last weeks is how the fast track of approval of the nursing courses will be and how -- from there on, how many units and colleges will offer this course, and we are quite optimistic that MEC will propose a transition rule to allow that those operating -- keep operating. But this is only an expectation. We don't have any official information. Regarding the cost impact, we keep having the same view that we've had since the regulatory framework was launched. And if you know that from the point of view of cost, we understand it's quite not relevant, both in online and semi-presential or DL. So they are prone to repasses in the average ticket of the student. As you can see, we keep repassing inflation. The average ticket is growing for newcomers and old students. So we have the same view, and we don't have elements to say that DL will have a non-manageable impact, let's say. Operator: The next question comes from Caio Moscardini, sell-side analyst of Santander. Caio Moscardini: Could you talk a little bit more of Vasta ACV, what we can expect in this new cycle? If the 14% that we saw in '25 is a good proxy? I think it helps a lot. And in Saber, just to confirm if this market share of 30% is regarding a new cycle of the PDA from '26 to '29 that the government has a budget close to BRL 2 billion? And what should we expect in terms of EBITDA for Vasta in the fourth quarter, if we can grow this EBITDA of Saber in '26 comparing year-to-year? Guilherme Melega: So thank you, Guilherme here. I'll talk about the Vasta ACV. As shown in the presentation, we are having quite a positive track record in the evolution of ACV. We have a CAGR of 17,000, but I can tell you that we'll keep the growth for '26 at a similar level as we had from '24 to '25. So in the mid-double digit of growth. Roberto Valério: Okay. Thank you, Melega. Regarding your question of Saber, Caio, you are correct. The last purchase of high school government typically makes 1 purchase a year. It can be fund 1 or 2 of the average. In the fourth quarter, we are talking about high school. We've had market shares in schools and teaching systems choosing 30% of all the purchase being with our books from Saber. And we'll have a take rate of 30% of the program compared to a take rate of 22% in '21. So it's 8% more in share. So this is the information. So yes, we do expect to grow our income in this sense. And we know that MEC as FNDE are discussing budget to comply with this purchase. And remember that next year's program is the new high school program. It's different with more disciplines, more content. But your interpretation is correct, basically confirming what you said in your comment. Caio Moscardini: Okay. And regarding Saber in the fourth quarter, going from '24 to '25, it should grow year-by-year. Frederico da Cunha Villa: Caio, Fred speaking here. Our point of attention is only seasonality. If you have a displacement from the fourth quarter to the first one, as I mentioned, due to the delays, but EBITDA should be neutral positive because as it is a year of purchase, as Roberto mentioned, I also have expenses with marketing and advertising, which affects a lot of the cost, but due to the growth of 8%, it can be positive. Operator: The next question is from Samuel Alves, sell-side analyst at BTG Pactual. Samuel Alves: My first question is about receivables and maybe it's related to the comments before about Pague Fácil because we saw an important increase in receivables after 1 year. So can it be related to Pague Fácil so that I get your idea about the aging? This is the first question. And a second question is having a follow-up on the topic of the PDA. If I'm not mistaken, the company had a certain target of EBITDA to '25 in Saber of about BRL 200 million, BRL 230 million, if I'm not mistaken, but something like that. So you were mentioning this point that Fred mentioned now about the marketing expenses and the cycle of purchase as a challenge. So it caught my attention, the comment of EBITDA being neutral or positive compared to the years in the fourth quarter because it would be above that. So was it my misperception of not understanding your comment considering it was BRL 360 million. I guess the EBITDA last year of BRL 200 million was adjusted. Just to make it more clear about Saber's performance. Roberto Valério: Well, Samuel, I'll start with Saber and Fred will talk about the aging. It's important to consider that Fred's aspect is that we are not so certain or clear on the income of high school in the fourth quarter. As the orders are delayed, maybe part of this income will decrease in the first week of January. So it's difficult to be content and understand what is the EBITDA in the fourth quarter considering the uncertainty in the displacement of income. We have almost no doubt regarding the effectiveness of the purchase of the government. Therefore, government needs to handle the books to students in February when classes start. So maybe this misperception is a little more regarding the conviction that we have that the fourth quarter specifically will have a neutral positive EBITDA without knowing exactly what is the displacement of the income. So any displacement should be of weeks because the program must be carried out. I don't know if I made myself clear, if you have any doubts, we can discuss more. And I'll then pass on the floor to Fred to talk about aging. Frederico da Cunha Villa: Samuel, Fred here. About the aging of receivables, you are analyzing the IPR of the company. So I have the growth in the installment programs for Pague Fácil. So I'm growing this potential, but the second effect of growth in the aging above 365 days is not for Pague Fácil. It's the fat effect PP, the program that already finished. And here, we have more than 70% provision. So we have our natural efforts here for charging, nothing different from what we already have, nothing different from previous quarters or years. Operator: Our question is from Lucas Nagano, sell-side analyst, Morgan Stanley. Lucas Nagano: We have 2 questions as well. The first one is regarding Pague Fácil. And first of all, I'd like to check some points on the coverage because you mentioned the provision in the beginning is 40% and inadequacy default is converted to 10%. So if it's 47%, is it the same of the PND of the previous year or it varies in the cycle? And the second one is regarding nursing, considering that the government will facilitate the accreditation. How far it could smoothen the effects of the margin? How feasible would be the implementation and offer of professors and the demand available for this level of teaching? Frederico da Cunha Villa: Lucas, Fred, I'll start with Pague Fácil doubt because our provision uses always the history -- as a criteria, the past history because, as I mentioned, Pague Fácil and PMT are just the commercial trade name. So I need to use the history, and we use it. In the beginning, we provisioned 60%. But as I naturally have returns every month, the index of provision coverage is 47%. So just to make it clear to you, I use the history in the beginning, and I provisioned 60% of the budget. And in the history, it's 47%. You can do the math, okay? Roberto the second question. Roberto Valério: Okay. Thank you, Fred. Well, Lucas, regarding nursing, your question about the feasibility to carry out on-site nursing and this transition, the feasibility on our site is complete. I would like to emphasize 2 things. One, our nursing costs where we would offer nursing in the post already had on-site hours of 42% with the new rule, it's 70%. So I already have tutors and professors and labs and classrooms and everything. So we would be working in a lower percentage. So going from 42% or 52% to 70% is as simple as increasing the amount of hours of the professors and tutors that we have. This is our reality because we always operate with health care courses with off-site labs. We didn't have practice of offering nursing as you asked. In 100% online model, we always have the labs and so on. So if we have a fast track made by MEC based on the evidence that we already have the lab and all the colors, it would be quite fast this impact and it's fast and the impact basically 0 considering that students are migrating from DL to on-site where we have these offers presentially. So this is my understanding. Obviously, we need to leave to be sure that the scenario is the practice, but I have enough elements to say that, yes, that's it. Lucas Nagano: And just a quick follow-up, how should it affect the first point of this post. Roberto Valério: Well, the average price of an on-site nursing course is 30% higher than the semi-presential. This is how the prices were made. And I think that pricing is less related to ability of payment of the students and more related to the level of competition of prices among the many players in the city. If you remove players because they have no labs or professors or so on, the trend is that you can repass the prices and students can pay. So that's why we are seeing a strong growth in the campus even with the on-site being more expensive than semi-presidential or DL. Operator: The next question is from Eduardo Resende, sell-side analyst, UBS. Eduardo Resende: I have 2 questions here. The first regarding the migration of DL students to the on-site or hybrid model as you mentioned. And I would like to understand what was the difference in the commercial strategy now to the next cycle that you see this movement. So anything that you had to do differently in the marketing or other fronts that might be helping that. And the second question is regarding Acerta Brasil and Saber. This year and last year, we had this line contributing a lot to the growth. And I'd like to understand if we have space to expand in the next years or if we now raise the bar too low for that? That's my question. Those are my questions. Roberto Valério: Eduardo now to answer your questions regarding the new commercial strategies to foster the migration from DL to on-site. The answer is no. It's a natural movement on the market. The students had options, and we are talking specifically about the campus. We had the on-site and DL offers as DL is cheaper, we have more demand on DL, but we kept making groups and enrolling students for on-site. We don't have DL. Now they have to enroll for the on-site education. So we keep the levels of enrollment the same, but they simply migrated from a simple line of product to the other one with a higher average ticket, which means a net profit with a greater nominal contribution. As I said, a lower percentage of profit, but with a greater nominal contribution. But directly talking about your question, we have nothing specific. It's a natural movement of the market. And now talking about Acerta Brasil. There's no doubt Acerta Brasil reinforces the learning, especially for Portuguese and math that we deal with the state and Municipal Secretaries of Education. It's a good product. The indicators show that the evolution of the students using this material. And we still have space to grow. Brazil has many states and cities, and we have more than 5,000 cities, and we sell to a small amount of that. So we believe we still have space to grow. Operator: Next question is from Flavio Yoshida, sell-side analyst, Bank of America. Flavio Yoshida: My doubt here is regarding Pague Fácil as well. I'd like to understand better the economics of the students in Pague Fácil when we compare to out-of-pocket students and understanding the dropout and the quality of payment of Pague Fácil. And my second question is specifically regarding the technology CapEx. We know that when we consider the 9 months of '25 compared to the previous year, we had an expressive increase of almost 70%. So I would like to understand the drivers here and if we should wait impressive growth in '26 as well? Roberto Valério: Fred, you start with CapEx. Frederico da Cunha Villa: Yes, I start with CapEx. Flavio, thank you for your question. Regarding CapEx, technology is a product here. So we have strong investments in technology. We are doing this investment and note that in the 9 months compared to '24 and '23, we also grew, and we are here building this too, that is an academic RP, and we believe nobody has that on the market aside from the investments we are also making to improve the student learning and all the development of AI. And here, this is what we look in terms of product view. What we mentioned before is that we don't understand that in the total CapEx of the company, we are not growing nominally here compared to the year. And for the next years, we believe that the CapEx is simply a see-saw reduced technology and invest more in the field, but it's natural. I cannot say only technology, but the CapEx as a whole should even grow nominally comparing the years. Roberto Valério: The second question regarding Pague Fácil. Well, Flavio, it is important. I'll try to explain better because the student Pague Fácil is the out-of-pocket students, they pay, they are not funded. We don't fund any student. All of them pay to us every month. We don't fund -- we haven't funded students for a while, and this is Pague Fácil because the first monthly payments that are -- as they understand latest that they pay in installment. So considering January so that you understand, if the student enrolls in December, for example, December '25 to start studying in February '26, when they pay the monthly fee in December, what are they paying? They are paying the January monthly fee. So the second is February, the third day, March, April, so on. So when it is already March and the student comes late, they say, "Hey, but it's not fair. Why do I have to pay January and February if I didn't study. We still didn't have classes, it's already March," and then we say, "Well, in fact, the point is you pay for the semester in 6 installments as it's already March. I am facilitating. That's why it's called Pague Fácil, easily. So you are late. So I let you pay installments January and February. So you choose 46 or 47 installments." So we explain to the students and to make it clear, Pague Fácil historically is a student that is late in paying the installments. They don't want to pay it all the time. So we facilitate by paying the installments. So there is no difference between Pague Fácil and the one that pays. The difference is that we only had this offer of Pague Fácil start in February, March, April, and now we are offering even for December, January for those who were correcting payments. So that's why we increased the penetration of Pague Fácil. So in this case, there is more quality or less quality. We understand they have more quality because if you enroll previously, you are scheduled to that you organize if you are enrolling in January or December, they are more organized and more engaged, probably a better payer. So in our understanding, the fact of allowing the monthly fees in installments wouldn't facilitate the dropout because they are good students. They come before the ones that are late in their enrollment. So it's important to say that all this process to the students is quite clear. They sign a contract acceptance terms, so they can pay the installments that are, let's say, late or they choose how to participate. So obviously, they have to choose the benefit. That's why they have such a big penetration. So that's why we are completely transparent in all questions that we understand this strategy than simply reducing the prices to be competitive commercially. So this is the strategy plan of Pague Fácil. Operator: The next question is from Renan Prata, sell-side analyst, Citi. Renan Prata: Quite briefly regarding the results, I think this line that we have 4 semesters with gains. I would like to understand your point of view on this funding. And I don't know what you are thinking for this line and the other, if you can give an update of the trade-off of Vasta because there was some delay regarding SEC, but if you can update us, it will help as well. Roberto Valério: Renan, the first question of risco sacado. The risk is something that we know we are keeping that. And in this case, it is in Saber and Vasta that is the installment, the funding of our raw material, mainly paper and printing. There is a correlation with the growth of revenue. As I grow the revenue, I need more paper and print the books and so on. So note that I'm growing the revenue in Somos Educação and not Saber, but this strategy is ongoing. So why? Because today, my average cost of debt is CDI plus 1.5% and risco sacado is 2.9%. So what happens is that we are doing that naturally, Renan, because if I simply remove all the risk and put it into a debt, I have no problems in leverage and the debtor risk was always clear in the company. But if I do that, I reduce the operational cash at the moment 0 in BRL 490 million. So naturally, you will see that this line that was correlated to the revenue will be a line that will reduce quarter-by-quarter until we understand that we do not have to consider the debtor risk is the main reason is the average cost of the debtor risk regarding our debt. First question. The second one regarding the trader offer of Vasta, it's public. So I won't say anything different. So we are just waiting for the American SEC that is the Brazilian CGM that is in the shutdown process due to political problems in North America. So we are waiting for the reopening of SEC so that we can have the operational and legal bureaucracy for the operation. We postponed the operation due to the shutdown of the SEC. And until the deadline that is December 9, our expectation in discussions with our legal consultants in North America that SEC will open in November, and this is a data that I'm just repassing what I've heard. There is no commitment in what I'm saying. So the expectation is that until 9 we can have more elements in this operation to close everything. Operator: The Q&A session is over. So we will now pass on the floor to Mr. Roberto Valério to his final considerations. Roberto Valério: Well, I thank you all for your participation. I'd like to reinforce my thanks to everyone of the 26,000 workers that are working nonstop so that we can reach the results and get better to our clients and students. Thank you very much. And we are still available with our team to clear any doubts necessary. Thank you very much, and we see you in the next quarter. Operator: The results conference regarding the third quarter of '25 of Cogna Educação is over. The Department of Relation with Investor is available to clear any doubts you might have. Thank you very much to the participants, and have a nice afternoon. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good afternoon, ladies and gentlemen, and welcome to the Curis Third Quarter 2025 Business Update Conference Call. [Operator Instructions] This call is being recorded on Thursday, November 6, 2025. I would now like to turn the conference over to Diantha Duvall, Chief Financial Officer. Please go ahead. Diantha Duvall: Thank you, and welcome to the Curis Third Quarter 2025 Business Update Call. Before we begin, I would like to encourage everyone to go to the Investors section of our website at www.curis.com to find our third quarter 2025 business update press release and related financial tables. I'd also like to remind everyone that during the call, we will be making forward-looking statements, which are based on current expectations and beliefs. These statements are subject to certain risks and uncertainties, and actual results may differ materially. For additional details, please see our SEC filings. Joining me on today's call are Jim Dentzer, President and Chief Executive Officer; Dr. Jonathan Zung, Chief Development Officer; and Dr. Ahmed Hamdy, Chief Medical Officer. We will also be available for a question-and-answer period at the end of the call. I'd like to now turn the call over to Jim. James Dentzer: Thank you, Diantha. Good afternoon, everyone, and welcome to Curis' third quarter business update call. We continue to make steady progress in our TakeAim Lymphoma study, which is evaluating emavusertib in combination with ibrutinib in patients with primary CNS lymphoma, one of the most rare and most difficult to treat of the NHL subtypes. As a reminder, the TakeAim Lymphoma study is a single-arm study with an ORR endpoint that adds emavusertib to a patient's BTKi regimen after they have progressed on BTKi monotherapy. And after collaborative discussions with the FDA and EMA, we expect the study to support accelerated submissions in both the U.S. and Europe. Over the next 12 to 18 months, we'll be focused on enrolling the additional patients we'll need to support those submissions. If you recall, last quarter, we engaged with a number of KOLs who are excited and highly supportive of expanding our emavusertib studies into additional NHL subtypes. They were especially interested in exploring emavusertib's potential to fundamentally change the treatment paradigm for CLL patients where the current standard of care is BTKi monotherapy. BTK inhibitors have become the standard of care in CLL and NHL because of their ability to help patients achieve objective responses. However, these responses are typically partial responses, not complete remission. The unsurprising result is that patients who are treated with a BTK inhibitor end up having to stay on it in chronic treatment for the rest of their lives. Additionally, since patients never achieve complete remission, many of these patients develop BTKi resistant mutations and ultimately, their disease progresses. At Curis, we're looking to improve upon the current standard of care by adding emavusertib to a patient's BTKi regimen, enabling patients to achieve deeper responses and potentially come off treatment, reducing the risk of developing BTKi resistant mutations and improving a patient's overall quality of life. The first step in testing this hypothesis in CLL is to initiate a proof-of-concept study in patients currently on BTKi monotherapy who have achieved a PR, but have been unable to achieve complete remission or UMRD. We have submitted the study protocol to the FDA. We're working to activate clinical sites, and we expect to enroll our first patient in late Q4 or early Q1 with initial data expected at the ASH Annual Meeting in December 2026. Now let's turn to AML. Abstracts for the December ASH meeting were released on Tuesday, including the abstract for our ongoing AML triplet study, which is evaluating the triple combination of emavusertib with azacitidine and venetoclax in AML patients who have achieved complete remission on aza-ven but remain MRD positive. The data in the abstract are for the first 2 cohorts, patients who received emavusertib for 7 or 14 days in a 28-day cycle in addition to their aza-ven treatment. As of July 2, 2025, 10 patients with a median age of 71 were enrolled, 4 in the 7-day cohort and 6 in the 14-day cohort. MRD conversion to undetectable levels occurred in 4 of 8 evaluable patients within 5 to 8 weeks of adding emavusertib. Among the patients who remained MRD positive, 1 patient achieved a 40% MRD reduction and none showed disease progression. Two dose-limiting toxicities, CPK increase and neutropenia occurred in the 14-day cohort, but both resolved. We're very encouraged by the initial readout from these first 2 cohorts and the exciting potential of combining emavusertib with aza-ven in frontline AML to enable more patients to achieve undetectable MRD. We continue to explore different dosing regimens for this triplet combination, and we look forward to reporting our progress. As you can see, we've had a very exciting and productive quarter and have a lot of exciting updates coming at the SNO and ASH conferences over the next few weeks. With that, I'll turn the call back over to Diantha for the financial update. Diantha? Diantha Duvall: Thank you, Jim. Curis reported a net loss of $7.7 million or $0.49 per share for the third quarter of 2025 as compared to a net loss of $10.1 million or $1.70 per share for the same period in 2024. Curis reported a net loss of $26.9 million or $2.19 per share for the 9 months ended September 30, 2025, as compared to a net loss of $33.8 million or $5.77 per share for the same period in 2024. Research and development expenses were $6.4 million for the third quarter of 2025 as compared to $9.7 million for the same period in 2024. The decrease was primarily attributable to lower employee-related clinical consulting, research, manufacturing and facility costs. Research and development expenses were $22.4 million for the 9 months ended September 30, 2025, as compared to $29.6 million for the same period in 2024. General and administrative expenses were $3.7 million for the third quarter of 2025 as compared to $3.8 million for the same period in 2024. The decrease was primarily attributable to lower employee-related costs. General and administrative expenses were $11.2 million for the 9 months ended September 30, 2025, as compared to $13.4 million for the same period in 2024. Curis' cash and cash equivalents were $9.1 million as of the end -- as of September 30, 2025, and the company had approximately 12.7 million shares of common stock outstanding. Based on our current operating plan, we believe that our existing cash and cash equivalents should enable us to fund our existing operations into 2026. With that, I'd like to open the call for questions. Operator? Operator: [Operator Instructions] Your first question comes from Sara Nik with H.C. Wainwright. Sara Nik: Congrats on the ongoing progress. My question was regarding your CLL program. And if you -- any color you could provide on the FDA discussions and protocol you submitted. Were you mostly aligned with primary endpoints and study design? Any granularity you can provide as of now would be helpful. James Dentzer: Thank you, Sara. Thanks for the question. I'll start, and I'll ask Dr. Hamdy to chime in as well. So we're very excited about that study. So as you know, we did have a dose escalation study where we tested across different subtypes in NHL. Our first expansion was in PCNSL and the second one is going into CLL. Obviously, as we move into CLL, it's a much larger indication. And of course, there's a much wider circle of interest among the KOLs. Ahmed, do you want to talk a little bit more about the CLL study in particular? Ahmed Hamdy: Sure. Sara, it's Ahmed. So basically, we're trying to address the unmet medical need in the CLL community, which is basically getting patients to a time-limited treatment with the combination of emavusertib plus a BTK inhibitor in patients who are currently on a BTK and have only achieved a PR with MRD positive. So -- and we're aligned with the FDA there, and we intend to have a small dose escalation at 100 milligram and expanding into our 200-milligram Phase II dose. Operator: Your next question comes from Li Watsek with Cantor. Li Wang Watsek: And I guess just for the Phase II CLL trial, can you maybe just talk a little bit about the size of the study and in terms of the delta you want to achieve in terms of the CR rate? And then second is just how you're thinking about resource prioritization at this point, especially as you think about the resources that you might need to move forward with the CLL study versus the frontline AML study? James Dentzer: Sure. So again, why don't I start on CLL, I'll ask Dr. Hamdy to talk a little more detail and then maybe have Diantha talk a little bit about resources. So first, on CLL, we are anticipating a study design at this point in time that anticipates 40 patients. But of course, as we saw in PCNSL, the unmet need is so clear, we're hoping to be able to see a signal long before we get to that point. As a reminder, patients on BTKi monotherapy in CLL, they get PRs. They don't get CRs. They certainly aren't getting MRD either. So what we're looking to do in that population is demonstrate simply that by adding emavusertib, by blocking both pathways, not just one, but both pathways that are driving disease that we can end up seeing deeper responses. So that's deeper PRs, and we hope also that we'll see CRs and MRD. Ahmed, do you want to chime in a little bit more on that? Ahmed Hamdy: I think you said it all, Jim. The whole concept here that you don't see CRs in -- with BTK. And obviously, you don't see MRD negative. So getting patients to a CR, and I think anything north of 20% would be very exciting. But obviously, we're going to have to wait until we see a treatment effect in our trial and plan accordingly. But we are very hopeful that the dual blockade of inhibiting the TLR pathway along with the BCR pathway would have a much more profound effect on the NF-kappaB and therefore, getting patients to a deeper response in MRD negative. James Dentzer: Yes. Thank you. And Diantha, would you mind spending a moment talking about the resources? Diantha Duvall: Absolutely. So Li, as you can appreciate, our current priorities are clearly to continue the PCNSL trial and obviously launch the newly initiated CLL trial. And also, as you can appreciate, we'll be looking to bring in additional capital prior to the end of the year. We've been pretty clear about that over the last 6 months. So neither of those things should be a surprise. So that's sort of where we're thinking about our resource allocations. James Dentzer: Yes. And in overall messaging, Li, we continue to move forward with great progress in PCNSL. And I think the investor interest, not just in PCNSL with the [indiscernible] approval, but the ability to move the needle in CLL. It seems to be a very reachable goal and because of the market opportunity, a very exciting goal. So look forward to hearing from us more about that over the next 8 weeks. Operator: Your next question comes from Yale Jen with Laidlaw & Company. Yale Jen: I've got 2 here. First of all, in terms of the CLL study, what would you think about the safety side? In other words, in the combination, was there any sort of speculated AE may happen? And how would you think about the mitigation for that? And then I have a follow-up. James Dentzer: Okay. Again, let me start, and I'll ask Dr. Hamdy to add to it. So I think the critical issue for us is going to be, do we see any DDI with the BTK inhibitors. And as you know, we have a great deal of confidence given that we've already tested a number of patients in NHL with ibrutinib, and we aren't seeing DDI. In fact, at the doses that we're testing 100 and 200 milligrams with [indiscernible], it seems to be a very clean profile. Ahmed, would you like to add to that? Ahmed Hamdy: Yes. I mean, again, you said it all, Jim. But yes, I mean, we have approximately 25 patients, if not more, combined with ibrutinib. And as you know, ibrutinib is probably would be the most unselective of all approved BTKs, and we have not seen any additive toxicities and we expect not to see any additive toxicity with the other BTK inhibitors. Of course, we're going to be doing some PK work in GDI following any potential toxicities, but I don't think there's any additive toxicities that we expect. Yale Jen: Okay. Great. That's very helpful. And maybe just one more question here. In terms of the SNO meeting in a few days, what should be the investor sort of expectation to talk about? James Dentzer: Yes. So obviously, we're going to have to be a little careful not to front run the conference. But thank you, Yale, for your interest in that. Yes, we're going to have several posters, 3 of them available at the SNO conference in PCNSL, but also SCNSL. Dr. Grommes and Dr. Nayak, in particular, will be talking about PCNSL. So I think what you can expect to see there is learn a little bit more about what we've seen over the last 6 months in that study. And of course, the secondary CNS lymphoma even harder to treat, that will be brand new. So I think on both fronts, it should be a really exciting conference for us. Thank you. Operator: There are no further questions at this time. I will now turn the call over to Jim Dentzer for closing remarks. James Dentzer: Thank you, operator, and thank you, everyone, for joining today's call. And as always, thank you to the patients and the families participating in our clinical trials, to our team at Curis for their hard work and commitment and to our partners at Aurigene, the NCI and the academic community for their ongoing collaboration and support. We look forward to updating you again soon. Operator? Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Agus Aris Gunandar: Good afternoon, everyone. Thank you for joining today's earnings call for PT Lippo Karawaci Tbk. My name is Agus Aris Gunandar, Head of Investor Relations, and I'll be your moderator for today's session. With me is Pak Fendi Santoso, our CFO, who will give you a presentation of the company's results for the 9 months ending September 2025, which will then be followed by a Q&A session. [Operator Instructions] Pak Fendi, can you please proceed with the presentation. Fendi Santoso: All right. Thank you, Pak Agus. Good afternoon, everyone. Thank you for attending this earnings call that will discuss 9 months performance of PT Lippo Karawaci Tbk. So let me just go straight jump into the performance for the 9 months. Probably before we start with the results, let me just give you -- give everyone a context to what we see from the macro point of view. We still see that demand is relatively a bit soft in this quarter. And the overall economy still remains pretty relatively soft with the Indonesian consumer buying power also remain subdued. That being said, we are starting to see that on a quarter-on-quarter basis, third quarter compared to the first quarter and second quarter of this year has improved a lot. And we are also seeing that's happening across our businesses, both in real estate, lifestyle and health care. So for the first 9 months of 2025, our marketing sales for the real estate reached IDR 4 trillion, and this is compared to -- this is 64% compared to our full year target of about IDR 6.25 trillion that we've guided everyone earlier this year. Our revenue continued to post a very strong year-on-year growth, 74%, registering IDR 5.51 trillion of revenue and EBITDA increased by 4% at about IDR 843 billion. And our product launches for the first 9 months includes the premium series as well as the more affordable housing. We'll touch base on real estate performance later on the next few slides. But moving on to the lifestyle. Overall, relatively stable. Lifestyle revenue hit IDR 994 billion with EBITDA increased by about 21%. So our mall is actually doing relatively well with growth of about 6%, 7% on the visitors side, occupancy also improved by about 5 percentage points to 84%. This is higher than the average occupancy rate of mall in Indonesia. But our hotel revenue continued to see headwinds, and this is driven by the government budget cut spending that happened earlier this year. That being said, on a quarter-on-quarter basis, we are actually seeing improvements on our hotel business where occupancy rate improved quite substantially from the second quarter of this year. On health care revenue, Siloam’ performed extremely well for the third quarter. The first 9 months, it recorded about IDR 7.29 trillion, which is 3% increase year-on-year and EBITDA at about IDR 2.08 trillion with margins standing at about 29%. So that's overall on -- I'll spend a little bit more time on each segment later on the next few slides. But just on the statutory level, we will be posting about IDR 6.5 trillion of revenue for the first 9 months of 2025, slight lower compared to what we published last year, but this is because of Siloam’ still was consolidated in the first 6 months of 2024. And as such, the occupancy sits obviously higher. But then if we remove Siloam’ from the first half of 2024, we're actually seeing that the revenue grew by about 52% compared to last year on a pro forma on a like-for-like basis. Similar on EBITDA, we posted about IDR 997 billion for the first 9 months of 2025 compared to last year, lower because of the consolidation of Siloam’ in the first half of 2024. And if we remove this, our EBITDA actually grew by about 4% this year. This is the P&L that we will -- that we published in the 9 months 2025. We will touch base on revenue and EBITDA. Income from associates obviously increased, and this is because 9 months 2025 already fully deconsolidated and assumes and classify Siloam’ as our associate company and as such, contributions from its profits goes to the income from associates. So that's up by about 230%. I think additionally, we have also seen improvements from our [indiscernible] performance and contribution is actually quite positive this first 9 months of 2025. Net interest expense come down and is driven by our liability management as we've reduced our debt quite substantially over the last 12 months. And amortization and depreciation and taxes also reduced because of -- mostly because of the deconsolidation of Siloam that happened last year. And that resulted in our underlying NPAT of about IDR 442 billion, higher by about 8% compared to last year and NPAT of IDR 368 billion, substantially lower from last year, given that last year, we've enjoyed quite a lot of nonoperational and one-off items, including the gain from our deconsolidations of Siloam last year as well as the sale that we did on our Siloam stake last year. This is the cash flow for LPKR. I think relatively, we remain -- our liquidity remains strong. The focus of this year was to complete a lot of our projects that we sold in the previous years. And as such, the payments of about IDR 4.6 trillion that we had in the first 9 months of the year, this is offset obviously by the collection that we've gotten from consumers, from our customers from marketing sales. Net interest expenses, IDR 175 billion. This is substantially lower compared to last year where we spent about IDR 765 billion, and this is reflecting a successful deleveraging initiative and commitment to ensure that we have a stronger balance sheet moving forward. This is also in the cash from financing activity, IDR 1.8 trillion outflow given that we've settled all our U.S. dollar bonds in the beginning of the year as well as continue to repay our loans with the banks. On the financing side, I'm pleased to announce, I think we've shared this in the last -- in the previous earnings call that we've successfully secured a loan from BTN to refinance our syndicated loans. So I'm pleased to announce that we've now successfully reduced our cost of funds by about 60 basis points. So today, we are paying about BI rate plus 1.4%, which translates to about 6.15%. And then this is on [ ideal ] loans, which I think will continue to support our liquidity moving forward. As I mentioned, we fully paid all our U.S. dollar bonds. Now our liabilities are all in rupiah denominated. So and as such, we managed to remove the FX risk that's inherent in our business in the past. So now the revenue and cost and liabilities are matched. And we landed in September 2025 at about $2.75 trillion net debt and an improved debt maturity profile following our refinancing of the syndicated loans. So I'll move on to segment by segment. I'll touch on the real estate first. So on the property development projects sold in the first 9 months, we've sold 22 projects of landed residentials, around 9 projects of low-rise to high-rise residentials and then 16 shop houses projects. We spoke about marketing sales in the previous slides, but 70% of our landed housings -- 70% of our total marketing sales are contributed by our landed housings. We've done about 11 launches in the first 9 months. Lippo Karawaci, we've done 5 launches: Park Serpong 4 and 5, Bentley Homes and Bentley -- Belmont and Bentley Homes in Central and Marq in the heart of [indiscernible] cities. Lippo Cikarang, we've launched 3 launches, The Allegra at Casa De Lago, The Hive Tanamera and The Hive Neo Patio, which is shop houses and also 3 launches in Tanjung Bunga. Financial performance, I think we've touched base on this. But moving forward, we continue to focus on the affordable homes designed for young families as well as moving -- focusing more to the premium residents that meet lifestyle aspirations of the affluent market. Marketing sales, IDR 4 trillion for the first 9 months, 64%, as I mentioned, compared to what we've targeted for this year at IDR 6.25 trillion. I think the majority of the marketing sales are coming from [indiscernible] residentials at about IDR 2.1 trillion, followed by Lippo Cikarang at about IDR 1.2 trillion. We still have plenty of land bank that we can develop and which translate about 25-plus years of remaining land bank that we can develop at the current run rate. Highlights of marketing sales for the first 9 months, Lippo Karawaci is still dominated by landed housing at 77% in terms of value and 84% in terms of number of units. Lippo Cikarang, I think it's more balanced between landed housing, which contributed about 55% of the total marketing sales and commercial area, which is about 34%. In terms of the payment method, mortgage is still dominating the way our customers are buying our property at about 65%, which is lower compared to last year because a lot of people are opted for installments this year. In terms of the ticket size, still dominated by product with price less than IDR 1 billion that contributed about 66% and with -- and then the product that priced at IDR 1 billion to IDR 2 billion accounts for about 25% of total marketing sales. This is the project handover highlights. I think in totality for the first 9 months, we've handed over around 8,000 units. And obviously, predominantly from -- the Park Serpong is just an example of the cluster of Park Serpongs that we've completed and handed over, Cityzen Park East, Citizen Park North and Park West. In Lippo Village, we've also done quite a bit of handed over in the first 9 months, Cendana Essence, Site A Area 1 and 2, Cendana Cove Verdant and Cendana Cove also in Lippo Karawaci and also the handovers that we've done in [ Makassar ]. This is just to give you the highlights of the product innovations. There are a bunch of products that we introduced in the third quarter of this year from a building area of about 35 square meters at price at about IDR 397 million, up to close to 100 square meter property with price at about IDR 897 million in rupiah. I think 2 products that I would just give you a context to what the customers are liking is Treetops Alpha Livin and Goldtops, which is a 3-story homes that we've recently introduced in the first half of the year. This is just a picture of the grand launching of Park Serpong Phase 5. It was done on 30th August 2025, pretty successful at 87% takeup rate. We've sold about -- we've made about IDR 200-plus billion of marketing sales from the launching only. We continue to enhance our offering in Park Serpong. We will be introducing Lentera National, which is a K1 to 12 education school campus supported by Pelita Harapan Group. So this is part of the [indiscernible] Pelita Harapan education offerings. So this is, I think, going to enhance our propositions to -- and our service to the residents of Park Serpong. We've also introduced minimart, some sports facilities just to support the communities. We've also introduced shuttle bus that connects Park Serpong with some key establishment within the areas. And also, we are developing a modern market. We're going to introduce this very soon, situated in Park Serpong. And we've secured about 1.5 hectares for this modern market that will actually enhance our shop houses' marketing sales as when this product launches. So that's on the real estate segment. I'll move on to lifestyle. Just to recap for everyone, we've managed about 59 malls nationwide across 39 cities with net leasable area comprises of about 2.5 million square meters with very well diverse tenant mix comprising of grocery retailing, department store, F&B, leisure, fashions, casual leasings and all that from -- and then supported by well-known tenants, both locally as well as internationally. Performance continued to show a pretty strong growth. Revenue increased by about 7% and EBITDA increased by 15%, given the operating leverage that we enjoyed for this business. The mall visitors also continued to grow year-on-year by about 7% and occupancy rates also improving from 80% last year to 84.4% this year. We continue to do a lot of activities. This is just to give you some highlights to activities that we had in our mall properties. The Lippo Mall Kemang celebrated its 13th anniversary. And then we've held an event of fashion show, live music and community tenants in the month of September and October. Cibubur Junction is undergoing an upgrade. We are repositioning our tenant mix and going to renovate the program starting Q4 2025. So there's going to be more exciting tenants coming in. I believe that once this project is completed, I think it will drive more traffic into Cibubur Junctions. We also done a tenant gathering of Lippo Mall Indonesia and Plangi Nusantara, which received a lot of support from our tenants, too. On our hotel business, we've operated about 10 hotels and 2 leisure facilities across 9 cities in Indonesia. The performance is still facing headwinds with revenue comes down by 6%. And this is, as I mentioned earlier, this is driven by the challenges that we had for hotels that have been enjoying a lot of [ government ] events as the government cut spending and hold budgets of spending in the first half of the year and EBITDA coming down by 24%. Occupancy is lower compared to last year by 7% to 60%. However, just wanted to highlight that in the third quarter of this year, occupancy actually stands at about 71%. And compared to the second quarter of this year, so Q-on-Q, it's actually improving by 10 percentage points. So it was 61%, increased to 71% in the third quarter. So we have started to see things are recovering pretty nicely from our hotel business, but yet still not where we want it to be compared to last year's. Average room rates also improved by about 2% to IDR 635,000 per night. Now moving on to our third segment, which is health care. I think overall, we are starting to see that our health care business in the third quarter improved compared to the soft demand in the first half of the year with revenue actually improved by 7.8%. And then this is despite of a few unfavorable external events happening in the third quarter of 2025. If you recall, in early August, there was demonstrations happening across Indonesia, especially in Jakarta, where it affected our hospital operations as well as in earlier September or late August, there was a flooding also happening in Bali that impacted our hospital operations in Bali, where we had to shut down for 1 week. So those 2 incidents actually contributed to a lower revenue of about IDR 49 billion. So if we added up that loss of revenue to the third quarter of 2025, our revenue actually on a quarter-on-quarter basis improved by about 11%. So hopefully, in the fourth quarter, there's no more unforeseeable external events that's impacting our business, and we'll continue to see the recovery trends happening on the next few quarters. EBITDA, up by 19% also. On the operating metrics, I think overall, it's pretty positive on a quarter-on-quarter basis. Our outpatient visit improved by about 8.5% to 1.1 million in the third quarter of 2025. Our OPD to IPD conversions quite -- remains quite stable at 2.9%. Inpatient admissions also increased by 8.2% compared to the previous quarter. Inpatient days also improved by about 9% with ALOS stands pretty stable at about 3.1% compared to the last quarter. And occupancy rates improved by about 3.6 percentage points to 65.8%. So that's contributing to a relatively strong performance in the third quarter of this year. I think that's all I have for today's 9-month performance of Lippo Karawaci. I'll pause there to see if there's anyone have questions. Agus Aris Gunandar: Thank you, Pak Fendi, for the presentation. We do have received several questions in the Q&A box. Let me read the question as follows. The first one is from [indiscernible]. He's asking for an update on the MSU or [indiscernible] handovers and how much is left as of 9 months of 2025? Fendi Santoso: Yes. So I think mostly we've done all our obligation for the MSUs units that we need to hand over this year. I think in terms of the units already available, I think we are in the process of completing that handover, which the team is going to complete this by end of the month or early December. So I think we've done about 4,600, if I recall correctly, 4,500 to 4,600 for this year. Yes. So I think there's another question here. What is the occupancy rate of Lippo Malls as of current? I think I've mentioned this earlier. In the third quarter of this year, we had about 71%. So that's improving actually from the previous quarter of 61%. Overall, for the first 9 months on average, it's about 60% -- sorry, the Lippo Malls, 84%, sorry. I think we had that 84%, sorry, for the mall. So there's another question on the presales forming 64%. What will be the driving factor for the fourth quarter to reach this target? So we are actually doing a few more launches this year. We just had one launch that happens in Manado, which is getting quite a bit of good traction. And there are a few launches that we are going to do this year. So I think we are still -- the team is still aiming to hit that IDR 6.25 trillion marketing sales target for the year. So yes. Agus Aris Gunandar: Okay. I see there's no more questions on the chat box. So I think we have reached a conclusion of our discussion today. We'll be sharing the presentation material shortly after the session. And once again, thank you for joining Lippo Karawaci's 9-month 2025 Earnings Call. And we do look forward to meeting you again for our full year 2025 earnings call. And we wish everyone a very, very good afternoon. Thank you. Fendi Santoso: Thank you.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Innodata Reports Third Quarter 2025 Results Conference Call. [Operator Instructions] This call is being recorded on November 6, 2025. I would now like to turn the conference over to Amy Agress. Please go ahead. Amy Agress: Thank you, Michael. Good afternoon, everyone. Thank you for joining us today. Our speakers today are Jack Abuhoff, CEO of Innodata; Rahul Singhal, President and Chief Revenue Officer; and Marissa Espineli, Interim CFO. Also on the call today is Aneesh Pendharkar, Senior Vice President, Finance and Corporate Development. We'll hear from Jack first, who will provide perspective about the business, followed by remarks from Rahul, and then Marissa will provide a review of our results for the third quarter. We'll then take questions from analysts. Before we get started, I'd like to remind everyone that during this call, we will be making forward-looking statements, which are predictions, projections or other statements about future events. These statements are based on current expectations, assumptions and estimates and are subject to risks and uncertainties. Actual results could differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forth in today's earnings press release in the Risk Factors section of our Form 10-K, Form 10-Q and other reports and filings with the Securities and Exchange Commission. We undertake no obligation to update forward-looking information. In addition, during this call, we may discuss certain non-GAAP financial measures. In our earnings release filed with the SEC today as well as in our other SEC filings, which are posted on our website, you will find additional disclosures regarding these non-GAAP financial measures, including reconciliation of these measures with comparable GAAP measures. Thank you. I will now turn the call over to Jack. Jack Abuhoff: Thank you, Amy, and good afternoon, everyone. Our third quarter was another record quarter for Innodata. We delivered record revenue of $62.6 million, representing a 20% year-over-year organic growth and a 7% sequential quarterly growth. Adjusted EBITDA was $16.2 million or 26% of revenue, up 23% sequentially, showing margin expansion even after factoring in growth investments I'll be talking about later in this call. Cash rose to $73.9 million, up by $27 million since year-end and $14.1 million since last quarter. Our results exceeded analyst expectation across key metrics. As a result of strong business momentum, we reiterate prior guidance of 45% or more year-over-year growth in 2025, and we anticipate potentially transformative growth in 2026. This afternoon, I'll share the basis of our confidence, including the significant growth we are anticipating from existing strategic vectors and the strong early returns from new investment areas. I'll then share how we are preparing the organization to reach the next level. I'll start with our existing strategic vectors. Since we last reported, we have continued to make substantial progress deepening relationships of trust with high dollar value big tech customers. Our deal momentum continues to accelerate with meaningful expansion across a diverse set of foundation model builders, both existing and new customers. Of the 8 big tech customers we talked about recently on these calls, we are currently forecasting 6 of them to grow next year several quite substantially. For example, we just received verbal confirmation for additional expansions with our largest customer and verbal confirmations of the deal we expect to potentially result in $6.5 million of revenue with another big tech. Beyond that, our expectations are grounded in the assessment of these customers' 2026 training data and evaluation budgets and the accelerating trust we believe we're earning with them through proofs of concept, pilot and scale deployments. Now in addition to these 8 customers, we landed in Q3 or expect to finalize shortly 5 additional big techs. We believe all 5 of these new big techs are poised to contribute meaningfully to our 2026 growth. Three of these new 5, we believe, are positioned to allocate up to hundreds of millions of dollars annually to generative AI data and evaluation, and we believe we're well positioned to capture a share of that spend. It is worth noting that 2 of these are global leaders in commerce, cloud and AI. Now let's turn to our new 2025 initiatives, 6 in total, several of which I'm sharing with you for the first time today, all of which are already bearing significant fruit and all of which we believe will contribute significantly to 2026 growth. The first initiative has been creating pretraining data at scale. Now pretraining data teaches the model language skills and knowledge. Up until now, our business has been primarily focused on post-training data, which teaches models how to reason, follow instructions and perform tasks. But earlier this year, we observed researchers drawing increasingly strong correlations between LLM benchmark performance and the quality of pretraining data. Models that trained on higher-quality pretraining corpora consistently did a better job understanding nuance, context and intent across languages and domains. And when we saw this research, we concluded that our customers would increasingly be seeking sources for higher-quality pretraining data. So we invested about $1.3 million to build new capabilities to create high-quality pretraining corpora. This has proven to be a great investment. We've since signed contracts we believe could result in approximately $42 million of revenue, and we expect to soon sign contracts, which we believe could result in approximately $26 million of additional revenue on top of that. So that's $68 million of potential revenue from these programs that are either signed or likely to be signed soon. These programs span 5 customers. There are only a few months in motion and are just ramping up. We believe the majority of the anticipated revenue would flow through 2026. but we've already fully recaptured our investment. As pretraining data gains recognition as a strategic differentiator for next-generation LLMs, we believe we are well positioned to capitalize on this early trend. Today, we announced the launch of Innodata Federal, a dedicated government-focused business unit designed to deliver mission-critical AI solutions to U.S. defense, intelligence and civilian agencies. We expect this business unit to be a material revenue generator for us in 2026 and beyond. Today, we're also announcing that the business unit has won an initial project with a new high-profile customer. We anticipate this initial project to result in approximately $25 million of revenue mostly in 2026. We have additional projects under the discussion with this customer, and we expect them to be large. This new relationship is strategically significant, not only for its potential size, but also for the visibility and market leadership we believe it will convey. We expect to issue a joint press release about the relationship prior to year-end. We view it as a potential game changer for our next phase of growth. Additional early market validation includes the company's first direct government award from a major defense agency, potential engagements with other prominent defense technology companies and submitted proposals spanning the DoD, intelligence community and civilian agencies. What sets Innodata Federal apart is our ability to deliver the complete AI life cycle, not just data annotation or point solutions, but true end-to-end capabilities from data collection through model deployment and operational support. Our platforms and expertise already serve the world's leading technology companies and Fortune 1000 enterprises. We are now bringing that same proven excellence to federal missions with the security, compliance and speed that government operations demand. We believe the timing could not be better. Federal agencies are moving decisively to adopt AI. In July, the administration released America's AI action plan and signed 3 executive orders to streamline procurement and accelerate deployment. The General Services Administration, or GSA, is now revamping its acquisition processes to make AI services easier for agencies to procure. Historically, federal procurement has been slow and complex, but that's changing rapidly, and we intend to meet that demand and that opportunity head on. As we announced today, General retired Richard D. Clarke, a retired four-star Army General and former Commander of U.S. Special Operations Command has joined the Innodata Board. We're excited about his expertise and relationships in helping guide the trajectory of Innodata Federal. Another key focus this year has been on advancing our participation in the emerging sovereign AI market. Initiatives by governments around the world aimed at independently developing, deploying and governing AI systems as a matter of national interest. These efforts seek to ensure national control across the entire AI technology stack from the semiconductors on which models are trained to the data that gives them intelligence. We believe this is one of the most significant structural shifts in the global technology landscape. The drive for sovereign capability has already triggered large-scale state-directed investment programs, effectively creating government-backed demand guarantees for the entire AI ecosystem from chip makers and cloud platforms to data engineering providers like us. As we have toured several countries in the Far and Middle East, we've been struck by the level of interest in our services. These countries, in most cases, do not have a homegrown enterprise like Innodata with a proven track record of helping enable generative AI and LLM initiatives. We were rapidly engaging in advanced discussions with sovereign AI entities across several regions, and we expect to announce one or more strategic partnerships over the next few months. Their economic capabilities and desire to move quickly is truly impressive, and we could not be more excited about this newer area of growth for the company. Meanwhile, our enterprise AI practice is also gaining traction and holds promise for 2026. It provides full stack support to help enterprises integrate generative AI into products and operations. For example, the practice is helping a major social media platform automate its content monitoring and monetization workflows using generative AI and assisting a hyperscaler to integrate generative AI into their data center operations for real-time analytics. We expect these projects to typically start in the $1 million to $2 million range and offer strong expansion potential and repeatability. We are also in discussions about strategic relationships that could help propel our enterprise AI practice forward in 2026. The next initiative I'll talk about is Agentic AI. As I've said before on these calls, we believe Agentic AI will unlock the usefulness of generative AI in the enterprise and that autonomous agents will soon be as ubiquitous as human employees performing many of their tasks. It's still very early days for Agentic AI. We're working with big tech model builders to evaluate and refine autonomous agents across many real-world use cases, creating evaluation models and human-in-the-loop systems designed to measure, interpret and guide agent behavior. We start by judging task success, did the agent achieve the goal? And then we analyze why the agent behaved the way it did and profile how it generally behaves to inform further fine-tuning. These capabilities, diagnostic judge, task success judge and profiling judge are increasingly used in RLHF and RLHA frameworks for Agentic systems, where agents act autonomously across multistep real-world workflows. We've also been building agents within our agility platform as a way of enhancing the product and consulting with a number of enterprise customers about incorporating agents within their environments. This brings me to our sixth area of 2025 investment, model safety. As agents gain autonomy, companies must learn how to monitor and continuously improve them. Our goal is to become a trusted partner to software companies and other enterprises, helping them benchmark for safety, reliability and ethical behavior. Here's one example of the work we are now doing. Recently, we began engaging with a leading chip company to stress test its multimodal AI products, simulating real-world risks like data exfiltration, privilege escalation, instruction manipulation and multimodal injection attacks. And once we identify vulnerabilities, we generate targeted mitigation data, fine-tune the model and prove the results with repeatable benchmarks. Our objective is to increase model safety with no degradation in model capabilities from the retraining. We believe the area of model safety holds enormous potential, so much so that we've engaged one of the world's top consultancies to help us refine our product and go-to-market strategy around model safety. That's a quick recap of the 6 investment areas that we've driven in 2025, several of which we're announcing publicly for the first time today. In every case, our investments have been modest, but our returns have been outsized and product market fit has come quickly. We believe that there are start-ups that have raised tens of millions of ambitious valuations to chase some of these same opportunities. Yet we're getting more done faster and with far less capital investment at risk. This year, we anticipate incurring approximately $9.5 million of capability building investments in these and other similar initiatives. This includes $8.2 million of SG&A and direct operating costs and $1.3 million of CapEx. We are also absorbing costs for substantial excess capacity within the organization in anticipation of likely soon-to-be captured business. While we could have elected not to incur these costs and instead present higher adjusted EBITDA, we believe these investments represent compelling short-cycle investments that position us for accelerated growth in markets. We believe we're prepared to serve, and we believe will yield considerable benefits in 2026 and beyond. We've also strengthened our leadership bench and operational foundation for the scale we're anticipating. I'm pleased to announce the appointment of Rahul Singhal as President and Chief Revenue Officer. Rahul joined Innodata in 2019 and has been instrumental in helping shape our strategy and building deep relationships with our largest customers. We're also welcoming 2 outstanding new Board members, Don Callahan, who brings deep digital transformation expertise from Citigroup and Time and close relationships with Silicon Valley and Enterprise CEOs through Bridge Growth Partners; and General retired Rich Clarke, who retired four-star Army General and former Commander of U.S. Special Operations Command, who brings outstanding defense insight and strong federal relationships. Their expertise aligns with our focus on big tech, defense and enterprise markets, and I'm confident they'll help guide us through our next stage of transformative growth. Finally, I want to thank Nick for 5 years of Board service. Nick has been tremendously helpful to me and to the company. He is stepping away to devote his time to a new opportunity outside of our markets, and we wish him very well. With that, I'll turn the call over to Rahul. Rahul Singhal: Thank you, Jack. I'm honored to step into this expanded role. Many of you may have seen Time Magazine recently ranked Innodata #24 on the inaugural list of America's Top 500 Growth Leaders for 2026, recognizing companies that "Capture trends and stay ahead of time." That mindset, seeing what's next and acting fast is core to who we are now. You are seeing the results of that today. We are deepening relationships with both existing and new Silicon Valley customers while delivering quick successes across the 6 investment areas Jack just outlined and increasing number of world's largest technology companies and enterprises are seeing the value we bring today. Looking past 2026, over the medium and long term, we believe the work we do with frontier model builders will expand and will become more complex. The next generation of models won't just need more data. They'll need more smarter data, data from simulation labs, large-scale synthetic generation and [ RL ] gems that capture human judgment, context and values. On top of this, the AI enterprise services market, which we are now successfully aligning to, will likely grow to be 10 or more times larger than the model builder market. We believe Innodata is purpose-built for this broad enterprise transition. Our work alongside frontier model builders give unique insights into how large models are trained, tuned, scaled and evaluated. And we are succeeding at packaging these insights into solutions that bring value to enterprises. For example, we have just begun -- recently begun providing model safety and remediation solutions that leverage the working we have done hand in glove over the past year or so with engineering teams from leading AI hyperscalers. Today, we are bringing those capabilities to one of the world's leading SaaS software companies and one of the world's leading generative AI chip designers. In short, I believe we are at the very beginning of the generational technology shift that Innodata is at the center of and poised to capitalize on. When I look at the competitive landscape, there are not even a handful of companies that have the capability to service $50 million, $100 million or larger order sizes in our space. And that's the need for hyperscalers today and sovereign entities. Plus they don't have the proven ability to scale the organization, provide flawless data accuracy and be highly nimble to addressing the changing client needs in a very dynamic environment. What an amazing time to be alive when the world is going through a seismic change driven by AI and to be in such a privileged position to help lead a company that is a critical part of catalyzing the change. I'll now turn the call over to Marissa. And after her remarks, we'll be available to take your questions. Marissa Espineli: Thank you, Rahul and Jack, and good afternoon, everyone. Revenue for Q3 2025 reached $62.6 million, up 20% year-over-year. Sequentially, revenue increased 7% from Q2's $58.4 million. Adjusted gross profit for Q3 2025 was $27.7 million, an increase of $4.8 million or 21% year-over-year with an adjusted gross margin of 44%. Adjusted EBITDA was $16.2 million or 26% of revenue, up 23% quarter-over-quarter, reflecting the strong operating leverage in our business. Net income for Q3 2025 was $8.3 million compared to $17.4 million a year ago. The decrease was mainly due to the tax benefit arising from the utilization of net operating loss carryforward in Q3 2024. We ended the quarter with $73.9 million in cash, up from $60 million at the end of the prior quarter and $46.9 million at year-end 2024 and did not draw down on our $30 million Wells Fargo credit facility. As Jack mentioned, based on our current momentum, we reiterate our prior guidance of 45% or more year-over-year growth in 2025, and we anticipate potentially transformative growth in 2026. Thank you, everyone, for joining us today. Operator or Michael, please open the line for questions. Operator: Now for Q&A. Our first question comes from Allen Klee with Maxim Group. Allen Klee: Great job on the quarter. Just I was adding up the -- you mentioned a bunch of potential contract wins and what they could represent. And if I -- the ones that you put dollars amount on added up to close to $100 million. But what I wasn't sure about is these -- some of these could be contracts over multiple years. Is there a sense of what amount of that could potentially be in 2026? Jack Abuhoff: Allen, it's a great question. I think the contracts that we -- when we talk about annualized recurring revenue, those are generally the contracts that we think will kind of roll at the number that we state is a year's value from that. Other contracts that we talk about, we're going to try to do some ramping up of some of them in this quarter, but then that revenue would primarily be falling into next quarter -- excuse me, next year. Allen Klee: Okay. And then in terms of -- you mentioned that you're going to spend an extra -- I think you said $8.2 million in incremental SG&A. Could you just explain what -- that's over what time period? And the way to think of that is over what type of base? Jack Abuhoff: So that would be year-over-year, and that would be incremental in 2025 versus 2024. Allen Klee: Got it. And then with your largest customer, I think you've mentioned now more than once of potential to expand the relationship, which could be very large. But any commentary on just the existing business of them? Is that -- should that be considered kind of stable? Jack Abuhoff: So the relationship is strong and the business is stable. I think as you'll see, the business went up sequentially in the quarters. And as we discussed just a few minutes ago, we got a verbal on what's potentially a very large new program that would come into -- with that customer. We haven't really baked that into anything yet because we're not sure of what the ramp-up would be, but it's certainly very significant relative to next year. Operator: Our next question comes from George Sutton with Craig-Hallum. George Sutton: Quite an update, and congrats both Jack and Rahul for your expanded roles. Relative to the verbal comment, Jack, with your largest customer, I assume that would just run through an existing statement of work, so you could take that business on relatively quickly? Jack Abuhoff: That's correct. I mean, mechanically, it would run through the existing master services agreement and probably be a new statement of work. But your point is correct that it will be very easy and seamless in order to onboard that new requirement. George Sutton: So I was thrilled to hear about your federal market win. And it begs the question, and I think you addressed it with your GSA comment. But typically, you need to be part of a FedRAMP program to take on material business like this. Can you just walk through how you're doing this under this GSA process? Or what's different than a normal FedRAMP process? Jack Abuhoff: Yes. So I think the point that we were making is that the timing for us starting this practice is ideal. The federal government has clearly communicated the strategic emphasis that they're putting on AI and AI enablement, both in the DoD, the IC and even civilian agencies. So you have that -- on top of that, they're recognizing that the procurement and acquisition programs and processes are cumbersome, and they will impede the AI progress that they're intending to make. And therefore, they've issued executive orders. I think there may even be some new pronouncements expected to come out tomorrow on that subject. So when you take these 2 things in combination, the prioritization that the government is placing on AI, again, spanning the entirety of federal on the one hand and then on the liberalizations that they're making in terms of acquisition and procurement, it really couldn't be a better time for us to be in that market. George Sutton: Got you. And then finally, Rahul, you made a very interesting comment that the services market could be 10x the model builder market. I wondered if you could just put a little bit more meat on that. And how much of that do you think you've started to see thus far? Rahul Singhal: Yes, George. So if you think about the enterprise market today and the frontier models, these models are now getting integrated into workflows that are transforming either for cost reduction, predominantly today for cost reduction. And soon, we're going to see transformative workflows that will drive new business models and revenue generating. As we talked about, we are seeing for one large social media company, we were able to dramatically save them over $24 million worth of cost. So it's early stages. We are starting to get into the stage where we are starting to deploy Gen AI solutions into our customer base, and we hope to expand this service in the future. Operator: Thank you very much. That appears to be our last question. I will now turn the conference over to Jack Abuhoff for any additional remarks. Jack Abuhoff: Thank you. Yes, I guess Innodata is executing really from a position of strength. We had another record-breaking quarter. Revenue is at an all-time high. We see profitability growing and the results exceeded our analyst expectations. Looking out ahead to 2026, we see the potential for continued transformative growth powered by deepening relationships among the Mag 7 and other Silicon Valley leaders. And we see that growth coming from 2 sources. First, the continued expansion we're driving with existing and new customers. And then secondly, the strong returns we're beginning to see from our recent investments. Today, I talked about 6 specific investment areas. And across each of them, across the board, we're showing what happens when we do exactly what Time Magazine recognizes for, seeing what's next and acting fast. So to recap quickly some of these early wins. First, $68 million in new pretraining data wins, $42 million that signed, $26 million that we believe gets signed very soon. The $25 million win with a new strategic federal customer that we expect to name soon, and we believe this is potentially the first of many projects with them, an additional expansion with our largest customer based on verbal confirmation, a $6.5 million verbal confirmation of the deal win with another big tech customer and new partnerships emerging with key AI and sovereign AI players, which we expect to be announcing in 2026. So thank you all for joining us today. We couldn't be more excited about what lies ahead. Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Vincent Clerc: Welcome, everyone, and thank you for joining us on this earnings call today as we present our third quarter results for 2025. My name is Vincent Clerc. I'm the CEO of A.P. Møller - Maersk. And with me in the room today is our CFO, Patrick Jany. As usual, we start with the highlights of the quarter just passed. We are pleased with the strong execution shown during the quarter in all businesses. We improved our performance across the board and delivered on an EBITDA of $2.7 billion and an EBIT of $1.3 billion, up from the previous quarter. All segments showed strong sequential volume progression, while costs were kept under tight control. These efforts paved the way for the strong results, notwithstanding the external environment. Specifically, in Logistics & Services, we are staying the course, focusing on operational margin improvements on both prior year and quarter to maintain the streak of good progress in 2025. We also registered good underlying and seasonal volume growth, which more than offset the softening observed in North America. For Ocean, this third quarter was the first full and clean quarter of the Gemini cooperation. While we kept delivering reliability at 90-plus percent, we also generated cost benefits well above the target we had communicated. This excellent performance was supported by strong volumes and high asset utilization as well as asset turns. As expected, rates softened during the period as new capacity continued to be inflated ahead of demand. Finally, our Terminal business delivered again record high revenues and profitability, driven by strong volumes, not least the ones delivered as a consequence of the Gemini implementation and the highest ever utilization across our portfolio of gateway terminals. With another quarter of sustained high demand, especially out of China, we expect a market growth around 4% for the full year. This strong demand, combined with the successful implementation of Gemini and progress across all segments allows us to narrow the full year 2025 guidance to an underlying EBIT of between $3 billion and $3.5 billion. As usual, more details will follow on this later in the call. Now taking a closer look at each of our business segments. First, Logistics & Services continued to track positively. We achieved an EBIT margin of 5.5%, up from 5.1% last year and 4.8% last quarter. The key levers of progress remain asset utilization, productivity improvement and stringent cost management. Aside from these efforts, the top line also grew 2% year-on-year and 9% sequentially, the latter reflecting both seasonal strength and new win implementation, which offset the softening of demand in North America. In Ocean, as mentioned, we had our first full and clean quarter of Gemini -- after the Gemini implementation. From already the first month since the implementation in February, we have seen the network deliver reliability above 90% and show resilience against disruptions such as weather, which we have seen recently in the Far East with the worst typhoon season in 10 years. Meanwhile, we continue to deliver 90-plus percent reliability in the third quarter, and we also achieved significant cost savings even compared to the ambitious target we had communicated to you earlier this year. I will go into more details on this very shortly. What Gemini has allowed us to do with these savings is to use our fleet more efficiently and capture more volumes. Our volumes are up 7% year-on-year and 5% sequentially for this quarter, while the average loaded freight rate was more or less in line with the prior quarter. Good volume development has also driven high utilization of 94% for the quarter, up 0.5 percentage points sequentially. All of this happened against the backdrop of decreasing rates as expected. In Terminals, we delivered another excellent quarter, driven by record on volumes, revenue, EBITDA and EBIT. What we have not talked about so much until recently is the volume uplift in our gateway terminals from Gemini, which has been a key contributor to our performance this quarter. Return on invested capital has delivered a further uptick to 17.2%. Here, we note that with utilization close to 90%, we are approaching the full potential at which operations in some of our locations become less efficient and volume growth opportunities become more limited in the short term. We continue to invest to debottleneck our existing terminals as well as grow with new locations as exemplified by the inauguration of Rijeka Terminal in Croatia less than 2 weeks ago and several other projects in the pipeline. Turning to our midterm target. As you can see, we have shown almost full delivery on our 2021 commitment. As mentioned, we continue to stay the course of regular progress in Logistics & Services, which is tracking positively with EBIT margin up both year-on-year and sequentially, although more needs to be done on that field. We continue to make good operational progress with our challenged products of Air, Middle Mile and Last Mile, while seeing good revenue growth in our other products, more in line with our organic revenue growth targets. Our priority is to continue to improve in the fourth quarter as we round off the relevant period of these targets. Taking a step back from this quarter, I want to just take a couple of minutes to get into more detail as to what has been driving such a robust demand growth in Ocean and some of the consequences of this phenomenon, which we do not think are sufficiently well understood. Despite talks of deglobalization, nearshoring, trade wars, container demand has shown a remarkable resilience over the past few years that has confounded many observers and models. During this period, China's export growth into all regions of the world, except for North America, has not only been resilient, it had gathered pace. China's share of global export has increased significantly and never as fast as it has over the past 2 years. Specifically, its global export share has increased steadily from 33% only 2 years ago to about 37% this year. This growth is part of a longer trend as reflected from the chart to the left, but has accelerated recently. It affects all regions with the Far East, excluding China being the biggest market and growing at 12% per annum, and Europe the second biggest market and growing at 10% per annum. North America, which, in this case, is including Mexico, which is the third biggest market, has been weaker, but still has seen growth at 5% per annum despite the known trade tensions in 2025. Given the widely available production capacity in China and the very competitive products that are being exported, we do not expect this trend of accelerated export growth from China to stop. The momentum is strong. The consequence for us are not only the resilience of demand growth, which will contribute to absorbing some of the new capacity coming online, but also the increased trade imbalance that it is causing, which over time will lead to higher production cost and lower asset intensity for the industry. On both fronts, Gemini offered us a much needed flexibility so that we can capitalize on the growth opportunity while minimizing the cost impact. Moving back to Q3 and to Gemini specifically, this is the first quarter where we can see the full effect of the new network, and we are pleased that the savings are higher than our original guidance. To give you a sense of the benefits, we separate the Ocean cost savings, which were the ones we had communicated into 2 buckets, namely Bunker Savings and Asset Turn increase. Aside from these, we can also present an upside that we have seen in Terminal as a direct result of this new cooperation. Now taking each of this in turn and starting with Bunker. We can see that the advantages of Gemini stemming from a more efficient use of our vessels, for instance, through lower speed, shorter sailing distances and shorter dwell time are allowing us to reduce the bunker consumption. This quarter, we saw a 6% higher capacity, but about -- but about 3% lower total bunker consumption. And this translates in an approximately 8% bunker consumption reduction corrected for the changes in capacity. Then on our Asset Turn side. From the most efficient use of our vessels, Gemini allows us to transport more volumes at the same capacity. This quarter, we saw the capacity growth of about 6% against the volume growth of 7%. The delta of about 1% point represent the improvement in asset turns. Both these buckets are driven by improvements we have been able to do under Gemini. First, we have been able to deploy our largest vessels in most effective routes and on shorter loops. Secondly, the shorter loops have had fewer port calls and more efficient ones. Thirdly, locations outside the shorter main liner loops have been serviced by fit-for-purpose shuttles rather than underutilized mainliners. We can quantify the bunker consumptions improvement to about 8% at fixed bunker into cost benefits of about $135 million for the quarter, which annualized is about $450 million to $550 million based on the full year implementation and normal seasonality. Likewise, we can quantify the asset turn improvement of about 1 percentage point, which against our total network cost translates into about $50 million of cost benefit in the quarter, which annualized is about another $150 million to $200 million benefit. The cost benefits on the Ocean side alone, therefore, sum up to around $600 million to $750 million on an annualized basis. Another advantage of Gemini has been to increase volumes in some of our gateway terminals, allowing us to significantly increase the throughput. These additional moves have improved port moves per hour and expanded operating terminal capacity. The additional uplift has generated about $40 million in benefits, which annualized is about $120 million to $200 million based on full year implementation and seasonality. Overall, across Ocean and Terminal, therefore, we have generated about $225 million in cost benefits in the third quarter or $720 million to $950 million in annual savings compared to our previously announced targets of about $500 million. As mentioned earlier, we now expect container volume growth to be around 4% for 2025, given the strong demand that we continue to see outside of North America. There is no change to our assumptions on the Red Sea disruptions, which we still expect will not reopen in the near term, absorbing net supply in the industry as long as it remains closed. Against the backdrop of these factors as well as a strong year-to-date performance, we refine our financial guidance to the full year 2025 to an underlying EBITDA of $9 billion to $9.5 billion from previously $8 billion to $9.5 billion, and an EBIT of $3 billion to $3.5 billion, previously $2 billion to $3.5 billion. And finally, free cash flow of positive $1 billion or higher, previously negative $1 billion or higher. Our CapEx guidance for '24 and '25 combined is revised down to about $10 billion, down from $10 billion to $11 billion, while the guidance for '25 and '26 remains unchanged. And I will now hand out to Patrick, who will walk you through the detailed financials at segment level for our performance. Patrick Jany: Thank you, Vincent, and welcome to everyone on the call. Q3 '25 was a quarter with strong financial performance across the group, significantly up sequentially. Overall, we generated an EBITDA of $2.7 billion and an EBIT of $1.3 billion, implying a margin of 18.9% and 9%, respectively. As expected, the delta to the previous year is driven largely by the shift in rates we have seen in Ocean since the peak levels in mid-'24, which was at the height of the Red Sea disruption, while the progress on the previous quarter is driven by higher volumes and operational improvements across all 3 businesses. Net profit after tax was $1.1 billion, generating a solid return on invested capital of 9.6%, still at a good level, but decreasing as strong 2024 quarters progressively fall out of the yearly calculation. Solid free cash flow supported a strong balance sheet with cash and deposits standing at $20.9 billion at quarter's end. Our net cash position is down from $5.6 billion last year to $2.6 billion, driven mostly by the strong returns to shareholders, which totaled $4 billion in the first 9 months. Let's take a closer look at cash flow on Slide 12, where we see that cash flow from operations increased sequentially to $2.6 billion in the third quarter, driven by higher EBITDA of $2.7 billion, while the movements in net working capital was largely flat. Overall, we had a strong cash conversion of 97% up from 89% last year and 81% last quarter. Further, across the chart, gross CapEx for the quarter was $1.2 billion, in line with our multiyear CapEx guidance, driven by our Ocean fleet renewal program. Meanwhile, capitalized losses -- capitalized leases stood at $868 million, also in line with expectations and down from the previous quarter, which was impacted by the Port Elizabeth concession extension and free cash flow was therefore at $771 million. Capital return via share buyback was $578 million this quarter. And finally, most of the $850 million you see in movements in borrowings relates to our 9-year EUR 500 million green bond issuance in September, extending our maturity profile early in light of extending bonds maturing in March next year. Taking all together, cash generation was strong in the third quarter and supported an already strong balance sheet alongside the continuation of our share buyback. Turning to our Ocean segment on Slide 13. Ocean delivered a strong operational performance in the third quarter, which marked the first full quarter of Gemini implementation. From a financial standpoint, Ocean generated an EBIT of $567 million, implying a margin of 6.2%. This is down on last year, driven by the expected rate decline, but significantly up sequentially, driven by the strong volume growth of 7% in Gemini. Specifically on Gemini, as Vincent mentioned earlier, the new network generated cost benefits in the form of bunker savings and higher asset turns, without which we would have expected our third quarter Ocean costs and therefore, EBIT to be impacted negatively by about $185 million. Meanwhile, freight rates were significantly down year-on-year, driven by the ongoing market pressure on rates since 2024, but broadly in line sequentially. CapEx was in line with guidance and comprised mainly installments on vessel orders announced last year as well as a broader equipment renewal and vessel deliveries that are part of our Ocean fleet renewal program. As usual, the chart on Slide 14 illustrates the main elements of the year-on-year EBITDA development in our Ocean business. On the left, you can see the large impact on profitability from the 31% lower freight rates, cushioned by the tailwind of the 7% increase in volumes year-on-year. Ocean also saw a positive impact of $211 million from lower bunker prices compared to last year, while container handling and network costs increased driven by higher empty repositioning and terminal costs. Also note that EBITDA was further supported by higher detention and demurrage revenue and a positive delta in revenue recognition, the latter of which accounts for the vast majority of the net $551 million in the final bucket. All in all, these offsetting factors allowed EBITDA in the third quarter to settle at $1.8 billion, down from the previous year, but up on the previous quarter. Let's now have a look on the Ocean KPIs on Slide 15. Ocean's operational performance in the third quarter is highlighted in these metrics with strong volume performance and Gemini helping to offset headwinds in cost and rates. Loaded volumes increased by 7% year-on-year, reaching 3.4 million FFEs as demand was strong on key trade lanes. Sequentially, volumes grew by 5.2%. As mentioned earlier, our average loaded freight rates declined by 31% year-on-year, reflecting market fundamentals that we have seen since 2024 from growing excess capacity. Nevertheless, as reflected in the flat sequential development, the lower levels in the third quarter at quarter end were actually offset by the high levels at the start of the quarter, therefore, providing a fairly benign rate environment in the quarter. On the cost side, unit cost at fixed bunker decreased both year-on-year and sequentially by 0.8% and 2.2%, respectively, as strong volume performance, high utilization as well as cost benefits from Gemini offset the general cost pressure. Bunker costs were down 14% year-on-year due to both lower fuel prices by 13% and increased efficiency from Gemini, leading to lower bunker consumption of 3.2%. This is despite us carrying more volumes and managing a larger fleet. Specifically on the fleet, the average operating fleet grew 5.5% year-on-year, reaching 4.6 million TEUs, all while capacity utilisation remained high at 94%. Let's now turn to our Logistics & Services business on Slide 16. In the third quarter, Logistics & Services delivered revenue of $4 billion, up 2.3% year-on-year and 8.6% sequentially, the latter reflecting seasonal strength. The year-on-year growth was driven by growth across most products. On the bottom line, EBIT showed a significant increase to $218 million, which also implied a continued EBIT margin improvement of 0.4 percentage points year-on-year and 0.7 percentage points sequentially to 5.5%. The margin improvement is primarily driven by the continued operational progress that the team has made in fulfilled by Maersk, all while continuing to exercise stringent cost control across all service models. CapEx is down on last year, but remains at a stable level sequentially to support growth with particular focus on Depot and Warehousing this quarter. Now let's have a look at the breakdown by service model within Logistics & Services on Slide 17. Starting with our supply chain management offering. Revenue here decreased by 4.8% year-on-year to $594 million, with the EBITDA margin decreasing to 22.6%, down from 24.2% last year. This decline was driven by weakness in Lead Logistics, our 4PL business, volumes primarily from China to the U.S. on the back of the stop-and-go volatility we have seen in the external environment. In Fulfillment Services, operational progress in Middle Mile North America and Warehousing led to significant improvements in profitability with an EBIT margin of negative 0.9%, up from minus 4.5%. Revenue increased by 2.9%, reaching $1.5 billion. Finally, revenue increased in Transported Services to $1.9 billion, equal to a 4.3% increase year-on-year. This was supported by higher volumes in Landside Transportation in the peak season. However, the EBITDA margin was impacted by weakness in Air, landing lower on the previous quarter at 7.3%. We round off with our Terminals business on Slide 18. Terminals delivered another excellent quarter, continuing the positive trend. Revenue grew by 22% year-on-year to $1.4 billion, driven by 8.7% higher volumes supported by Gemini and improved rates. Specifically on the Gemini impact, volumes from Maersk Ocean increased 26% year-on-year. The higher volumes brought a further uptick in utilization, which stands at 89%. As mentioned earlier, while this is supportive of higher margins, it also highlights the necessity to invest in capacity extension in the coming years to cater for the long-term growth of our port operations. Revenue per move increased by 7.8%, reflecting improved rates and mix. Meanwhile, cost per move increased by 6.7%, largely due to labor inflation and higher SG&A costs, but mitigated by higher utilization. Overall, EBIT increased by 69% year-on-year to $571 million with a margin of 39.4%, up 11 percentage points from last year and 4.1% higher sequentially. This underlying good margin was supported by a net $139 million positive impact from one-offs, including the reversal of impairments due to the successful extension of a concession. ROIC rose to a record 17.2%, underlining the intrinsic strong return profile of this business, although levels will taper down progressively with increased renewals and investments. CapEx for the quarter came in at $154 million, more or less in line with previous year and reflect the continued investment in our gateways portfolio. Turning to the breakdown of Terminals EBITDA on Slide 19. Terminals delivered an increased EBITDA from $424 million last year to $501 million. The increase in cost per move of $56 million was more than offset by higher revenue per move and volume impact. Currency exits and other movements brought a further positive impact of $29 million, bringing the EBITDA to a record level for the quarter. And with that, we finished the review of our business segments and are ready for the Q&A. Operator, please go ahead. Operator: [Operator Instructions] Our first question comes from Patrick Creuset from Goldman Sachs. Patrick Creuset: Just 2 questions. First on the outlook. If we look at your Q4 EBITDA, you're implicitly guiding based on the full year range of somewhere between $1.3 billion and $1.8 billion. Can you provide a little bit of color on what sort of volume and rate assumptions are embedded or would be embedded at the top and the bottom? And also based on what you see so far going to Q4, do you see a skew more likely at the top or low end? And then just on the buyback, you've got a cash position of around $15 billion or so. In the past, you've sometimes given the market a sense on how comfortable you felt on buybacks in the year ahead. Can you again give us a bit of sense today, assuming, for instance, stable trading environment at these levels, would you see a reason to discontinue the buyback next year or keep it? Patrick Jany: Thanks very much, Patrick. So indeed, when you look at the guidance for Q4, it implies a continuity of the pace that we have currently. We have seen rates stabilize by September and early October. And that is, I would say, the pace that we have continued to forecast for the Q4. And the volume development actually seems still to be pretty strong as we can see it. So I would rather mentally see, let's say, the revision of the guidance towards indicating the higher end of the guidance, which is what we are doing by narrowing the range, and that's what we intend to signify here, which at group level is more or less a breakeven. It will depend on the last few weeks for the Q4. When you look at the cash position and balance sheet, it is strong. And as we have indicated as well when we restarted the share buyback back in February this year, the intent is to certainly see this as another 1-year event. And in your assumption of a stability of externalities, I think there's nothing that speaks against the continuation of the share buyback indeed. Operator: Our next question comes from Muneeba Kayani, Bank of America. Muneeba Kayani: Firstly, just on the logistics EBIT improving at the margin to 5.5%, can you remind us what seasonality in this business? And if there was any benefit on that and kind of how much of this is kind of the improvement which can continue? And then secondly, we've seen in container shipping, the order book-to-fleet ratio for the industry is around 32% now, which I believe is the highest since the global financial crisis. So what do you think is driving that? And how do you see it playing out? Vincent Clerc: Muneeba, so if I start with your first question on Logistics, I think most of the improvement that we're seeing are due to the cost containment and productivity improvement that we are putting in place. In general, the business will have a seasonality a bit tilted towards the second half year versus the first half year. But -- and mostly, I would say, towards the very end of the year, depending on your product exposure. But I think when we look at it, and you can see that in the volumes and the top line, we see some seasonal improvements that are helping. We also see some of the wins that we have taken in that are helping, but I think most of it is actually coming from the work that we're doing on margin. From the order book, I think you're correct that at 32%, the order book is quite high. I want you to -- I just need you to remember 2 things. I think the first one is that the time to order, so the number of years over which this is going to phase in is more than it was during the -- before the financial crisis. So if you -- we're going to -- there's a longer installment, if you will, that is being ordered. So that's one thing. And the second thing is the story that we had about China. The market is growing at about 4%. But on the head haul, it's growing at about 7% and what we're seeing is as long as it grows at 7% on the head haul, you need 7% more capacity to be able to carry this. So I think there is -- this dichotomy that there is between head haul growth and average growth is absorbing a lot more capacity. The longer order books is -- it means that it's not phasing as brutally as one would expect. And then the last point that there is, is not a single ship has been scrapped for the last 6 years, but the ships all got 6 years older in that period. So there is pent-up demand for that. And so I think over time, we will see that some of the levers that so far have come at us, whether it was higher demand from China or selling around the Cape of Good Hope or COVID, this will fade away, and we'll be back to having to use the tools that we normally use in the industry, which is scrapping, idling, slow steaming and so on. And there, there are still significant levers that we can lift to actually balance the outlook. Operator: The next question comes from Ulrik Bak, Danske Bank. Ulrik Bak: So on the volume side, Ocean volumes, you obviously have very strong growth, 7% in the quarter. I'm just curious to hear what if there is a split between the feeder legs and the main haul legs? And if there is any issue with double counting, anything because it just looks so extraordinary, your volume growth. And then if I can sneak in a second one. So this overperformance versus the market, how long do you expect this to be sustained? Vincent Clerc: All right. So I can guarantee you that there is no double counting of volume like we count the containers and the bills of ladings only once. It's much better. You would see it in the revenue development very different if we were double counting. So I think that we're pretty -- we can be quite categorical around. I think when I look at what we're able to do right now as a result of Gemini from a cost perspective, I think it's a pretty significant lever that we have unlocked here. And this has, I think, legs to continue into the coming quarters. I cannot give you how many quarters this advantage will last. I think it's going to last quite a while, but it depends also on what we do next and what competition does next. And I'm not in control of all of that. But I think that what we have shown on the slide with Gemini is there are a few levers where we have broken some efficiency frontier that we had under the previous deployment and that we have moved them now to being higher. And this is what allows us to actually lift the cost impact of Gemini quite significantly. Operator: The next question comes from Omar Nokta, Jefferies. Omar Nokta: Just wanted to follow up on the share buyback discussion. You mentioned last quarter, you continue to view that as a focal point of the capital allocation strategy. It sounds like that's going to continue for '26 as well. But just in terms of how you're thinking about the size, $2 billion this year, how can we think about how that looks for '26 as you set the budget? Does it become a portion or a function of how much free cash flow was generated this year? Or what's it based on? Is it based off of earnings next year? Any color you can give would be helpful. Patrick Jany: Yes. Thanks very much for your question, Omar. No, as we said, clearly, share buyback is a fundamental piece of our capital allocation and will continue to be as well for next year. I think when you look at the dimensioning, you know that we actually maxed out this year, right, just from the free float and the rules on the daily volumes. So I would expect this to be, say, a maximum amount. But then the exact dimensioning will be done, obviously, in February and when we come out with our guidance for full year. I think it will be premature now to guide. But I think certainly, the willingness to continue a sizable share buyback is certainly there. Operator: Our next question comes from Cedar Ekblom from Morgan Stanley. Cedar Ekblom: I have a question on the Gemini cost savings. I'm looking at that slide that you put together, and it looks like the bulk of the benefits come on the bunker side of things, which I think makes sense. What I am surprised about is why the asset turn benefit is not higher? Maybe you could just talk through like what I'm missing there. Maybe I've just thought that the asset turn would be better. You could optimize the network more, long voyage, big vessels, feeder vessels, et cetera. I'm just trying to understand that split that the bunker number and the asset turn number are not sort of closer to each other? Vincent Clerc: Yes. Thank you, Cedar. I think let me try to explain that I think the asset turn, it depends also on what is your base. We had an extremely high utilization last year. So we've been able to lift this with 0.5%. We're continuing to look at whether we can actually increase that number in the coming quarter. The bunker, we can very much control because that -- as soon as you're into the deployment, since we measure it against the capacity, we get the full saving calculated there. And we've tried to disaggregate that because we could have just done this in terms of total unit cost per container, and I would have mixed the bunker and the efficiency on the fleet or on the utilization. So I think the bunker, we see 100% of the saving right away. As long as we deliver on the reliability, this will be pretty steady. I think on the asset turns, this is where I think we have some opportunity to continue to fine-tune and improve the network. So this one, I would look at as still having a bit of leg that we need to exploit in the coming quarters. Cedar Ekblom: Okay. And then, yes, just a follow-up there. So obviously, container handling unit cost at a fixed banker hasn't really come down year-over-year. It obviously has come down sequentially, which is helpful. Could you give any sort of guide around how to think about that sort of container handling cost on a unit basis or maybe network costs on a unit basis? Like are we talking about a 5% decline from here unit-wise? Or I don't know if you could help us quantify how to think about that run rate into '26? Vincent Clerc: Yes. So the issue with container handling is the fact that, as I mentioned, with an average market growth at 4% and a head haul growth at 7%, trades become more imbalanced. And then under container handling, the amount of empty containers we're moving around increases because there is just more containers going one way and fewer containers going the other way. And that means more empty repositioning. And that's what I mentioned in the slide for China. I think as we see this imbalance continue to grow, it's important that we understand that we're going to need more and more capacity to cater for growth because it's more and more asymmetrical because between the head haul and the backhaul, but it will also increase our cost per FFE above that because of the increasing balance and more empty containers being moved around. Operator: Our next question comes from Kristian Godiksen, SEB. Kristian Godiksen: Yes. Also a couple of questions on the Gemini part. So just a house of question to start out with the improvement in Terminals, is that in the -- is that for the hubs and hence, included in the Ocean part of the business? Or is that for the Terminals business? And then if you could maybe comment a bit on the unit cost advantage you see compared to the peers that are not using the hub and spoke model? And then maybe just finally sneak in a question on whether you've had any preliminary discussions with the clients on a potential price premium for your higher schedule reliability? Vincent Clerc: Yes. Thank you, Kristian. So I think the -- what is important with Gemini from the gateway perspective is the fact that before when we were in 2M, we were paired with probably the other line that has the most comprehensive terminal portfolio. And it means that in a lot of locations, we have to split volumes between the different parties. Here, we are with a partner that has less -- much less of a terminal portfolio. And it means that net, we're getting more locations where 100% of the throughput is not split between 2 different facilities, but it's all going to our facilities. So for the gateways, this is very, very positive because they get the full 100% of the support from Gemini. And that is something that is an uplift for this, and it will last for as long as Gemini lasts. So it's quite positive. On the unit cost, I think we're going to need 1 or 2 quarters more of data from also the competition to know because we can see how much we have saved sequentially and how much we have saved year-on-year. Obviously, the world doesn't stand completely still. They will also do certain things. What we can see with the numbers that have been released so far is that we're making more progress on unit cost than what they're making, and we attribute this to Gemini, which is the big thing that we did to lower our unit costs. So we're quite positive on the fact that we are opening up a gap now with Gemini that is going to be -- that is going quite handy, especially in the current rate environment, and we will continue to work at making it as big as possible. Then finally, on customer discussion, I want to say that the customers' reaction is really very, very positive. Obviously, for the premium, this is a conversation that we have started, but it's a bit too early to talk because we need to be certain also that we have a long enough track record that it unlocks value for them that we -- where we can then capture some of that value for us. So for instance, concretely, today, every customer has a buffer stock and that reliability needs to unlock a reduction of that buffer stock. They need to trust that this has weathered sufficient ups and downs and be steady that they can take out some of that buffer stock. And if they do, they pocket that saving and then we can capture some of it in form of a premium. I think that process is starting. It's a long-haul process to take place, but certainly something that where we see some potential at least to capture some value, but we need to -- it's just a few months. It's the first quarter we're going with it today, where we have the full Gemini. Some of them have been in transition with -- not everything is yet fully in a place where value has been unlocked yet, but we're very positive with the discussion so far. Operator: Our next question comes from Jacob Lacks, Wolfe Research. Jacob Lacks: So you've discussed in the past maybe a bit of a shift in how quickly contracts get repriced when the market is tightening up. Have you seen customers actively work to reprice contracts again with rates moving lower now? And to that end, do you think the current rate environment will largely be reflected in Q4? Or could there be some incremental pressure in '26 when new contracts are signed? Vincent Clerc: So we've not -- thank you, Jacob. We've not seen any big movements on contract being open now, which since the contracts have been trending down during Q3, and it was not very timely for people to do it until they -- when they know they have the negotiation coming soon and as long as things are moving their way. So I think that from that perspective, that's one of the things that also holds the contract good. So those have not moved. You will have noticed that over the past few weeks, the rates have actually come up again a little bit. It's too early to call anything on the contracting season. I think we'll have certainly a discussion around this in February when we come with the full year guidance for 2026, and we have some of the early negotiations under wrap. But I think for now, what we have seen in terms of behavior from customers is that whatever the price did during Q3 did not lead to customers actually reopening contracts or wanting to have commercial discussions on price. And contract adherence has been quite strong as well. So it's not like the volumes just disappeared. I mean they were living up to their commitment. Operator: The next question comes from James Hollins, BNP Paribas. James Hollins: Obviously, you discussed buybacks a lot pretty important to the market. I was just wondering, I mean, clearly, another way you might not do buybacks is aggressively pursuing M&A. I was wondering how you're looking at M&A if we are indeed looking quite extensively and globally at potential deals? And secondly, a bit of a sort of generic question, but as I look at consensus for 2026 Ocean, Bloomberg consensus has a loss of $2.8 billion. I mean that would be a business scenario like 2009, you'll come to deposit [ $1.7 billion ], apart from showing how on that forecasting. Maybe just get sort of your view on how you would see, I guess, particularly that Bloomberg consensus against the reality of what you might see in this industry based on someone that's been in it a long time, your work on cost, your work on the alliance and basically whether that's way too pessimistic. Vincent Clerc: James, I think let me start with the 2026 and give you the standard answer that I look really forward to talking about it in February. But before that, I think we'll have to pause on giving any type of views. With respect to the M&A I think what we need to remember is that all 3 segments that we operate in are actually over time, segments with -- that are quite competitive and very low margin. So when I hear something like aggressive pursuit of M&A, I hear a premiums that will be difficult to justify through synergies afterwards and a lot of risk to destroy shareholder value. So whereas we've said it and we continue to say that M&A will be a part of the continued repositioning of Maersk. And whenever we see opportunities, we have both the wherewithal and the interest to pursue them, but maybe an aggressive thing right now, given some of the outlook is not necessarily something we will pursue. Operator: Our next question comes from Parash Jain, HSBC. Parash Jain: I mean just first with respect to Red Sea, I know nobody has a crystal ball, but given the recent developments, is it first half of next year looks more likely than ever before? And my second question is, we heard a lot about front-loading by the U.S. retailers, in particular, now that we are well into the peak season, are there any signs of front-loading, which has been reflected into the fourth quarter's volume run rate? Vincent Clerc: Yes. So for the Red Sea, let me start by saying that, obviously, the ceasefire in Gaza is a significant -- first, it's a great thing for people in Gaza and for the world in general. But it is also a significant step towards being able to reopen the Suez Canal since the -- the situation in Bab al-Mandab and in Gaza have been linked since the beginning. I think the way we think about this is that we need now to make sure that this moves into a process where it becomes clear that the ceasefire is entrenched and doesn't risk going backward at some point and then we fall back into a new phase of a conflict. And that's the situation we're monitoring quite closely. And we're also figuring out what is the posture of the Houthis specifically to see if we can start to have a safe passage. So I would whether it's more likely now to be early at some point or whatever, I think if the ceasefire holds, then I think we've crossed a gate and made a big step towards returning through the Red Sea. But I think we need to see that get entrenched, and we need to see the process move ahead. And once that happens, then we'll have a better view of what that means for a return to the Red Sea. Then in respect of front-loading, I think there was a lot of discussion on front loading, especially end of '24, beginning of '25 before the tariffs in April. We certainly saw following the implementation of tariff that things softened in North America. And we certainly still have seen this still into the third quarter and even, I would say, during the month of October, I will say that what we're seeing now is there is somewhat of a push also into the U.S. for some of the seasonal goods to get there. So I think from a demand perspective, very resilient demand across all geographies and the U.S. that is picking up a bit of pace following this month between April and October that have been a bit more soft. Operator: Our next question comes from Alexia Dogani, JPMorgan. Alexia Dogani: Just firstly, could you explain a little bit the unit revenue development because we're struggling to reconcile with the trade lane numbers you report on the group level. If you can just explain how it normally developed as per the 6-week lag, the spot versus the contract, has it performed versus expectations, whether it's underperformed or overperformed because, yes, struggling to reconcile a little bit the outcome. And secondly, on the unit cost, again on Ocean, I mean, clearly, you talked positively about the Gemini contributions. But overall, your unit cost at constant bunker is only down 1% despite you growing 7% capacity and 5.5% volumes -- sorry, the other way, 5.5% capacity, 7% volume. So when we look at into next year, what further cost savings can you deliver if there is less volume growth because I imagine the capacity benefits annualized. And then finally, obviously, the IMO has now delayed its kind of net zero initiatives. How should we think about the implications for industry capacity discipline? And I guess, more importantly, for yourselves that have invested in green CapEx, which comes at a higher cost. And so it kind of takes you in a relative disadvantage? Vincent Clerc: Yes. There's quite a few questions. So let me try to cover that to the best possible. I think, first of all, when you look at the cost, there is one element that we're missing. And it is that the net position that we have on our different VSAs, whether it's a plus or a minus is reported under other revenue. And the fact is that our position in 2M was balanced and our position in Gemini is that of a net seller of capacity. And that means that out of the 11% that you see in growth in the network cost, half of that is due to that net position. And once you take that out, then the growth of our network cost is actually 5.5% for 7% volume increase. So I think that's just important to position this. We see the unit cost being decreased. The biggest efficiency is because we've chose to slow steam and be reliable is going to be seen on bunker. So that was always -- it doesn't matter so much which line item it shows, but we've made choices. We could have gone a bit faster and save a few ships and also generate some cost savings that you would have seen more on the network cost. We've chosen to really focus on bunker. So I think for the unit cost, there is this -- when we look forward, I think we have 3 levers for cost savings, for further cost savings. One is the expansion of Gemini. Two is actually some of our other costs here under organizational cost that we're looking into. And then finally, I think as the rates soften, we will see also a softening in the time charter market, and that will generate further savings in the unit cost that we have by basically being able to lease ships at a cheaper price. So those are, I think, the 3 key things. I will say that we anticipate -- you mentioned like less volume growth. We don't expect necessarily less volume growth, but we'll talk about this in February. But I think that's not an assumption we should have. So that's both for the unit cost and the growth. The IMO, I would say, from a CapEx perspective, it's -- what happened at the IMO is a nonevent. Seen from that, that today, every single ship that is on order more or less is a -- has a dual fuel engine. It's either dual fuel LNG bunker or it's dual fuel methanol bunker. And I think everybody understands that it makes sense when you take a bet on the next 30 years by ordering a ship that you cannot just base yourself on what the IMO is doing now, but you need to understand what optionality you have for the next 30 years. And I don't expect that people will start to order only bunker ships because they will think that for the next 30 years, this is not -- green transition is not going to be an issue at all. So I think from that perspective, I don't think operationally, IMO is a problem. I don't think CapEx-wise, IMO is a problem. It's a problem to execute the energy transition because definitely, it's a loss of momentum. But from an operational perspective, we are not at disadvantage, and I don't think it's going to change order behaviors or supply and demand. Patrick Jany: And let me come back on your rate on your first part of your question. So what you have to consider is that we have increased the share of short-term rates in our mix, as you can see as well in our disclosure to 53% compared to 47% long term in the quarter, and which was positive during Q2, Q3. As short-term rates decreased during Q3, you see that our full year estimate for '25 sees an increase of the long term. So we are pushing the contract fulfillment and the long-term rates, which are more resilient to the erosion of the rates in the short term. So you have a progressive change of mix constantly to optimize the revenue there. Another factor when you try to reconcile is also the very different geographical evolution of the rates. So the North -- the East-West rates are the ones which we always follow very publicly and those ones came down. However, you do have much more resilient rates development in North-South and then the interregional rates as well. So that's a bit of a mix that you see always in our total figure. I hope that helps. Operator: Our next question comes from Marco Limite, Barclays. Marco Limite: So my first question is on demand because you are talking about a fairly strong demand, while some of your competitors in other subsectors are talking about soft demand. You have also mentioned that you expect U.S. demand being sort of strong over the next 6 months. And then also, you have mentioned that China outbound has grown 7% and expect a similar rate going forward. Do you -- what kind of visibility have you got on basically these assumptions? And especially the fact that China has been very strong this year is not that a risk for growth next year on a very high comps, is the first question? And the second on capital allocation. We have been discussing about potential for M&A and share buyback and so on. But when we think about terminal expansion, I mean, this week, you announced a $2 billion investment in the terminals. But first question is that on your balance sheet or off balance sheet as you have got a minority stake. But more in general, is it a problem for you to have, let's say, the terminal business in the overall Maersk umbrella, where, of course, you cannot take a lot of leverage, but terminal business needs big CapEx investments and also a larger balance sheet buffer? Vincent Clerc: Yes. So on -- let me start with the demand. First of all, the strength of the demand, if I look at year-to-date, both last year and year-to-date, I mean, this is -- I hope this is undisputed by anybody, at least when it comes to container traffic because you can verify it in the CTS statistics, [ GOC ] statistics and any other widely available port statistics that you can find. So is the fact that China makes up a large part of this and that this shows no signs of abating. So personally, I don't see any reasonable argument or data source that would go against the fact that demand has been above 5% last year and will be around 4% this year, which is actually quite significant. The demand from China and the growth from China, at least so far shows no sign of abating. And unless at some point, somebody can point to a reason for why this would abate, then I think it's a reasonable assumption to say that if there is no reason for it to slow down or stop, then why would it? And then you can discuss whether given -- as you mentioned, given the comps, whether it's going to continue to be 11% or that the base becomes so big that it becomes 10% or 9%. But the fact is that it's still quite significant. And at least so far, as we show in the graph, the last 2 years has been accelerating, not decelerating. So I think from a demand perspective, we feel quite confident that demand growth is very strong. There's a lot of cargo out there to move, and that has a lot to do with China. And I think that there is ample data to back that up. You want to? Patrick Jany: Yes. On your question on the capital allocation and terminals. I think -- so first of all, on the capital allocation, I think our first priority is organic growth, and we have always said that we would dedicate the sufficient funds to grow in Logistics, grow in Terminals and renew our fleet for Ocean. That is part of our guidance of the $10 billion to $11 billion CapEx over 2 years. So that's factored in. I think what you have to see is actually Terminals is a brilliant business that complements Ocean. We capture a lot of the value as we actually just showed on Gemini of the value of the Ocean leg into the port, right? And the margins there are actually higher than in Ocean. So it is good to have. It comes with, I would say, a high CapEx profile when you have new terminals, but a lot of the CapEx is actually expansion of existing, right? Of existing capacity where you can grow. And then you have a few new ones which are planned. We just announced the -- we just opened one recently and there are others in the pipeline, which, again, are absolutely included in our guidance and do make absolute good sense. Overall, I would say it is still an asset-lighter business than Ocean is. So it's absolutely fine with our balance sheet, and we have the balance sheet structure and financing to fund that development as well. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Vincent Clerc for any closing remarks. Vincent Clerc: Thank you again for joining us today. And to summarize the discussions, we have demonstrated strong execution in this quarter in which uncertainties did persist in the external environment, but where we carried to deliver strong results across the whole business portfolio. We've made good progress across the portfolio and continue to see supportive demand, and this has allowed us to narrow the full year guidance. We look forward to seeing many of you on our upcoming roadshows and investor conference. Thank you for your attention again, and see you soon. Bye-bye.
Operator: Thank you for standing by. My name is Kathleen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Vasta Platform Third Quarter 2025 Financial Results. [Operator Instructions] Before we begin, I would like to read a forward-looking statement. During today's presentation, our executives will make forward-looking statements. Forward-looking statements generally relate to future events or future financial or operating performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from those contemplated by these forward-looking statements. Forward-looking statements in this presentation include, but are not limited to statements related to our business and financial performance, expectations for future periods, our expectations regarding our strategic product initiatives and the related benefit and our expectations regarding the market. Forward-looking statements are based on our management's beliefs and assumptions and on information currently available to our management. These risks include those set forth in the press release that we are issuing today as well as those more fully described in our filings with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on the information available to us as of today. You should not rely on them as predictions of the future events, and we disclaim any obligation to update any forward-looking statements, except as required by law. In addition, the management may reference non-IFRS financial measures on this call. The non-IFRS financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with IFRS. And now I would like to turn the call over to Cesar Silva, the CFO; and Guilherme Melega, the CEO. Please go ahead. Cesar Silva: Good evening, everyone, and thank you for joining us in this conference call to discuss Vasta Platform's third quarter of 2025 results. I'm Cesar Silva, Vasta's CFO. And today, we have the presence of Guilherme Melega, Vasta's CEO, who will be joining me on the call. Let me now hand over the floor to Guilherme Melega, our CEO, to make his opening statement. Guilherme Melega: Thank you, Cesar. Thank you all for participating in our earnings release call. Let's move to Slide #3, which summarizes the key highlights of the 2025 sales cycle. We are closing the final quarter of this commercial cycle, and we are pleased with the results achieved. Once again, we delivered consistent growth in revenue and profitability while maintaining strong operational discipline, cash flow performance and advancing our strategic priorities. Starting with subscription revenue, we grew 14.3% comparing to the previous cycle, supported by ACV bookings of BRL 1.552 billion and net revenue up 13.6%. This performance reflects the resilience of our core business and the successful execution of our commercial strategy, and we have demonstrated the ability to sustain double-digit growth in our core business for the fourth consecutive year. Our complementary solutions continued to expand at an accelerated pace, growing 25.3% year-over-year, reinforcing the strength of our ecosystem and the value we bring to schools with our complete portfolio -- product portfolio. In the B2G segment, during this quarter alone, we recorded revenues of BRL 17 million from several new customers and from the State of Pará contract, totaling BRL 67 million in the 2025 sales cycle. This demonstrates stability in this revenue stream comparing to 2024. As a result, net revenue in 2025 sales cycle reached BRL 1.737 billion, a 14% increase compared to the same period in 2024. This growth was driven by the successful conversion of ACV bookings into revenue, along with a strong performance of our complementary solutions, as mentioned before. In profitability, adjusted EBITDA reached BRL 494 million, a 10% increase compared to 2024. The margin was 28.4%, slightly below last year's 29.4%, mainly due to a different product mix and increased investments in marketing and growth initiatives. Despite these factors, we maintained healthy profitability levels, demonstrating our ability to balance expansion with operational efficiency. A major highlight of this cycle was free cash flow, which totaled BRL 316 million, 117% higher than last cycle. Our last 12 months free cash flow to EBITDA conversion rate improved significantly to 64%, up 31.5 percentage points from 2024. This improvement was driven by efficiency measures and disciplined cash management, including early collections and automation in financial process. We also continue to make progress in deleveraging with net debt to last 12 months EBITDA at 1.75x, down from 2.32x in the Q3 2024. Beyond these financial metrics, we continue to make progress in strategic areas. In the B2G segment, we advanced our diversification strategy, adding new municipalities to our portfolio. This reinforced our commitment to expand access to quality education through partnerships with public institutions. In Bilingual Education, our Start Angle franchise remains a key growth avenue. We now operate 6 units, which includes 4 schools implemented this year and have signed over 50 contracts besides a robust pipeline with more than 300 prospects. This positions us well to capture demand from premium bilingual education in the coming cycles. It is worth mentioning, we expect to launch 8 new operational units for the coming year. Finally, as we look ahead to 2026, innovation remains the center of our strategy. Throughout AI, we will introduce new tools focused on equity and personalized learning, including the individualized educational plan, EEP, which will empower educators with tailored pedagogical recommendation and foster inclusive practice. In summary, these results confirm the resilience of our business model and the successful execution of our strategy. We are confident in our ability to sustain growth, enhance profitability and deliver value to all our shareholders. I will now turn back to Cesar Silva to walk us through the financial results. Cesar Silva: Thank you, Melega. Let's move on to Slide #5. In this slide, we present the composition of Vasta's net revenue. On the left side, you can observe the organic growth for the third quarter in total net revenue, which increased by 13.4%, reaching BRL 250 million. Vasta subscription revenue achieved in the third quarter of 2025, BRL 212 million, a 3% increase compared to the same quarter of 2024. Non-subscription revenue increased 45% to BRL 21 million, supported by higher enrollment in the Start Angle flagship schools and Anglo pre-university course. Moving to the right side, you have the numbers of the net revenue for the 2025 sales cycle. We achieved an organic net revenue growth of 13.6% in the 2025 sales cycle, amounting to BRL 1.737 billion. The main factors for this performance were: firstly, the subscription revenue has increased 14.3%, reaching BRL 1.552 billion and continues to be the major contributor to our total revenue, representing 89.3% of the net of the revenue share as detailed on Slide #4 of this presentation. Non-subscription revenue increased 16% to BRL 119 million. This growth is mainly driven by 2 effects: the new revenue from our flagship Start Angle ESL in Sao Paulo that did not exist in 2024 and the growth in the number of students in the Anglo pre-university course, which enrolled 21% more students than last cycle. Moving to Slide #6. You can see that in this sales cycle, our adjusted EBITDA amounted to BRL 494 million with a margin of 28.4%, an increase of 9.9% from BRL 449 million and which we will break down in the next slide. So in this Slide #7, we can observe that the adjusted EBITDA margin achieved 28.4% in this 2025 sales cycle, 1 percentage point lower than the same period of 2024. Our gross margin reached 62.8%, a decrease of 1.4 percentage points from 64.2% in 2024 sales cycle, mainly due to a different product mix. It is worth mentioning complementary solutions has grown at a faster pace despite high payments to product owners of certain products. Provisions for doubtful accounts PDA achieved 3.1% in relation to the net revenue and have an improvement of 0.8 percentage points when compared to 2024. This indicator has been showing improvement during the year despite the very challenging and extensive credit environment for non-premium, and we still foresee challenges in the credit scenario for the next month. As a percentage of net revenue, our commercial expenses increased by 0.8 percentage points, driven by higher expense related to business expansion of the commercial cycle for 2026 and remain stable at near 19% of the revenue. And finally, adjusted G&A expense improved by 0.3 percentage points, mainly driven by workforce optimization and budgetary discipline measures. Moving to Slide #8, we show the adjusted net profit that you can see in the right side of the slide in the sales cycle that the adjusted net profit reached BRL 82 million, and there has been an increase of 32% from adjusted net profit of BRL 62 million in 2024 because of the topics already mentioned. Moving to Slide #9, we show the free cash flow evolution. In the sales cycle, our free cash flow reached BRL 316 million, an increase of 117% from 2024. The cash flow generation in this cycle has an outstanding performance and achieved the highest level of conversion in relation to the adjusted EBITDA in the last years, achieving 64%. This is 31.5 percentage points better than the same indicator as last year. This improvement is explained by certain measures that the company has been implementing, which are already yielding positive results. We have mentioned some of these measures in our collection process. We developed automatized process like remargins, reminders and past due notifications. We implemented customer segmentation and management to make faster renegotiation on overdue receivables. On the payment side, we implemented several initiatives to enhance discipline in payments, such as rigorous financial planning, centralized payment scheduling and negotiating longer payment terms with suppliers. Additionally, the first semester of 2025 benefited from early collections of the 2025 sales cycle, which are expected to normalize in the next quarter. Is it worth mentioning that for the fiscal year, we expected to achieve a conversion rate of about 50% of the EBITDA. This will represent a relevant increase from 41.8% compared to the 2024 fiscal year. Moving to Slide #12. Let's take a closer look at the net debt movement. The net debt position decreased by BRL 177 million in the 2025 sales cycle. This decrease was driven mainly by the free cash flow generated in 2025, which was partially offset by financial interest costs. Our net debt amounted to BRL 863 million at the end of the sales cycle, and we managed to reduce the leverage ratio of the net debt to last 12 months adjusted EBITDA, which achieved 1.75x, a decrease of 0.57x of this indicator comparing to the same quarter of 2024. We would like to reinforce our commitment to continuing to generate free cash flow and deleverage the company. Having said that, I finish our presentation and invite you all to the Q&A session. Operator: [Operator Instructions] And your first question comes from the line of Camily Assunção of Morgan Stanley. Camily Assunção: We only have one question. Could you provide please some color on the ACV buildup for 2026? And also, if you could comment on your outlook for growth and the balance between volume and pricing? Guilherme Melega: Thank you, Cam, for your question. We just ended the quarter of the cycle of 2025, recording a 14.3% subscription revenue growth. That's definitely the trend that we expect to continue for 2026. So I would say it's mid double-digit growth in terms of revenues. In terms of outlook of our performance, we are growing in learning systems, gaining market share in premium learning systems and complementary products keeps the pace growing with more than 20% and that's -- the trend should be continued to 2026. In terms of pricing, we are -- for the last 5 cycles, we were able to price EPCA plus, and we definitely are targeting the same level. I would say EPCA plus between 1% and 2% for the next cycle should be a good guess for what we are seeing right now. Operator: [Operator Instructions] And there are no further questions. I will now turn the conference back over to Guilherme Melega for closing remarks. Guilherme Melega: Thank you all for participating in our Q3 conference. The sales cycle of 2025 continues to reflect Vasta's solid execution and strategic focus. Our consistent revenue growth, strong cash flow generation and expansion of core business reinforce our commitment to deliver long-term value. We are particularly proud of the progress made in our Start Angle Bilingual School and the evolution in our Plurall platform and our disciplined approach to operational efficiency and financial management. Thank you all for continued trust and support. We look forward to see you in the earnings release call of the end of 2025 fiscal year. Thank you all. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Hello, and welcome to today's Heritage Global Inc. Third Quarter 2025 Earnings Call. [Operator Instructions] Please note this call may be recorded. [Operator Instructions] It is my pleasure to turn the program over to IMS Investor Relations, John Nesbett. John Nesbett: Thank you, and good afternoon, everyone. Before we begin, I'd like to remind everyone that this conference call contains forward-looking statements based on our current expectations and projections about future events and are subject to change based on various important factors. In light of these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements, which speak only as of date of this call. For more details on factors that could affect these expectations, please see our filings with the Securities and Exchange Commission. Now I'd like to turn the call over to Heritage Global's Chief Executive Officer, Mr. Ross Dove. Ross? Ross Dove: Thank you, John, and welcome, everyone, and thank you for joining. The older I get, the faster every 90 days seems to come. What never changes is every 90 days presents new opportunities and challenges. Earning $1.4 million in EBITDA in this 90 days was to me more than meets the eyes. My brother and lifetime business partner always said, Ross, numbers don't lie. To put that in context, every Sunday he was on the golf course, and I was in the card room. Of course, he was correct. But what I have learned is there are many factors to the story beyond the numbers. The greatest challenge in the business is not always execution, but equally significant, how you play the cards you dealt. For many reasons, we were challenged and succeeded through a wait-and-see economy for transactions. We made a profit more like a journeyman fighter going all 12 rounds because we kept swinging. With many large transactions slowed in a wait-and-see time with interest rate and tariff considerations and overall less ability to execute large transactions, there were no needle movers. Opportunities we performed were at a high conversion rate on transactions. That did occur, albeit a lot of smaller ones. Without overemphasizing the future outlook, on the financial side, regional banks continue to report an increase in distressed assets and every indicator says asset flow is on the rise. On the industrial side, a continued push towards lean manufacturing and the prediction of more consolidation over time also bodes well for increased asset flow. We have built both our balance sheet and staffing and systems very prepared to garner market share as opportunities arise. Further, I am excited to report after a 2-year phased approach to our M&A, we are well past fine-tuning our strategy and 100% now in tactical execution. We have isolated the companies that I define as plugging in the gaps, that will create long-term shareholder value with the fastest accretion dynamics. I call it our GS plan, geography and sector growth. We know the sectors we believe we can serve as needle movers and the geographies we can win and execute in. We are also in advanced negotiations with who we have identified as best practices and as important, a shared vision, like-minded DNA and all in one to new paddles in tandem. When is day 1 on this. Near term is now our emphasis and all hands are on deck. With that, it's time for Brian to drill down on the quarter, and I'm here to answer any questions once he shares the current results. Thank you all for joining. Brian, you're up. Brian Cobb: Thank you, Ross, and good afternoon, everyone. I'll begin with a brief overview of our third quarter operating results before walking through our Industrial and Financial segment performance. Consolidated operating income was $1.3 million in the third quarter of 2025 compared to $1.5 million in the third quarter of 2024. Our Industrial Assets division reported operating income of approximately $900,000 in the third quarter of 2025 compared to approximately $700,000 in the prior year quarter. Our Financial Assets division reported operating income of $1.6 million in the third quarter of 2025 compared to $1.8 million in the third quarter of 2024. Our Industrial Assets division executed well on Auctions and Liquidation opportunities, and we saw growth in our Refurbishment and Resale segment. ALT reported improved operating income of approximately $400,000 in the third quarter compared to approximately $200,000 in the third quarter of 2024. The third quarter also included a healthy amount of auctions, though the volume was primarily comprised of smaller scale activity as certain companies opted to hold off on larger scale nonessential transaction decisions amid ongoing economic uncertainty. As we close out the year, we are energized by the opportunities ahead and proud to be nearing the completion of our new facility in San Diego, a key milestone that supports our next phase of growth. Our Financial Assets division reported solid profitability in the third quarter. While our Brokerage business was down slightly quarter-over-quarter, NLEX continues to proactively add new sellers to our existing clients. Transaction volumes from our largest recurring clients softened early in the quarter, but ended September in an upward trend leading into the fourth quarter, which historically represents a stronger period as lending institutions work to optimize their balance sheets ahead of year-end. Overall, consumer debt remains at high levels even as credit performance metrics suggest that the market has stabilized this year. At the same time, regional banks are facing increased scrutiny over the quality of their loan portfolios, which we believe will lead to higher charge-offs and nonperforming loan volumes as these institutions begin to offload underperforming assets. Additional consolidated financial results include the following: adjusted EBITDA was $1.6 million compared to $1.9 million in the prior year period. Net income was approximately $600,000 or $0.02 per diluted share compared to net income of $1.1 million or $0.03 per diluted share in the third quarter of 2024. The change largely due to a noncash adjustment made to the valuation allowance against our deferred tax assets as we fine-tune our estimated utilization of net operating loss carryforwards prior to expiration at year-end. Our balance sheet is strong with stockholders' equity of $66.5 million as of September 30, 2025, compared to $65.2 million at December 31, 2024, with net working capital of $17.9 million. Our cash balance reflects a total of $19.4 million as of September 30, 2025. And after removing amounts due to our clients or payables to sellers on our balance sheet, our net available cash balance was $12.6 million. M&A remains a critical component of our long-term strategy and capital deployment framework. Now with a sharpened focus, our team is laying the groundwork for accretive transactions that will define the next phase of the company's strategy and growth prospects. We are optimistic and motivated. This is the right time and the opportunities ahead are compelling. We did not repurchase any shares in the quarter as we have prioritized maintaining our cash position given our advancing progress on the M&A front. With that said, the company authorized a new share repurchase program on July 31 that allows for the repurchase of up to $7.5 million in common stock over the next 3 years, though it remains a part of a capital allocation strategy. And with that, I'll send it back over to Ross. Ross Dove: Thank you, Brian. After hearing you, I think it's worthwhile to take a moment to add some details to our M&A strategy. We're focused on businesses that are very capable of operating independently that we also believe can scale significantly and thrive within HG, companies with systems and processes that are a match day 1. Our goal is to build shareholder value that both lasts long term and have built a last heritage, while we're also mindful that the value also needs to be transferable to the market at large. This took a long time to get there, but we're well on the way now and excited about our future. Thank you all for listening in. We're here for any questions. Operator: [Operator Instructions] We'll take a question from Mark Argento of Lake Street. Mark Argento: Just one in terms of capital allocation question. I know M&A is important from a strategy perspective, you guys have been focused on it for a while. But with the stock kind of where it's at, you kind of come into this question of just -- do you just get aggressive and buy more of your own stock back in the business you know and know well versus allocating capital to new acquisitions. Probably the answer is somewhere in between, but how do you guys think about it? What are the criteria when you're looking at M&A from both the strategic perspective, but also from an accretive financial perspective? Ross Dove: Right. So we thought these M&A transactions were more in the distance than they are then we would have put a greater emphasis on buying the stock back. Yes, we think the stock is way undervalued. But at the same time, we think that these acquisitions are really going to help grow the company and showing growth in the company is really the most significant and most important thing we can do. However, we did authorize $7.5 million and are prepared to flip the switch, so to speak, and start buying stock back. But right now, there's a heightened emphasis on getting some things that are right in front of us done first, Mark, if that's a fair answer. Mark Argento: Yes. No, that's a fair answer. Just pivoting to the business. You said the Industrial Assets, you saw a decent amount of activity, but there were smaller -- either smaller ticket type transactions or a little different mix. What is it in particular? I think you've kind of called it taking a wait-and-see approach, but what is it that you see a lot of these potential sellers or customers? What are they waiting for? Are they waiting to see government... Ross Dove: It felt like a lot of companies were releasing some surplus assets in kind of a hold-on mode rather than shutting down. And it felt like other companies were holding assets because they're looking at -- and these are the larger companies. They were looking at M&A, but they have concerns about if the supply chain is going to be wide open and they can get new assets. So there was just a certain amount of people that weren't making the significant big decisions. So we made a profit working really hard, doing a lot of work on a lot of smaller transactions that were less needle movers, but fortunately, you added them all up together and they added up to a profit. But we didn't have that 1 big or 2 big or 3 big, really large auctions that we usually get in the quarter. Mark Argento: Got it. And one more housekeeping one for Brian. So it looks like you guys paid off the remaining couple of million dollars on that ALT note. And really, at this point, really the only real debt you guys have on the books is just the mortgage, right, for your new headquarters. Am I looking at that correctly? Brian Cobb: Yes. So we purchased the building early this year for $7.3 million approximately and took out a $4.1 million interest-only mortgage for 3 years. And we did pay off the ALT note after 4 years. So that's the only debt currently on the balance sheet other than we have the capacity on our line of credit, which is at a 0 balance currently, $10 million capacity. Operator: [Operator Instructions] And it appears that we have no further questions. I'd be happy to return the call to management for closing comments. Actually, we do have a follow-up from Mark Argento of Lake Street. Mark Argento: If I got the mic, I got the mic, right? Let's keep going. Ross Dove: Yes. Go for it. Go for it. Mark Argento: Well I was going to ask, but I wanted to see if somebody else would was just any updates on any progress in regards to Heritage Capital and working down of the portfolio there and the related assets there? Ross Dove: There's real progress, but I'll let Brian take over. Brian, go ahead. Brian Cobb: Yes. So just a couple of high-level notes. This is really a long-term workout that requires a couple of things, meaning, one, alignment with our senior lenders and the borrowers, so all parties that are involved and requires a good plan. So we do have alignment with our senior lenders, and we do have a plan. And we've talked about the plan being one of the key initiatives in that plan being allocating cash to the legal process. So we've been spending. We've been investing in that process since late last year and initial results are positive right now, and we're kind of on an accelerated time frame now after those results to get as many consumer accounts into the process as we can. So progress is solid right now. No change to the reserve. And as long as we continue along this path, I think we'll be in the best position in the long term. Mark Argento: Got it. It looks like you guys maybe paid it down a little bit, like a couple of hundred thousand dollars or something in the quarter. Is that accurate? Brian Cobb: Yes. We have a small portion of really high-performing loans and good borrowers that spins off some interest income. So we do -- we are operating at a small profit right now. Operator: And it appears that we have no further questions at this time. I'd be happy to once again return the program to our management for closing comments. Ross Dove: Thank you all for joining. Thank you all for listening. Thank you all for sticking with us. I leave the call, like I started the call, feeling very positive that we're in the right place at the right time with the right opportunities right in front of us, and we positioned ourselves well to capture and optimize what exists in front of us. So I'm feeling good, and hopefully, you enjoyed the call, and we've given you some decent insight into where we're going. So thanks for joining. We're always available if you want to check in with us. Everyone, have a great day. Operator: This does conclude today's conference. You may now disconnect your lines, and everyone, have a great day.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Ensign Energy Services Inc. Third Quarter 2025 Results Conference Call. [Operator Instructions]. This call is being recorded on Friday, November 7, 2025. I would now like to turn the conference over to Mike Gray, Chief Financial Officer. Please go ahead, sir. Michael Gray: Thank you. Good morning, and welcome to Ensign Energy Services Third Quarter Conference Call and Webcast. On our call today, Bob Geddes, President and COO; and Mike Gray, Chief Financial Officer, who will review Ensign's third quarter highlights and financial results, followed by our operational update and outlook. We'll open the call for questions after that. Our discussions today may include forward-looking statements based upon current expectations that involve several business risks and uncertainties. The factors that could cause results to differ materially include, but are not limited to, political, economic and market conditions, crude oil and natural gas prices, foreign currency fluctuations, weather conditions, the company's defense of lawsuits, the ability of oil and gas companies to pay accounts receivable balances or other unforeseen conditions, which could impact the demand for services supplied by the company. Additionally, our discussion today may refer to non-GAAP financial measures, such as adjusted EBITDA. Please see our third quarter earnings release and SEDAR+ filings for more information on forward-looking statements and the company's use of non-GAAP financial measures. With that, I'll pass the call to Bob. Robert Geddes: Thanks, Mike. Good morning, everyone. Let's start with some introductory comments. The positive third quarter results were reflective of year-over-year market share growth of our Canadian business unit in the high-spec single and high-spec triple rig types coupled with performance-driven market share growth in the U.S. as well as consistent rig activity in our International segment. We successfully generated cash to clip off another chunk of debt in the quarter and expect to maintain our 3-year target of $600 million of debt reduction by the end of first half '26. Operationally, we ran plus or minus 25 drill rigs and 50 well service rigs around the world through the third quarter every day with stronger than expected gross margins. Our Drilling Solutions team also successfully field beta test at the EDGE AutoDriller Max with positive results adding to our technology suite of drilling rig controls technology. The finance team led by Mike Gray, successfully negotiated our banking arrangement out 3 years saving interest expense and improving liquidity. We also added to our forward book with over $1.1 billion of forward contract revenue under contract, increasing our long-term contract base quarter-over-quarter, which now brings us to about $300 million of long-term contract margin forecast in the future. And we also achieved all this with another quarter of industry-leading record safety metrics. For a deeper dive into the third quarter financials, I'll turn it over to Mike Gray. Michael Gray: Thanks, Bob. Volatile crude oil commodity prices and fluctuating geopolitical events that reinforce producer capital discipline over the near term, impacting certain operating regions. However, despite these short-term headwinds, the outlook for oilfield services is relatively constructive and have supported steady activity in several other regions. Overall, operating days were down in the third quarter of 2025 in comparisons to the third quarter of 2024. The company saw a 4% increase in the United States to 3,194 operating days, a 9% decrease in Canada's 3,509 operating days and a 29% decrease internationally to 935 operating days. For the first 9 months ended September 30, 2025, overall operating days declined with United States recording a 2% decrease. Canada recording a 1% decrease, in international recording an 18% decrease in operating days, respectively, when you compare to the same period in 2024. The company generated revenue of $411.2 million in the third quarter of 2025, a 5% decrease compared to revenue of $434.6 million generated in the third quarter of the prior year. For the 9 months ended September 30, 2025, the company generated revenue of $1.22 billion, a 3% decrease compared to revenue of $1.258 billion generated in the same period in 2024. Adjusted EBITDA for the third quarter of 2025 was $98.6 million, 17% lower than adjusted EBITDA of $119 million in the third quarter of 2024. Adjusted EBITDA for the 9 months ended September 30, 2025, totaled $282.3 million, 16% lower than adjusted EBITDA of $336.7 million generated in the same period in 2024. The 2025 decrease in adjusted EBITDA was primarily as a result of lower base revenue rates and onetime expenses related to activating and deactivating and moving drilling rigs. Offsetting the decrease in adjusted EBITDA was the favorable foreign exchange translation on U.S. dollar-denominated earnings. Depreciation expense in the first 9 months of 2025 was $252 million, a decrease of 4% compared to $261.8 million for the first 9 months of 2024. General and administrative expense in the third quarter of 2025 was 5% lower than in the third quarter of 2024. General and administrative expenses decreased primarily due to nonrecurring expenses incurred in the prior year and tight cost controls. Offsetting the decrease in the annual wage increases and the negative translation effect of converting U.S. dollar-denominated expenses. Interest expense decreased by 23% to $18.4 million from $23.8 million. The decrease is a result of lower debt levels and effective interest rates. During the second quarter of 2025, $40.8 million of debt was repaid for a total of $83.8 million, repaid during the first 9 months of 2025. The company has revised its previously announced debt reduction target of $600 million, which now will likely be achieved in the first half of 2026. The revision is a result of current industry conditions and the reinvesting into the company's -- company through capital expenditure. If the industry conditions change, these targets may be increased or decreased. Total debt net of cash has decreased $98.5 million during the first 9 months of 2025 due to debt repayments and foreign exchange translation on converting U.S. dollar-denominated debt. Net purchases of property and equipment for the third quarter of 2025 was $62.4 million consisting of $13.9 million in upgrade capital and $50.5 million in maintenance capital, offset by dispositions of $2 million. For 2025, maintenance CapEx budget is set at approximately $154 million and selective upgrade capital of approximately $35.5 million, of which $19 million is funded by the customer. The increase in upgrade capital expenditures in 2025 is due to the previously announced awarded 5-year contract for 2 additional rigs in the company's Oman operations as well as rigs being relocated from Canada to the United States. On that, I'll pass the call back to Bob. Robert Geddes: Thanks, Mike. So let's start with an operational update. The summer was quite active for us right across all of our world in a different country. So as we methodically grew rig count in the very active higher-margin, high spec triple and high-spec single rig type categories in North America. Let's start with Canada. Canadian drilling, we have 43 drilling rigs active today in Canada and expect to add a few more before year-end, and we expect to peak in the first quarter '26 of roughly 55. We're starting to see more and more clients go along in their contracts especially on the higher spec rigs. One example, we just signed 2 of our super high-spec triples on 3-year contracts, locking in $100 million of revenue, roughly $30 million EBITDA out to late 2028. While we have seen some spot market prices drop into the fourth quarter on the cold rigs as people try to get them going, we have generally been raising our prices in our 2 high utilization categories. Again, the high-spec single and the high-spec triple by about 2% a quarter. The trend for the entire year has been steadily moving up on these rig types as supply tightens. The value proposition is still valid for decline as we continue to perform by improving drilling efficiency, offsetting any rate increases. Also because the rig equipment is being run closer to its technical limits more and more, rate increases are quite just to offset the higher operating costs. We continue to see the Canadian market adopt our EDGE drilling rig automation more and more every quarter, which provides a high-margin bolt-on incremental revenue stream of anywhere from $1,000 to $2,600 a day across high-spec triples generally. We continue to address any upgrades that operators request by assisting the upgrade capital to be paid for by the operator with a notional rate increase or we adjust the day rate incrementally in order to achieve a 1-year payout or less on incremental capital with the incremental rate increase. Moving to the U.S. drilling. While the statement, drill, baby, drill, is true in the sense that more footage was drilled year-over-year, the problem is that because the rigs are drilling more footage per day, we have the same number of rigs making more whole. We are finding that the double-digit rig efficiency gains of years past has slowed into the single digits as we get closer to the technical limits of the rig equipment itself. This is good news and an indication that we are at or near a trough. Operators now focused on continued duplication of their best wells. We also have a situation where most operators are starting to look at Tier 2 acreage now as we move along in the future. We also saw the U.S. iredoil production close to 14 million barrels per day. So with the technical limits of rig establishing somewhat of a ceiling and with Tier 1 acreage finishing, we will need to see rig count move up if we were to hang on to 14 million barrels a day of production in the U.S. I have mentioned before, it's interesting to start hearing from operators more and more, the geologic headwinds are stronger than the tailwinds from technology and operational efficiency gains in the last 5 years. Again, another indication we have troughed. So in U.S. today, we have 41 high-spec rigs, mostly high-spec triples, out of our fleet of 70-plus high-spec ADRs operating across the U.S. California to the Rockies down into the Permian. Permian, of course, being our busiest area with roughly 25 rigs operating daily there. We've been able to increase our market share in the U.S. by about 50 bps through the year, the result of our high-performance rigs in cruise in concert with our EDGE Drilling Solutions technology. We're also starting to see some light at the end of the tunnel in California and expect mild increase in rig activity there. On that note, our EDGE Drilling rig controls product line continues to expand with increasing adoption of products like our ADS, the automated drill system, not only do we get a superior rate for our EDGE AutoPilot technology, we capture the upside value generated to the operator through performance metrics. Everybody wins. The operator delivers wellbores for lower cost and help derisk that with our PBI contract for at higher margins than Ensign. Our directional drilling business, which is essentially a proprietary mud motor rental business continues to improve some of the best motors of high-quality rebuild the longest runs in the Rockies. We're expecting a solid year for 2025. International, we have a fleet of 26 high-spec rigs that operate in 6 different countries outside of North America which are 13 are active today, up 2 from our last call. In Kuwait, we have been successful in contract extensions on both our 3,000-horsepower ADRs, taking us well into mid-2026. We started back up in Venezuela with the first rig a few months back. And just this week, we started up our second rig. As you know, there's a lot of things going on in Venezuela. Last call, we mentioned we had an unplanned incident in one of our ADR 2000s. In Argentina, happy to report that we're able to minimize the downtime of the operation by replacing this intersection and recommissioning that rig in record time, which manifested itself into landing another 1-year contract extension on that rig with a major. We have both our rigs in Argentina under long-term contracts now. In Oman, the new rigs we have undergoing extensive upgrades are on budget the on time with the first rig expected to be operational in December this year and the second rig in late March. This will add to the 3 ADRs currently under contract in Oman and bring us up to 5 eventually in '26. In Australia, we have 4 rigs active today with strong bid activity, which we feel will take us to 5 to 6 rigs by year-end. We're also successful in extending the contract out another year to the end of '26 on our Barrow Island rig. Moving to well servicing. We have a fleet of 88 well service rigs in North America, 41 in Canada, of which we operate 15 to 20 on any given day. Plus we have 47 well service rigs, primarily in the Rockies and California where we operate with relatively high utilization rates in the 70s consistently. Our U.S. well servicing business, which is focused primarily on Rockies and California has battled a tougher market and is off about 24% year-over-year for the quarter and is expecting not much change for the remainder of the year. We are seeing operators stick to their budgets and not accelerate any '26 plans into 2025. Our Canadian well service business folks focuses primarily on the heavy oil market, and that's been a very steady business with rates increasing at about 3% per quarter. Our technology, our EDGE AutoPilot drilling rig control system. In our last call, we reported that we successfully beta tested our Ensign EDGE Auto, Two-Phase control in conjunction with the DGS, Directional Guidance System. This paves the way for seamless control of automated directional drilling with those operators who utilized remote operating centers and utilize in-house DGS systems. I'm happy to report that we're now fully commercial with our EDGE, our Two-Phase control and are charging out our 4 rigs today with the possibility of placing that on a fifth rig for the same operator. We've also initiated the development of an Ensign EDGE state-of-the-art directional guidance system, DGS. We expect to be beta testing this mid-2026. With this, we'll be able to provide a complete and comprehensive drilling control system offering with all the bells and whistles -- excuse me. We have completed our bit of testing of our AutoDriller Max which will further increase penetration rates and be charged out with a daily base rate about $1,000 a day plus a variable per foot or per meter rate so that we can start capturing the upside on the cost and operational efficiencies that our technology enhancements provide to the operator. We plan to roll this out commercially later this year on both sides of the border. So with that summary, I'll turn it back to the operator for questions. Operator: [Operator Instructions]. Our first question comes from the line of Keith MacKey from RBC Capital. Keith MacKey: Maybe just want to start out in the U.S. Contract book looks like everything is currently under 6 months in length. Can you just talk about what do you think that means for where we are in the cycle and potential contract earnings going forward as we look to 2026? Robert Geddes: So we probably have, I would say, a quarter we tied up on annual contracts, Keith. It is a good question in the sense that it is a forward indicator of what operators are thinking. When they start to want to contract to sell longer. And we just responded to a bit here earlier in the week with a major -- and it's a 5-year contract. When we start to see operators asking us for 5-year contracts, it tells me they also believe we're at a trough. So that's a key indicator. Some of the other projects, of course, are smaller companies. They don't have the longer-term projects. They tend to contract a rig for 6 months, somewhere in there. So I think the takeaway is we're starting to see some indication. Like last year, we weren't negotiating anything in 5-year contracts. It was all 1-year contract. Keith MacKey: Yes. Got it. So U.S. operators are starting to, at least on a one-off basis, ask you for longer-term contracts, okay. Robert Geddes: Correct. And as I mentioned in the call, we also have Canada. We've got -- we signed up 1 for 3 years, and we're in the middle of negotiating another one for a longer term as well. So starting to see some indications. Keith MacKey: Yes. Okay. So maybe let's talk a little bit about Canada. Rig count is down year-over-year in Q3, certainly. But we've also seen some of your competitors or at least one of them move rigs back to Canada from the U.S. Can you just talk about the competitive dynamics in the deep capacity or the triple market right now? How is the market unfolding? Is capacity really as tight as you think it as we all think it is? Is there some telly doubles that are kind of taking up some capacity now in the market that you hope triples might displace? Just if you can help us reconcile any of those comments, that would be helpful. Robert Geddes: Yes. So the high-spec triples, the -- but let's say like the 1,200 horsepower class, triples the smaller end of the high spec triples. As you mentioned, we saw a competitor move a couple up into Canada and willing to foot the bill themselves for the upgrades. The higher spec, the 1,500 high-spec triples is tight enough where if an operator asked us to do that, they'd be paying for the whole bill to get it up here and they'd be paying for the upgrades. So it's a tighter market in the 1,500-horsepower class. The 1,200s start to bridge gap between the higher spec deeper telly doubles, but the 1,200s will win that game. So they're filling a little bit of the gap there. But the high-spec triples are definitely, as I mentioned, we were able to negotiate a 3-year contract with a rate increase and it's still a very tight market on the 1,500s. They're running about 80% utilization on those -- on that specific rig category, which is almost full utilization because that's -- you're going to move the rig and everything else. So you never get to 100% utilization. 80%, 85% is almost 100% in essence, from a bidding perspective. Keith MacKey: Yes. And Canada has always been a bit more of a smaller triple market relative to the U.S., but are you starting to see incremental demand for 1,500-horsepower triples? Robert Geddes: Well, yes, if the question is building up into another BCF of LNG, I think that's still a year out. We are seeing people wanting to make sure that the good rigs they have, they keep. So they're able to look into the future at least 3 years and go, hey, these good rigs you want to keep. So they're getting signed up. We have conversations ongoing with a few operators on current rigs that they're using. They're saying, what would it cost to upgrade it with the high-torque top drive, notional items like that. It is a tight market, but we're still a long ways away. We're $20,000 a day for any new build metrics. Operator: Our next question comes from the line of Tim Monachello from ATB Capital Markets. Tim Monachello: Looking at the international market, you guys have done a pretty good job of reactivating equipment. Venezuela, can you talk a little bit about the dynamics at play there? And maybe your view or visibility to those 2 rigs running into 2026 here? Robert Geddes: You're talking in Venezuela or... Tim Monachello: Yes, in Venezuela. Robert Geddes: Yes, yes. Who the hell knows? Quite seriously. It is a dynamic file for sure. We've got a great team down there that our team are Venezuelans. So we've got a client that runs with OFAC. So it's at the whim. But you all read the same thing we do. There's a lot of tension there. I think that it could play out well. But in any case, we don't have to put any capital into these rigs. When we started them up a year ago, the operator wanted new top drives, we said, you buy them, we'll put it on the rig and we'll own them, but you're going to buy them. So we haven't put any cash into the rigs. And we're able to get U.S. dollars out. That's our contracts. And it's only 2 rigs in our world of 100 rigs running every day. But it's certainly a little bit of excitement there for sure. But I'm thinking that it plays out better in '26 than the up and down we saw in '25. But who knows? Tim Monachello: Okay. So essentially, they're on like well-to-well programs and kind of... Robert Geddes: We signed contracts. Yes. We signed 6-month contracts and they just roll over. Tim Monachello: Okay. Got it. And then is there any I guess, visibility into additional rig deployments in the Middle East for '26? Robert Geddes: So as you know, we're major upgrades on 2 ADRs in Oman. And we've got quite a good brand in Oman. The Ensign brand is really the gold standard for operations. And we're always in conversation with -- we've got a mobile rig fleet of 186 rigs around the world that we can put in the different areas. As you saw, we moved 2 from Canada to the U.S. could we move 1,500s from the U.S. into the Middle East? Yes, could we move a 2,000-horsepower from the Middle East into the U.S.? Yes. I mean it all depends on the commercial situation. So we've got a lot of flexibility and mobility of rigs. Tim Monachello: Okay. And then in the U.S., I just want to circle back on the contract terms that Keith was discussing. And I'm curious, given that you see a customer coming looking for 5-year contracts, like the market is not -- I don't think anybody is saying the market is tight in the U.S. So do you think that that's more opportunistic, somebody looking out a couple of years and saying, hey, these are pretty good rates right now, I want to lock them in? Or is there something more structural or something -- some other factor that maybe I'm not considering here? Robert Geddes: I think that when an operator is going and looking for 15 to 20 rigs of different -- in different areas with certain specs, all of a sudden, that tightens the field that or have the ability to bid and meet those specs. So they -- I find some of the majors every 5 years, they'll want to tighten up their rig spec because they now know what is good for what areas and then they go out to bid and they go, here's what we want, tighten up your rig spec and it's usually a high-spec rig spec and let's go forward. And usually, it involves some capital, different companies address that differently and hence, why they usually go out for a 5-year contract as well because they're going, hey, we want to put this on the rig. They do know that contractors are not going to spend a bunch of money on the way it's going to go well. Tim Monachello: Would you entertain a 5-year contract at current rates? Or would you need significant premiums to current market rates or spot rates as well? Robert Geddes: Yes. Yes, we would ask for the operator to provide the grade capital. And it depends on the situation. We have -- we would propose rates at -- with PBI contracts are in the low 30s. That's kind of where we'd be low to mid-30s, which is probably in the upper quartile of our pricing spot bid pricing is lower than that. We would not entertain pricing lower than that for that type of term. And we usually put escalators in those types of contracts as well. Obviously, we have a cost base coverage on any escalation. But if someone said, can you hold your current rate of 5 years, we'd probably be a no to that, and we'd be showing some rate increases forward, and we'd be asking the operator for all the upgrade capital upfront. Tim Monachello: Okay. That's helpful. And then I wanted to circle back again on your comments in your prepared remarks regarding drilling efficiency and geological decline. Are you -- anecdotally, we've been hearing with that for a long time or at least perhaps anticipating it on the horizon. Are you seeing anything in the field like are you seeing your rigs working in Tier 2 acreage more often now or any other sort of tangible evidence that you're seeing acreage declines? Robert Geddes: Well, it's one of those things, people define their acreage differently. There's -- I remember, companies 3 or 4 years ago, had 5 levels of tier. And then some today are going, we have Tier 1, Tier 2, Tier 3. And then there's no real strong definition. We do hear people talk more about, hey, in 2026, we'll be starting to go more Tier 2 acreage. But no one comes up and says, okay, we want you to go to this Tier 2 play and go drill it or go to this Tier 1 play and drill it. It's more the notional conversations. And of course, Tier 2 were not as productive as Tier 1. They are drilling the Tier 1 first. But we're seeing and hearing them talk more about it. So there must be some truth to it. Tim Monachello: I guess on the leading edge, are you seeing any of your operators starting to increase activity? Robert Geddes: We have, I would say, for '25, it's been a budget exhaustion. They've been holding on to their -- our rigs. We've got 2 operators that increased our rig count because of our performance. But you've seen the rig count. You know the rig count as well as I do, it's stuck at 250 in the Permian, about 550 in the U.S. But we are drilling more footage year-over-year, but the rate of increase is now into the single digits. We're running about 5% to 6% more footage drilled per rig where 2, 3 years ago, we were 14%, 15% year-over-year. So we're starting to hit that speed of sound, the technical limit of the equipment is what we're starting to see. And you're seeing operators start to think more about doing a U-turn coming back on their acreage, relooking at their acreage. So those are indications that to hang on to 14 million barrels a day. They're going to have to -- I believe we've troughed at the rig count that we're at today are pretty close to it, let's put it that way, is what the data would tell us. Tim Monachello: Got it. And then the U.S. last question for me. Are you seeing any opportunities in gas stations? Robert Geddes: Well, a little blip in gas this week. But no, and here's why. The gas oil ratio in the Permian as you increase production, the gas oil ratio is going up, which means about a Bcf a year. So takeaway capacity is going up from 3 to 4 to 5 moving up as we increase production of the Permian and gas oil ratios go up. So we're not seeing -- we've got anecdotally, 1 or 2 clients that are saying, hey, we want to maybe go drill a Haynesville well, but it hasn't moved the needle much, no. Operator: Our next question is from Aaron MacNeil from TD Cowen. Aaron MacNeil: Mike, this one is for you. I think, obviously, I can appreciate all the reasons for the pushout of the $600 million debt reduction target. I guess the question is, when you inevitably hit that target, what's sort of next from a capital allocation perspective? Michael Gray: Yes. I think at that point in time, I mean, you look at what's the best use of proceeds. I mean from our point of view, I mean debt reduction is still going to be key. So you'd probably get to that 1, 1.5x debt to EBITDA. So that will be probably another 1.5 years away from that happening. So our view would still be paying off debt, lowering your interest costs which gives you free cash flow into the perpetuity. So yes, I think we'd definitely take a look at it. But debt reduction is still going to be our focus for the next while. Robert Geddes: Yes, complete full discipline on that, absolutely. Aaron MacNeil: Fair enough. And then maybe to build on one of Tim's questions. How do you think about scale in all these international jurisdictions that you operate in? And would you ever consider exiting some of these markets as another potential source of deleveraging to the extent that you could find an interested buyer? Robert Geddes: Yes. Well, we typically don't run. We typically figure out, get through because we understand there's cycles in every area. I suppose Libya is the only area in the world that we've ever left because the Board just took over the equipment. But you've seen how we've managed through Venezuela. You've seen how we've managed through Argentina. To answer your question on scale, we like to get to 5 rigs running in any given area to appropriately manage supply chain and overhead and operational supervision. That's kind of the target. So in Australia, we're there. Venezuela, where we're not, for obvious reasons. Argentina, we only have 2 rigs there. We're in discussions with some people for perhaps a few more rigs. But we'd like to get the 5 there. In the Middle East, we throw a blanket over the Middle East, Oman will be to 5. Kuwait, we have full utilization there with 2 big rigs. And those are 3,000-horsepower rigs, and those rigs don't grow on trees. There's $60 million to $70 million rigs rates are not conducive to add any into that area nor are they looking. So that's how we look at the world. We're also not interested in going into any new markets either. We'd rather double down and get more of the markets we're in and increase efficiency that way. Operator: Our next question is from Josef Schachter from Schachter Energy Research. Josef Schachter: Bob and Michael. Mike, I just want to cover 1 issue that's been covered in the new issue. Going back to the debt, if EBITDA grows and we get $70, $80 oil a couple of years down the road, is the target to have something like $500 million of debt from the $925 million. And are you looking in your guidance for 2026 to give us a number like $100 million each year kind of number? Like I'm trying to get a feel for the progression of debt reduction. Michael Gray: Yes. No guidance for '26 as of yet. But I mean if you kind of look at break consensuses and how CapEx kind of flows out, I mean, it should be $100 million, in excess of $100 million. When we look at the overall debt level, I mean, yes, that $500 million is probably a good number to get to, just given the volatility we see in the market and pre-the Trinidad transaction, we were kind of around that $500 million-ish. Give or take, so I think around that would be a reasonable bumps to kind of run forward, and that gives you the kind of the flexibility to deal with the ups and downs. Josef Schachter: Okay. And then, Bob, I'm reading stuff from -- and listening to interviews, Comstock is talking about drilling 19,000 vertical insulating pipe because 400 degrees Fahrenheit and needing to stack 30,000 feet of pipe. Is that a totally new class of rig? Or can you handle drilling for these deeper zones that are -- that Comstock and others that are going after? Robert Geddes: Yes. No, we absolutely have -- over the last 1.5 years, we've been -- we have a few rigs that can rack 30,000 to 35,000 feet of pipe. We've got no less than 4 or 5 rigs right now that have been modified to that to be able to handle that with 5.5-inch pipe and handle that 30,000-plus racking capacity on pad work with 5.5-inch pipe. So that's not uncommon for us now. We have lots of those kind of conversations. Josef Schachter: Any potential signing up? Or is it just early conversation days? Robert Geddes: No, no, these are rigs that have been modified and are under contract. Yes, it's not a notion. It's happening, yes. Josef Schachter: Yes. Is this your highest day rate rigs? Robert Geddes: Yes, it would be. Yes. Operator: Our next question is from [ Marvin Mameda ] from [ Mucinex ]. Unknown Analyst: Congrats on the release. I had a quick question about the client funded CapEx. When will we see that hitting your cash flow statement, I don't think it has yet, right? Michael Gray: Part of it has. So you'll see it throughout the next sort of 6 to 12 months. So contractually, there are some things that need to be completed for some of the funding to go through. Yes, you'll see it sort of over the next 6 to 12 months. Unknown Analyst: Basically, you're getting paid by the clients after you spend the money within 6 months? Michael Gray: I know there's some prepayments as well. Unknown Analyst: And could you clarify on those 2 rigs signed in Canada. So you said it would be $100 million over the course of 3 years in revenues for each or... Michael Gray: Correct. Robert Geddes: $100 million total for 3 years, yes. Unknown Analyst: But over 3 years at 30% EBITDA margin. Robert Geddes: Right, for both rigs combined. Unknown Analyst: Yes, thank you. Operator: There are no questions at this time. Please continue. Robert Geddes: Okay. I'll move forward to closing statement then. Obviously, the last few months have been a roller coaster with the global markets unsettled and the tariff negotiations, which has impacted, to some extent, some cost of business notionally until now could impact it more if they stay on the cost side of certain pieces of equipment that, again, we typically pass on to operators as escalation. Looking forward, we continue to execute the plan on reducing debt while delivering the highest performing operations safely around the world. As I mentioned earlier, we increased our forward contract booked by roughly $0.25 billion now up close to $1.1 billion of forward revenue booked under contract. We continue to push operations or operators to fund upgrades, and we are still very stingy on capital. We are right on track with our maintenance CapEx program and can manage nicely operating 95 to 100 drill rigs and 50 well service rigs daily around the world in this commodity pricing environment. So with that, we'll look forward to our next report in the New Year. Thanks for calling in. Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.