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Operator: Good morning, everyone, and welcome to today's ANI Pharmaceuticals Third Quarter 2025 Earnings Results Call. Please note, this call is being recorded. [Operator Instructions] It is now my pleasure to turn the conference over to Ms. Courtney Mogerley, Investor Relations. Please go ahead, ma'am. Unknown Executive: Thank you, operator. Welcome to ANI Pharmaceuticals Q3 2025 Earnings Results Call. This is Courtney Mogerley, Investor Relations for ANI. With me on today's call are Nikhil Lalwani, President and Chief Executive Officer; Stephen Carey, Chief Financial Officer; and Chris Mutz, Senior Vice President and Head of ANI's Rare Disease Business. You can also access the webcast of this call through the Investors section of the ANI website at anipharmaceuticals.com. Before we get started, I would like to remind everyone that any statements made on today's conference call that express a belief, expectation, projection, forecast, anticipation or intent regarding future events and the company's future performance may be considered forward-looking statements as defined by the Private Securities Litigation Reform Act. These forward-looking statements are based on information available to ANI Pharmaceuticals management as of today and involve risks and uncertainties, including those noted in our press release issued this morning and our filings with the SEC. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those projected in the forward-looking statements. ANI specifically disclaims any intent or obligation to update these forward-looking statements, except as required by law. The archived webcast will be available for 30 days on our website, anipharmaceuticals.com. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on November 7, 2025. Since then, ANI may have made announcements related to the topics discussed, so please reference the company's most recent press releases and SEC filings. And with that, I will turn the call over to Nikhil Lalwani. Nikhil Lalwani: Thank you, Courtney. Good morning, everyone, and thank you for joining us. The third quarter was another remarkable quarter for ANI Pharmaceuticals, marked by record revenue, adjusted EBITDA and adjusted EPS, all driven by continued momentum across our Rare Disease and Generics business units. We grew total company revenues by 54% year-over-year and 46% on an organic basis. In addition, we nearly doubled Cortrophin Gel net revenue compared to the third quarter of 2024 and generated adjusted EBITDA growth of 70% year-over-year. Based on our very strong third quarter performance and future outlook, we are pleased to raise our top and bottom line 2025 financial guidance. Compared to 2024, we now expect to grow 2025 net revenues 39% to 42% and 34% to 37% on an organic basis, with Rare Disease becoming essentially half of our total revenues for the year. We expect our lead Rare Disease asset, Cortrophin Gel, to grow 75% to 78% year-over-year to generate revenues of $347 million to $352 million. We expect to grow adjusted EBITDA between 42% and 46% compared to 2024. Later in the call, Steve will provide more detail on our increased guidance. Growing our Rare Disease business is a top strategic priority for us, creating long-term value for our stakeholders and advancing our purpose of serving patients, improving lives. Turning to our lead Rare Disease asset, Cortrophin Gel. To drive strong multiyear growth, we are focused on clinical evidence generation to support physician decision-making, investments to enhance patient convenience and high ROI commercial efforts to drive growth. Our team has made significant progress on these initiatives to grow Cortrophin Gel across our target specialties. In the first quarter, we expanded our portfolio of sales team, and we're seeing very positive results, highlighted by our strong momentum in new cases initiated and growth in new patient starts. We also launched the prefilled syringe in the second quarter, reducing administration steps for patients. We're seeing sizable increased demand for the prefilled syringe and expect it to be an important growth driver. Importantly, to support our commercial team's efforts to drive awareness for Cortrophin Gel, we are committed to generating data to help clinicians, patients and payers make informed treatment decisions, including a Phase IV clinical trial in acute gouty arthritis flares preclinical data on Cortrophin Gel's mechanism of action across multiple disease states and presentations and publications at prominent medical meetings. We remain confident in the strong multiyear growth trajectory of Cortrophin based on ACTH market has returned to growth following the launch of Cortrophin in 2022 and is expected to increase approximately 40% to [indiscernible] with Cortrophin growing by 75% to 78%. Despite this growth, we believe that the addressable patient populations across key indications are significantly underpenetrated. For example, the addressable patient population for acute gouty arthritis alone is 285,000 patients, an indication that is unique to Cortrophin Gel's label. Importantly, the number of Cortrophin Gel prescribers who were previously naive to ACTH represent approximately half of our total prescriber base, and this group continues to grow. Turning now to our Retina portfolio. ILUVIEN sales in the third quarter were lower due to the further impact from the continued reduced access for Medicare patients and the utilization of the remaining YUTIQ units at physician offices. In addition, adoption of ILUVIEN for NIU-PS began in the third quarter, and the company continued to make tangible progress towards full adoption of the label transition. We see 2025 as a reset year for ILUVIEN and believe that we can grow in 2026 and beyond for several reasons. First, we believe the addressable patient populations for ILUVIEN in both DME and NIU-PS are at least 10x the current number of patients treated with ILUVIEN. Second, we expect to see the ensuing results of our strengthened and more experienced ophthalmology organization that is coalescing and deploying an expanded peer-to-peer education program, speaker education program and new marketing initiatives. In addition, we continue to disseminate and contextualize findings of the NEW DAY clinical study and create greater awareness on the potential use of ILUVIEN. Lastly, we are seeing signs that there is a growing number of physician offices exploring alternative access pathways, including Medicare Part D through specialty pharmacy. This is the path we use for Cortrophin. Moving now to our Generics business. We had a very strong third quarter performance due to an opportunistic partner generic launch that occurred in the second half of the third quarter. This launch once again highlights our strength in creativity, R&D, business development, operations and execution intrinsic to ANI's Generics business, and we will continue to leverage these strengths to unlock future opportunities. Based upon upside from this launch, we expect Generics growth for the full year in the low 20% range. We're proud of the continued execution of our Generics business and how it provides ongoing foundational support that enables us to invest in our initiatives to grow our Rare Disease business. In summary, we delivered another record quarter, driven by strong performance across our Rare Disease and Generics business. As we head into 2026, we expect our virtuous cycle of growth to persist. Rare Disease is our primary focus area and largest driver of growth. We expect continued strong momentum in Cortrophin and positive impact from multiple initiatives outlined to grow ILUVIEN in 2026. In addition, we will continue to explore inorganic opportunities to expand the scope and scale of our Rare Disease business. These efforts will be supported by continued performance in our Generics and Brands business. I'll now turn the call over to Chris Mutz to discuss our Rare Disease business in more detail. Chris? Christopher Mutz: Thank you, Nikhil, and good morning, everyone. Echoing Nikhil, our Rare Disease team delivered another excellent quarter marked by continuing record demand for Cortrophin Gel. The number of cases initiated and new patient starts reached another record high, and we saw broad-based growth across all of our targeted specialties, rheumatology, nephrology, neurology, pulmonology and ophthalmology. To capture the multiyear growth opportunity for Cortrophin Gel, we are focused on 3 key priorities. First, we are investing in high ROI commercial initiatives to fuel growth. In the first quarter of 2025, we expanded our portfolio of sales force by approximately 1/3, further optimizing their territories. Our expanded portfolio sales team added new prescribers and drove meaningful increases in new patient starts across our core specialties during the third quarter. In addition, our specialty-focused teams produced sizable growth in our newer areas of pulmonology and ophthalmology, and we believe we are still in the early stages of penetrating these therapeutic areas. Cortrophin Gel prescribing for acute gouty arthritis flares remained a key driver in the third quarter. Notably, the acute gouty arthritis indication is unique to Cortrophin Gel's label among ACTH therapies and accounts for over 15% of Cortrophin Gel use. Further, the gout indication has contributed significantly to the growth of new prescribers, many of whom are historically unfamiliar with ACTH. Turning to ophthalmology. We continue to realize meaningful revenue synergies and saw a record number of new patient starts and a 42% sequential quarterly increase in Cortrophin volumes. We believe there is further growth potential to expand awareness of Cortrophin for patients with severe allergic and inflammatory eye conditions. Additionally, we continue to strive to enhance patient convenience. Our new Cortrophin prefilled syringe offering, which we launched in April, provides a simplified administration that we believe has been well received by patients and prescribers. The prefilled syringe continues to be an important growth driver for Cortrophin Gel. And finally, we are investing in clinical evidence generation to support physician decision-making. As previously announced, we're conducting a Phase IV trial in acute gouty arthritis flares. We believe the 150-patient study will provide physicians with valuable insight on the treatment of acute gouty arthritis flares with Cortrophin Gel and could support positioning and treatment guidelines. We continue to generate robust preclinical data for our key stakeholders on Cortrophin's differentiated mechanism of action across multiple disease states. This is an important growth initiative as we believe increasing the body of evidence supporting Cortrophin Gel's use across indications will help physicians make further informed treatment decisions. Our preclinical study of Cortrophin Gel in uveitis that was presented earlier this year has been published in ocular immunology and inflammation. We also had a poster at the American College of Rheumatology 2025 Annual Meeting that highlighted preclinical data supporting the use of Cortrophin Gel for the treatment of inflammatory arthritis and its anti-inflammatory mechanism of action. Additionally, a manuscript for a preclinical study of Cortrophin Gel in membranous nephropathy was accepted for publication in molecular therapy. The study demonstrates the steroid-independent mechanism of action of Cortrophin Gel in an animal model of membranous nephropathy, specifically its effect on the complement system, areas of significant interest in ongoing membranous nephropathy drug development. Subsequently, this publication was highlighted in a commentary paper in molecular therapy and presented at the American Society of Nephrology meeting. Turning to our Retina franchise. We are making progress on multiple initiatives to improve ILUVIEN sales. Our commercial team is fully hired, onboarded and dedicated to educating and supporting the Retina community. We are strengthening our promotional efforts, including a ramp-up of new peer-to-peer educational speaker programs and the continued execution in the field with new marketing materials to increase the understanding of Retina physicians of ILUVIEN and its 2 indications. In mid-June, we began promoting ILUVIEN under the combined label for chronic NIU-PS and DME. Our sales teams are educating customers across the country, and our market access team has worked with payers to establish coverage for ILUVIENs new chronic NIU-PS indication. 6 of the 7 Medicare administrative contractors, or MACs, have updated their policy to cover ILUVIEN for NIUPS, and we are working with the other contractors they update their policy. Among the top 20 commercial payers, all payers who have a policy specific to ILUVIEN have updated to reflect both DME and NIU-PS indications. We continue to receive positive clinician feedback on the convenience of a single product covering both indications. Next, we have initiatives in place to help physician practices navigate the market access challenges for Medicare patients that have persisted since January 2025. As a reminder, patient support foundations such as Good Days did not receive sufficient funding for 2025, which affected their ability to assist Medicare patients with co-pay support across Retina products broadly. Our team has been gaining traction with HCPs with leading Retina practices exploring the pathway to get ILUVIEN accepted for appropriate eligible patients through Medicare Part D benefit using a specialty pharmacy. This is the same approach used for access to Cortrophin. In addition, -- we continue to present the results of our NEW DAY study of ILUVIEN in patients with DME at numerous prominent medical meetings. This includes a late-breaking oral presentation at the American Academy of Ophthalmology 2025 meeting, a presentation at the American Society of Retina Specialists Annual Meeting and an oral presentation at the EU Retina Innovation Spotlight 2025 meeting. Looking forward, we are preparing to present these data at additional upcoming conferences to further disseminate and contextualize these findings. With that, I'll turn the call over to Steve for the financial update. Steve? Stephen Carey: Thanks, Chris, and good morning to everyone on the call. Today, I'll review our third quarter results and our revised guidance in more detail. We delivered strong top and bottom line growth, generated significant cash flows and are raising our 2025 financial guidance based on our exceptional performance this quarter. ANI generated revenues of $227.8 million in the third quarter, up 53.6% over the prior year period. Revenues from Rare Disease and Brands were $129.1 million in the third quarter, nearly double the prior year period on an as-reported basis and up 82.2% on an organic basis, driven by growth in our Rare Disease franchise. Rare Disease revenues were $118.5 million, up 109.9% from the prior year. Revenues from Cortrophin Gel were $101.9 million, up 93.8% from the prior year period, driven by increased volume on a record number of new patient starts. ILUVIEN net revenues were $16.6 million. Revenues for Brands were $10.7 million in the third quarter, up 16.1% versus the prior year period due to an increase in demand for certain products. On a sequential basis, revenues were down $2.5 million as we saw the expected trend towards normalization in demand during the quarter. We expect that the normalization trend will continue and therefore, expect modestly lower demand in the fourth quarter. Revenues for our Generics and Other segment were $98.7 million, an increase of 19.3% over the prior year period. Revenues for Generics were $94.4 million over the prior year period, driven by the successful launch of a partnered generic product in the second half of the third quarter that overcame our previous expectation for a sequential dip in Generics. Generics were up $4.1 million as compared to second quarter of 2025 due to the strength of this launch. Note that the gross margin for this partner generic product is lower than typical gross margin for our Generics portfolio given the profit share element with our partner. Now moving down the P&L. As a reminder, when I speak to operating expenses, I will be referring to our non-GAAP expenses, which are detailed in Table 3 of our press release. Generally, our non-GAAP operating expenses exclude depreciation and amortization, stock-based compensation, certain costs related to litigation and M&A activity as well as certain noncash charges. Please refer to Table 3 for a reconciliation to our GAAP expenditures. Non-GAAP cost of sales increased 56% to $92.9 million in the third quarter of 2025 compared to the prior year period, primarily due to net growth in sales volumes and significant growth of royalty-bearing products. Non-GAAP gross margin was 59.2%, a decrease of 63 basis points from the prior year period, principally due to product mix, including the lower gross margins on our partnered generic product. Non-GAAP research and development expenses were $11.8 million in the third quarter, an increase of 36% from the prior year period, driven by higher investment to support future growth of our Rare Disease and Generics businesses. Non-GAAP selling, general and administrative expenses increased 41.1% to $63.6 million in the third quarter, driven by spend for our new larger ophthalmology sales team promoting Cortrophin Gel and ILUVIEN and continued investment in Rare Disease sales and marketing activities, including the expansion of the Rare Disease team in the first quarter. Adjusted non-GAAP diluted earnings per share was $2.04 for the third quarter compared to $1.34 per share in the prior year period. Adjusted non-GAAP EBITDA for the third quarter was $59.6 million, up 69.8% compared to the prior year period. We ended the third quarter with $262.6 million in unrestricted cash, up from $217.8 million at the end of the second quarter and $144.9 million as of December 31 of the prior year. Cash flow from operations was $44.1 million in the third quarter of this year and $154.9 million on a 9-month year-to-date basis. As of September 30, we had $633.1 million in principal value of outstanding debt, inclusive of our senior convertible notes and term loan. At the end of the third quarter, our gross leverage was 3x, and our net leverage was 1.7x our trailing 12-month adjusted non-GAAP EBITDA of $214.5 million. During the third quarter, we concluded our 2021 PIPE financing transaction with Ampersand by converting all previously issued 25,000 shares of Series A convertible preferred stock to 602,900 shares of common stock. As of September 30, 2025, balance sheet, there were no further shares of Series A convertible preferred outstanding and all mandatory dividends were paid in full. Now turning to our updated 2025 financial guidance. We are raising our guidance for total revenue, adjusted non-GAAP EBITDA and adjusted non-GAAP EPS based upon higher estimates for Cortrophin Gel net revenue and the continued outperformance of our Generics business, while tempering our ILUVIEN estimates. Our updated guidance is as follows: Full year 2025 net revenue of $854 million to $873 million, up from our prior guidance of $818 million to $843 million, representing year-over-year growth of approximately 39% to 42%. Cortrophin Gel net revenue of $347 million to $352 million, up from our prior guidance of $322 million to $329 million, representing year-over-year growth of 75% to 78%, driven by continued volume gains. We continue to expect sequential growth of Cortrophin revenues in the fourth quarter. Combined ILUVIEN and YUTIQ net revenue of $73 million to $77 million versus our prior guidance of $87 million to $93 million. This guidance assumes no meaningful change in the co-pay funding gaps facing Medicare patients in Retina for the remainder of the year. Generics revenue growth in the low 20% range, driven by strong contribution from new product launches. We expect Generics revenue in the fourth quarter to be down on a sequential basis due to competitive entrants into the market in which our third quarter partnered product competes in. Adjusted non-GAAP EBITDA of $221 million to $228 million, up from our prior guidance of $213 million to $223 million, representing year-over-year growth of approximately 42% to 46%. Adjusted non-GAAP earnings per share between $7.37 and $7.64, up from our prior guidance of $6.98 and $7.35. We are revising our full fiscal year guidance for adjusted gross margin to 61% to 62% compared to our previous guidance of 63% to 64%, driven by the revised revenue mix in this morning's guidance with lower ILUVIEN and higher Generics forecast as compared to our previously issued guidance. We currently anticipate a full year U.S. GAAP effective tax rate of approximately 21% to 22%. And consistent with prior quarters, we will tax effect non-GAAP adjustments for computation of adjusted non-GAAP diluted earnings per share using our estimated statutory rate of 26%. We now anticipate between 20.5 million and 20.7 million shares outstanding for the purpose of calculating full year non-GAAP diluted EPS. Please note that in periods in which ANI common share price is greater than the conversion price of our underlying convertible debt of $74.11 and lower than the conversion price of our corresponding capped call transaction of $114.02 per share, we will exclude from our adjusted non-GAAP diluted EPS calculation, the dilutive shares included in the GAAP diluted EPS calculation, which are expected to be offset in full by the capped call transaction. The third quarter was the first reporting period in which this condition exists. With that, I'll turn the call back to Nikhil. Nikhil Lalwani: Thank you, Steve. In closing, we made exceptional progress as we continue to execute on our strategic priorities. Rare Disease remains our top strategic area and primary driver of growth, and we'll focus our efforts on driving further growth in Cortrophin and improving ILUIVEN performance. We are encouraged by our performance this quarter, having reached more patients with our portfolio of high-quality medicines, nearly doubling Cortrophin Gel net revenues compared to the third quarter of '24 and significantly growing both the top and bottom line, made possible by the efforts of our employees, customers, suppliers and investors and their dedication to our mission of serving patients, improving lives. Operator, please open the line for questions. Operator: [Operator Instructions] We'll go first this morning to Dennis ding of Jefferies. Yuchen Ding: One on Cortrophin. So Medicare Part D redesign lowered the catastrophic coverage limit this year, and that's been a big tailwind. But that also makes for a really tough comp next year where growth should be driven more organically and through expanding the breadth of prescribers. Do you agree with that take? And I guess, how much confidence do you have that you're able to do that with the sales force you have currently? Nikhil Lalwani: Thank you, Dennis. So I think I'll take your questions in 2 parts. First is what's the impact of IRA on 2025 and then how do we see this going forward? So I think, as you pointed out, IRA improves affordability and access for appropriate patients to needed medicines by capping the co-pays at $2,000 as well as introducing the ability to evenly spread the payments throughout the year. Now we did see a modest tailwind from that. This is consistent with what we've said in the prior quarter. And the reason it's modest is while this did get additional patients on therapy, it was tempered by the mandatory Medicare manufacturer payments that we need to make. And so overall, Cortrophin saw a modest net positive impact from the Part D redesign through IRA. And then as far as your second question on next year and going forward, look, it's we believe that there is significant multiyear growth opportunity for Cortrophin in 2026 and beyond. And that's driven by the -- really the strong underlying demand and the demand sort of is centered in the addressable populations, right? Addressable patient populations across key indications are significantly underpenetrated. For acute gaty arthritis alone, it's about 285,000 patients. And our ability to expand the market is highlighted by the fact that approximately half of our prescriber base had never used ACTH therapy before. And as Chris had mentioned in his remarks, we continue to see growth from both the existing prescribers as well as new prescribers. So we remain confident of being able to reach the appropriate patients in need by working with the HCPs. Thank you, Dennis. Operator: We'll go next now to Faisal Khurshid at Leerink Partners. Faisal Khurshid: Could you speak a little bit more to what this kind of new partner generic product is? And then also what you expect for that in the fourth quarter and kind of going into 2026 as well? And then [indiscernible]. Nikhil Lalwani: Thank you, Faisal. So for competitive reasons, we're not specifying the name of the partner generic. It's a product that we launched, obviously, as it's intended with another manufacturer. And we're able to capture -- be the sole generic for a period of time, a majority of which was in Q3. In Q4, we have seen some competition enter on that product. So that's why our guidance for Q4 for Generics is showing a sequential drop versus the much higher Q3 that we had. And because it's a partnered generic, it also has profit share in it, and therefore, the gross margins on that product are lower. Going into 2026, we will see at least the existing competition continue, and we look forward to updating you more on the guidance for 2026 in early next year. Faisal Khurshid: Got it. Okay. And then on Cortrophin, are there any inventory or gross to net situations that we should be aware about just because it seems like the volume growth kind of outpaced the actual dollars growth in this quarter? Nikhil Lalwani: The Cortrophin Gel growth is driven by strong underlying demand, highest number of new patient starts and new cases initiated since launch, growth across all targeted specialties, the expanded portfolio of sales force that we did in the first quarter drove growth in nephrology, neurology and rheumatology gout, which is one of the newer target specialties now represents 15% of Cortrophin Gel use. That contributed significantly to the growth. In fact, to the growth, not just in Cortrophin volume, but also to the growth of ACTH naive prescribers. And then the combined ophthalmology sales force continued to build momentum with a 42% increase in volume versus the second quarter of '25. And then underlying just from a presentation perspective, there's strong demand for the prefilled syringe with accounting for almost 70% of the new cases initiated. So it's strong underlying demand that's driving the growth in Cortrophin. Operator: We'll go next now to David Amsellem at Piper Sandler. David Amsellem: So just a couple of quick ones for me. And I'm sorry if I missed this earlier in the prepared remarks. Can you talk about regarding Cortrophin, the growth trajectory in pulmonology and what portion of the mix that is? I think you talked about the other therapeutic areas. And then secondly, just given just the wide label and all the different indications, where do you envision untapped opportunities that aren't really a big part of the current mix for the product? And then lastly, I know this is a priority, but just wanted to get your latest thoughts on business development and M&A and how large of a transaction you'd contemplate given the current capital structure? Nikhil Lalwani: Yes. Thank you, David. So pulmonology and sarcoidosis is an important therapeutic area for us. We have a dedicated -- a smaller team but dedicated for pulmonology, and we are seeing growth in that area, too. Again, it's a smaller part of the overall Cortrophin picture at this time, but there is a significant growth opportunity there. And in pulmonology, we see a larger number of vials per patient. So I think that's another factor that makes pulmonology an important area for us. So that's on pulmonology. Regarding the wide label, look, I think currently, as you have seen the addressable patient populations in the indications that we're addressing today is much larger than anything that we're penetrating today. And so our immediate focus is -- our near-term focus is on tapping these different opportunities. And it's across the board, right? It's in neurology, nephrology, rheumatology, we talked about gout, we talked about ophthalmology, the quarter-on-quarter growth. So there's multiple areas. And part of -- as we think, as Chris thinks about where to drive the growth is where to make the high ROI commercial investments to achieve that growth because there's really -- we're fortunate that there's opportunities across specialties and that we're able to drive growth through existing prescribers as well as have new prescribers who've never -- some that are naive to ACTH and some that were never not even familiar with ACTH adopt Cortrophin or use them in their treatment paradigm for appropriate patients. And then lastly, to your question on BD, we continue to explore opportunities to expand scope and scale our Rare Disease business. I think that our filters are similar to what they were last time, which is at this time, which is late stage or close to commercial or commercial. and synergistic with either our sales force, right? So call point synergy as was in the case of Alimera or leveraging the rest of our Rare Disease infrastructure, right, which is the market access, patient support, specialty pharmacy distribution and across the board there. So that's how we think about BD efforts, and we're continuing to explore opportunities. But as I said, as I highlighted, if you look at even the growth this year, we had 34% to 37% growth based on our guidance organically, right? So -- and there's significant growth opportunity, both in Cortrophin and ILUVIEN. So we're not in a hurry to do a deal. We're wanting to make sure that we do the right deal as we expand the scope and scale of our Rare Disease business. Thank you, David. Operator: We'll go next now to Vamil Divan at Guggenheim. Daniel Krizay: This is Daniel on for Vamil. Congrats on the quarter. So maybe just one question on Cortrophin. Maybe if you could expand a little bit on like what exactly currently is driving doctors to use this drug across these various indications. I know you mentioned that you're focused on generating more evidence around this mechanism now. But maybe currently with what you have, like who are the patients that doctors think are the right ones for Cortrophin versus other alternatives that are available for each of these different conditions? Nikhil Lalwani: Sure. And thank you, Daniel. So I'll start and then Chris can jump in. So Cortrophin is a late-line treatment for appropriate patients for which other therapies have been sort of less effective and the real sort of the standard of care and the treatment options that are varying by I guess, by specialty and by indication. So when it fits into the treatment algorithm, it sort of varies. But essentially, it's a late-line treatment option. It's used for -- also for patients that have with this nonsteroidal mechanism of action used for patients that are refractory to steroids or have a high side effect profile. Chris, would you like to add anything? Christopher Mutz: Yes. No, I'd just say taking care of patients with autoimmune disorders is challenging. And thank goodness, there are a lot of great options across -- for physicians to use, right, disease-modifying therapies, new innovations across the spectrum and the patients we serve. But there are still patients -- select patients that are really tough to take care of. And physicians are coming to the kind of end of the road in terms of good options for those patients that they can rely on. And there's a significant number of those patients, as we've outlined, who need something different and a new choice of treatment. And I think that's where we focus on those we think there's -- that's a large patient population. It's a difficult-to-treat patient population, and we are just getting started. Operator: We'll go next now to Gary Nachman with Raymond James. Gary Nachman: Congrats on another strong quarter. So back on Cortrophin, you just added reps and saw a good ROI on that immediately. Is this market really that promotion sensitive? Maybe just characterize that a bit more? And are there still some pockets where you could add more reps? And would you do that in the near term given the great returns there? And then the prefilled syringe seems to be having a big impact on the acceleration. Was administration really that much of a factor that previously held back use? So just explain more why you're seeing such a benefit from the prefilled syringe helping growth. Nikhil Lalwani: Yes. I think, Gary, thank you for your questions. That first question on the impact of and impact of sales reps, I would say that the way we think about it is we expanded our -- the underlying patient demand is very high, right, versus anything that we're capturing. So there are opportunities to reach prescribers, right, that with our sales force, there's opportunities to get in front of more prescribers and spend more time with them that we can keep building on where we are. So if you look at -- if you think about where we expanded the sales force, we had a combined sales force detailing into neurology, nephrology and rheumatology. And as you can imagine that even within a territory, it's tough to cover all 3 indications. So we expanded the number of sales reps in that area. And what that did is it reduced what's called windshield time and allowing the reps to spend more time speaking with docs about Cortrophin. And yes, there is opportunity to -- across specialties, across indications as we think about increasing awareness for the appropriate patients of Cortrophin, there's certainly opportunity to do that across multiple areas, right, across the portfolio area, across gout, across ophthalmology. So ophthalmology, I think we're set with the combined sales force we have right now. But there's opportunities sort of across multiple specialties and something that we'll continue evaluating high ROI commercial efforts there. And then your second question on prefilled syringe. Look, when we launched the prefilled syringe, we had expected that the prefilled syringe would be used for patients that had dexterity issues or issues with their eyesight. But as we're seeing this much greater adoption and it's across specialties, I think when given an option, I think prescribers are just prescribers and patients are choosing the reduced administration step because in the original or in the 5 ml vial, there are 2 steps to the administration. You have to obviously draw the drug from the vial and then administer it and have to use 2 different needles for doing so. So a prefilled syringe is -- it reduces that step in administration and has therefore driven more widespread adoption. What it has done is there are prescribers that are sort of willing to try a prefilled syringe, probably a bit more than going to a 5 ml vial that requires -- which is a larger use. But I mean, essentially, the growth is coming from the strong underlying demand which would have been there also with the 5 ml vial and the 1 ml vial, the other presentations that are there, the adoption of the prefilled syringe has driven -- has been driven by just the reduced steps of administration. Operator: We'll go next now to Ekaterina Knyazkova at JPMorgan. Ekaterina Knyazkova: Congrats on the quarter. So just a quick one for me. Just remind us how you're thinking about the durability of Cortrophin Gel over time. Just latest thoughts on the possibility of potential generic competition eventually emerging. And I'm not talking like next year, 5, 10, 15 years from now. I think there's obviously a lot of barriers to entry there. But just, I guess, as this class is becoming bigger and probably garnering more attention from potential generic manufacturers. Nikhil Lalwani: Sure. Thank you, Katrina. Yes, having a capability in Generics ourselves is we're able to sort of pretty -- we have expertise and capability in assessing the pathway to developing a generic. And our position sort of stays that given this is porcine derived and the mix of -- and the formulation that it is, what it will take to actually develop a generic, it's a very tough pathway. And that's why while many folks have tried it and have not succeeded. It's a very complex development, and there are examples of products like this that are that are tough to genericize. So we continue to believe in the long-term durability of either ACTH product being tough to genericize. Yes. Sorry, one other thing I would highlight is both us and the competitor have also added patents, strengthened our IP around the products that go into the 2040s. So that's another point on durability. Thank you. Operator: We'll go next now to Brandon Folkes with H.C. Wainwright. Brandon Folkes: Congrats on another good quarter. Nikhil, just following on from the prior question. Can you just remind us of the challenges of label expansion in the ACTH category for these products? Just sort of in the past, is this label expansion been a cost-benefit decision or practicality decision? And then just sort of any color in terms of if this market does double, the confidence around maintaining exclusivity on gout as a label claim? And then does that Phase IV data give you any potential additional IP around that? Nikhil Lalwani: Thank you, Brandon. I think that the -- our interaction -- on your question on label expansion, our interaction with the FDA suggests that any label expansion will need to follow the current rules of the FDA, which requires a Phase IV -- sorry, Phase III clinical trial and all the associated rules that are in place today. So that's what we'll need to do, and that's what our competitor will need to do, whether that's us trying to -- that's our understanding, whether that's us exploring infantile spasms or which is an indication they have that we don't or us exploring or them exploring acute gouty arthritis flares. And then on the Phase IV data, look, that study was designed and is being executed more to inform and assist physicians in their treatment and hopefully, in their treatment decisions and hopefully could be included in the treatment guidelines, which can drive sort of further adoption. Operator: We'll go next now to Leszek Sulewski at Truist Securities. Leszek Sulewski: Three for me. So just to touch on the sales force again. What are some of the KPIs that you're tracking to back the rightsizing of this team? And what trends have you seen in the sales per rep from the sales force expansion? And any of these metrics would drive your reasoning to potentially increase the sales force? And then second, can you provide any more color around that partner generic program? Are there additional opportunities in similar scope? Or is this a one-off situation? And then third, maybe for Steve. As you close out the year, could we potentially anticipate an intangible asset impairment charge tied to the revaluation of the Alimera acquisition? Nikhil Lalwani: All right. Thank you for your questions, Les. So I think first is on the sales force. As we believe -- well, on the KPIs, we're going to -- we try to share information that's helpful to investors and competitively sensitive. So I'll steer away from the KPIs. But on the trends, I mean, there's clearly expansion of the sales force in the appropriate areas is a high ROI commercial effort as evidenced by the expansion that we did earlier this year for our portfolio sales team. So that's something that we will continue to evaluate and explore as we move forward. On the partner generic -- yes, on the partner generic, there are definitely opportunities like that, ones that have been in the hopper that ones that we continue to work on. And it really just highlights our end-to-end capability, right, in BD, in R&D, in commercialization and obviously, in operational excellence. So across the board, I think we're uniquely positioned with our U.S. manufacturing footprint, right, with more than 90% of our revenues coming from products that are made in the U.S. with our 3 manufacturing facilities that are in the U.S. So we're uniquely positioned from that standpoint. And we absolutely plan to and are already working on such opportunities to capture and to bring to market. And then on the -- I think the ILUVIEN long-term question, I think that there is -- so beyond Q4 and 2026, we believe the addressable patient populations for ILUVIEN in both DME and NIU-PS are at least 10x the current number of patients currently being treated with ILUVIEN. We expect to see the results of our strengthened ophthalmology organization deploying the expanded peer-to-peer speaker education program and new marketing initiatives. And then in addition, we continue to disseminate and contextualize the findings of the NEW DAY clinical study and create greater awareness on the potential use of ILUVIEN. So while we see 2025 as a reset year, we are confident in being able to drive growth in 2026 and beyond for ILUVIEN. And Steve, I don't know if you want to add anything to Les' question with that backdrop. Stephen Carey: Yes, I would only add that we evaluate all of our intangible assets on a quarterly basis. And the third quarter for ILUVIEN was no different and obviously, passed that testing in the third quarter. And as Nikhil just outlined, right, when we think about the mid- to long-term forecast for the product, we remain confident in the mid- to long-term opportunities as Nikhil just laid out. Operator: And Mr. Lawani, it appears we have no further questions this morning. So I'd like to turn the conference back to you for any closing comments. Nikhil Lalwani: Thanks, everybody, for joining, and we look forward to updating you on our progress in the future. Thanks, everybody. Operator: Thank you very much, Mr. Lawani. Again, ladies and gentlemen, that will conclude today's ANI Pharmaceuticals third quarter earnings call. Again, thanks so much for joining us, everyone, and we wish you all a great day. Goodbye.
Operator: Good morning, and welcome, everyone, to Granite Ridge Resources' Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I will now turn the call over to James Masters, Investor Relations representative for Granite Ridge. James Masters: Thank you, operator, and good morning, everyone. We appreciate your interest in Granite Ridge Resources. We will begin our call with comments from Tyler Farquharson, our President and Chief Executive Officer, who will review the quarter's results and company strategy. We will then turn the call over to Kim Weimer, our Interim Chief Financial Officer and Chief Accounting Officer, who will review our financial results in greater detail. Tyler will then return to provide closing comments before we open the call for questions. Today's conference call contains certain projections and other forward-looking statements within the meaning of federal securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ from those expressed or implied. We ask that you review the cautionary statement in our earnings release. Granite Ridge disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, you should not place undue reliance on these statements. These and other risks are described in yesterday's press release and our filings with the Securities and Exchange Commission. This call also includes references to certain non-GAAP financial measures. Information reconciling these measures to the most directly comparable GAAP measures is available on our earnings release on our website. Finally, this call is being recorded, and a replay and transcript will be available on our website following today's call. With that, I'll turn the call over to Tyler. Tyler Farquharson: Thank you, James, and good morning, everyone. I appreciate everyone joining us today for our third quarter 2025 earnings call. Our results this quarter once again highlight the strength of our business model, grounded in disciplined capital allocation, operational excellence and strong execution across our platform and operating partners. In the third quarter, average daily production increased 27% year-over-year to 31,900 barrels of oil equivalent per day. Adjusted EBITDAX rose 4% from the prior year period to $78.6 million. Capital expenditures totaled $80.5 million, consisting of $64 million in development and $16.5 million in acquisitions. We ended the quarter with a leverage ratio of 0.9x, well below our long-term target range of less than 1.25x. In addition, we continued our quarterly dividend of $0.11 per share, underscoring our commitment to a reliable, competitive return to our shareholders. Subsequent to quarter end, we enhanced our capital structure and liquidity position. Earlier this week, our lending group reaffirmed the $375 million borrowing base on our revolving credit facility, and we successfully issued $350 million of senior unsecured notes due 2029 with an 8.875% annual coupon. Together, these actions increased our pro forma liquidity to $422 million and further enhanced our flexibility to execute our business plan while preserving balance sheet strength. 2025 marks an important inflection point for Granite Ridge as we scale our operator partnership platform and further define our model as publicly traded private equity. Through these partnerships, we combine the control of an operator with the capital discipline of an investment firm, a framework that supports deliberate, cycle-resilient decisions around capital allocation and inventory selection. Year-to-date, approximately 50% of our capital spending has been deployed from these partnerships. We are particularly pleased with the success of Admiral Permian Resources, our largest and longest-standing operator partnership, which continues to set the benchmark for performance. Admiral now controls 30 distinct drilling units across the Permian Basin and as of quarter end, had 63 producing wells with 14 more in progress. Admiral's multi-horizon portfolio has consistently delivered results in line with our underwriting expectations while advancing technologies such as U-turn well design, further enhancing efficiency and cost control while also making them a preferred partner for larger asset managers. So far in 2025, Admiral has added 61 gross, 17.2 net locations for an average of $1.9 million per net location, representing over $200 million of future development capital. In less than 3 years, the partnership has captured 198 wells, 94 net to Granite, representing nearly $1 billion of development capital. Admiral now produces 7,400 BOE per day net to Granite or 23% of Granite Ridge's total production. Admiral's success illustrates why we believe the operator partnership model is our most capital-efficient path to scale. Unlike many E&Ps that make large point-in-time acreage acquisitions exposed to multiyear commodity cycle risk, Granite Ridge executes drilling unit level acquisitions, narrowly underwritten at current strip pricing for near-term development. We believe this approach provides superior risk-adjusted returns and flexibility. While each partnership is unique, Admiral's success has become a blueprint for our other partnerships, including Petrolegacy and 2 recently formed partnerships focused on the Midland and Delaware Basins. Collectively, these partnerships now encompass 28.1 net producing wells and approximately 30.1 net undeveloped locations with an additional 37.7 net locations expected to close before the end of the year. Each partnership is structured to generate operated deal flow, strong full cycle returns and control over capital deployment and development timing. Petrolegacy initiated its drilling program in the Midland Basin at the end of the third quarter, with production contributions expected early next year. Meanwhile, our 2 newer operated partnerships are actively advancing business development initiatives expected to add meaningful high-quality inventory ahead of transitioning to development mode. Our traditional non-op business continues to deliver stable cash flow and diversification. During the third quarter, we participated in 59 gross or 9.3 net wells turned to sales, primarily across the Permian and Appalachian Basins. We remain particularly encouraged by our results in the Appalachian Basin, where we've added over 1,500 net acres this year and consistently outperformed our underwriting expectations. Earlier this year, we increased our acquisition capital guidance by $100 million to capture attractive opportunities across both our operated and traditional non-operated strategies. As of quarter end, we invested $43 million through our operator partnerships, adding 27 net wells and $20 million through non-operated acquisitions, adding 6.7 net wells, primarily in the Delaware Basin and in Appalachia. Before year-end, we expect to invest an additional $47 million to secure 38 net locations, along with additional acreage in the Utica play. Collectively, these additions will add nearly 3 years of drilling inventory at an average cost of $1.7 million per net location. Turning to the macro environment. Oil and gas prices have remained relatively stable over the past 12 months, providing a constructive backdrop for continued disciplined growth. We remain focused on opportunities that clear our 25% full cycle return hurdle and exceed our cost of capital even as we modestly outspend cash flow. As always, our spending and leverage remain guided by our leverage target range of 1 to 1.25x, and we're committed to staying within those bounds. Looking ahead to 2026, we are constructive on the long-term oil outlook but cautious near term given uncertainty in global supply growth. We'll provide detailed guidance with our Q4 release but our strategic framework remains clear. Above $60 oil, we plan on pursuing measured growth with modest outspend. If we see sustained oil prices below $55 per barrel, we plan on pivoting to a maintenance mode targeting roughly $225 million in CapEx while maintaining flexibility for opportunistic acquisitions. Our strategy is designed for agility, supported by a just-in-time inventory model, diversified asset base and minimal drilling commitments, allowing us to remain nimble through varying market conditions. We also continue to actively hedge around 75% of production each quarter with nearly 50% of expected 2026 volumes already hedged. Combined with a strong balance sheet, this ensures we can operate and invest through cycles. Commodity markets will remain volatile, but our platform is built for it. We're confident Granite Ridge is well positioned for another year of disciplined growth, consistent returns and sustainable shareholder value in 2026. With that, I'll turn it over to Kim for a detailed financial review. Kimberly Weimer: Thank you, Tyler, and good morning, everyone. I'll start with a brief overview of our financial results. Revenue for the third quarter was $112.7 million compared to $94.1 million in the prior year period. Adjusted EBITDAX was $78.6 million, up 4% year-over-year. Net income was $14.5 million or $0.11 per diluted share, while adjusted net income was $11.8 million or $0.09 per diluted share. Operating cash flow before working capital changes totaled $73.1 million. On the cost side, LOE came in at $8.03 per BOE, higher than expected, primarily due to an increase in saltwater disposal, contract labor and other service costs in the Permian Basin. Production and ad valorem taxes were 6% of sales and G&A was $2.38 per BOE, consistent with our guidance range. Our disciplined capital allocation approach remains unchanged. For the quarter, total capital spending was $80.5 million, including $64 million of drilling and completion and $16.5 million of acquisitions. We continue to expect full year 2025 capital expenditures of $400 million to $420 million, of which $120 million is expected to be invested in 50 transactions that will add 75 net locations to Granite Ridge's inventory. Our development capital spend is allocated approximately 51% to operated partnerships and the balance to traditional non-op. As we look ahead to the fourth quarter and into 2026, we expect continued production growth from our operated partnerships as new wells come online. We are maintaining our full year production guidance of 31,000 to 33,000 BOE per day with oil expected to represent roughly 50% of the mix. Our balance sheet remains a source of strength, ending the quarter with net debt to EBITDAX of 0.9x, comfortably below our long-term target of 1.25x. We ended the quarter with $11.8 million of cash and $300 million drawn on our $375 million credit facility, resulting in liquidity of $86.5 million. As Tyler mentioned, we completed a $350 million issuance of senior unsecured notes due 2029 at an 8.875% coupon. This transaction strengthens our capital structure as we head into 2026 with net proceeds used to pay down the revolver and bolster cash on hand. On a pro forma basis at quarter end, our liquidity increased to $422 million. We continue to return meaningful cash to shareholders. Our $0.11 per share quarterly dividend remains a central component of our total return framework, equating to an annualized yield of approximately 8.3% at recent prices. With that, I'll hand it back to Tyler for closing comments. Tyler Farquharson: Thank you, Kim. To wrap up, the third quarter was another strong quarter for Granite Ridge, marked by continued operational outperformance, excellent execution across our operator partnerships led by Admiral Permian, robust cash generation and disciplined capital management and steady shareholder returns. We've built a model that combines growth, yield and flexibility, and it's working, delivering durable value for our shareholders through the cycle. Our business offers exposure to some of the best assets and operators in the country with downside protection through diversification, a robust hedge book and low leverage. Thank you to our employees, partners and investors for your continued support. With that, we're happy to take your questions. Operator: [Operator Instructions] Your first question comes from the line of Michael Scialla with Stephens. Michael Scialla: I want to see if you could talk a little bit more about your third and fourth partnerships. You said they're both moving strategic plans forward. Anything else you can tell us there in terms of what those plans might look like and where they are in terms of potentially drilling or adding acreage? Tyler Farquharson: Yes. So both of those partnerships are in aggregation mode right now. They're both Permian focused. One of the partnerships is focused on some of the emerging plays within the Permian and the other partnership is focused on the Midland Basin. I think that it will take them 6 or so months in order to aggregate what we like to see is about 18 months' worth of development in front of each one of those partnerships before we commit to running a rig full time on each one. So I'd expect for us to have a little bit of activity, development activity in 2026, if they continue to be successful on aggregating inventory here over the next handful of months. During the fourth quarter, we actually have some of the first transactions with one of those partnerships closing in the fourth quarter. So we'll get some inventory via one of those partners in the fourth quarter. And then the last partnership that we signed up isn't too far behind. So I wouldn't expect a ton of development activity from them in 2026 but it just depends on how successful they are in aggregating inventory. Michael Scialla: I appreciate that detail. And Tyler, you mentioned you would in a $55 or lower oil price environment, cut CapEx back to $225 million next year. Can you provide a little bit more detail on that? I assume most of the production would come out of the partnerships. Maybe how much flexibility you have there in lay down rigs and crews? And how would the mix change going forward in that scenario versus your traditional non-op position versus the partnerships? Tyler Farquharson: Yes. Yes, we'd expect to see coming out of the non-op portfolio, operators act rationally. So we'd expect to see a lot less inbound AFEs on the non-op piece. Then on the operated side, on the operated partnership side, we have full control over the timing and the development pace of those partnerships. And as we're starting to construct our '26 plan, we're building in tremendous flexibility there to be able to push some of that activity out if we do see a quarter or 2 worth of oil price in the low 50s. That's why we like the operated partnership so much is we do maintain that control over those partnerships to be able to construct a capital plan that kind of fits our needs as we -- if we end up experiencing some lower prices. In addition to the drilling side, I think what you'd probably see from us in that low price scenario, we pulled back on some drilling. And I think we'd actually probably reallocate those dollars to not only inventory acquisitions, but also potentially maybe some PDP style transactions as well. Michael Scialla: Okay. So not -- it sounds like not really a change in the mix between the traditional non-op and the partnerships but just both would be lower and less focus on drilling, more focus on acquisitions. Tyler Farquharson: Yes. I think we'd love to be more opportunistic on acquisitions in that price environment. Operator: Your next question comes from the line of John Annis with Texas Capital. John Annis: For my first one, understanding that there's lumpiness quarter-to-quarter and you haven't published guidance for next year, how should we think about the growth trajectory in the fourth quarter and into 2026 with Admiral running at full steam and Petro legacy ramping? And then is it fair to assume PLE's production shows up more towards the second quarter or midyear? Tyler Farquharson: Yes. I think on that last point on PLE, I think, yes, that is a midyear production contribution expectation for PLE. They're getting started drilling now. That will probably show up starting kind of late second quarter. On Admiral, they're running 2 rigs now. We expect that to continue through 2026. I think on the production cadence, you're right, we haven't guided to '26 yet. So we can't really speak a whole lot to '26. But on Q4 of '25, we do expect to see somewhere in the high single digits production growth from the third quarter to the fourth quarter. John Annis: Terrific. For my follow-up, can you talk about what you see as the ideal length of inventory that you would like to get to? And how do you weigh that with the commodity underwriting risk that comes with that longer-dated inventory? Tyler Farquharson: Yes. We actually love where we're at right now. Three to 5 years of inventory feels like the right amount of inventory for us. We're not interested in buying long-term inventory and having to warehouse that on the balance sheet for years 5 and beyond. I think having control over the operator partnerships gives us a lot more comfort in having 3 to 5 years' worth of inventory because it's actually controllable inventory now versus having to rely on non-op partners. So we're actually quite pleased with where we are on our inventory. I think if anything, maybe we could get some more durability on some inventory outside of the Permian Basin. But we're pleased with where we are overall, particularly with what we've established in the Permian. Operator: Your next question comes from the line of Noah Hungness with Bank of America. Noah Hungness: For my first question here, I wanted to touch on LOE. It was a little higher than we thought for the third quarter. Can you maybe just talk about how we should expect that to trend in 4Q and also for '26? Kimberly Weimer: Sure. As our production has increased within the Permian Basin, roughly in Q3, about 77% of our oil production was from the Permian. Our saltwater disposal costs have increased. So on total have increased our LOE per BOE. So we would expect that we will be towards the higher end of guidance for 2025 on a full year basis. Noah Hungness: And I guess, how can you think about it for '26, if you can? Kimberly Weimer: Yes. Yes. We haven't guided towards '26 yet. We'll continue to look at our production expectations as we move into 2026 and working with our operated partners, what we can expect for that LOE per BOE going forward, and we'll guide to that at that time. Noah Hungness: Great. And then for my second question here, it's really on Waha. I mean natural gas prices in Waha continue to be really weak. They look like they'll be weak basically until a lot of those pipes come on in second half '26. And then it looks like Waha basis gets really strong at or below basically transport costs out of basin. Do you guys have Waha hedges on today for second half '26 and beyond? And would you consider adding them or adding more to basically eliminate your Waha exposure given how strong the forward curve? Kimberly Weimer: With regards to the first question, we do not currently have any basis hedges in place for our Waha exposure and going forward, have considered adding those, as you mentioned, for the strength of the curve going forward. So we will continue to look at that and evaluate that going forward. Tyler Farquharson: Yes. Noah, there's -- we're also looking at other alternatives for our Permian gas. There's lots of gas to power projects out there that you've seen some other operators in the basin signing up or evaluating and that's also something that's on the table for us. We're looking at a few of those options now. We think that, that could also be a good solution for some of our Waha gas in addition to hedging some of the Waha exposure as well. So we're kind of looking at a solution for Waha gas a couple of different ways as we kind of move into next year. Noah Hungness: I really appreciate that color. Just to kind of build off of that, if I could, how should we -- how could we think about the pricing for that? Is it power exposure? Is it a premium to Waha? Is it flat price? Tyler Farquharson: It would be some power exposure that we'd realize as a premium to Waha. Operator: Your next question comes from the line of Phillips Johnston with Capital One. Phillips Johnston: Thanks for the color on how production volumes could trend into Q4. I wanted to ask the same question on how CapEx should trend into Q4. If we look at what's implied for Q4 based on your unchanged guidance range, the potential range for Q4 is pretty wide at around $125 million to $150 million. So just wanted to know if we should be steering towards kind of the midpoint of that range or towards the low end or the high end. Tyler Farquharson: Yes. Yes. So we had some timing adjustments on the acquisitions. Our development capital actually came in where we thought it would be for the quarter. So we're not changing guidance for the full year. We still expect to close all the acquisitions that we outlined on our last call. for the year. So we just see that timing shifting into the fourth quarter. If I had to guess, I think that fourth quarter would be somewhere in the $125 million range with a big chunk of that being the remaining acquisitions that we're closing for the year. Phillips Johnston: Okay. Perfect. And then I appreciate the color on '26, and it's obviously early. But if we do assume current strip prices hold, how should we think about capital allocation for next year in terms of oil versus gas? Would you be inclined to kind of keep your investment mix roughly the same? Or would you sort of lean into gas a little bit more than you have? Tyler Farquharson: It's all returns driven, right? Where we're seeing the best opportunity now continues to be in the Permian. So I'd expect a very significant oil weighting. That being said, outside of the Permian, we are via the traditional non-op strategy, having a lot of success in Appalachia, and that's more rich condensate phase. We're -- we've been very successful this year on picking up a lot of inventory and acreage in that part of the play in Ohio. And we're starting to see AFEs come in. We actually have a handful of pads already online in Ohio, and I would expect to see additional capital being spent up there on both acquisition front and drilling and development as we go into '26. Operator: There are no further questions at this time. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Coherus Oncology Q3 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Carrie Graham. Please go ahead. Unknown Executive: Thank you, Heidi. Good afternoon, and welcome to Coherus Oncology's Third Quarter 2025 Earnings Conference Call. Joining me today to discuss our results are Denny Lanfear, Chief Executive Officer of Coherus; Bryan McMichael, Chief Financial Officer; Dr. Rosh Dias, Chief Medical Officer; Dr. Theresa Lavallee, Chief Scientific and Development Officer; and Sameer Goregaoker, Chief Commercial Officer. Before we get started, I would like to remind you that today's call includes forward-looking statements regarding Coherus' current expectations about future events. Actual results may vary significantly, and we undertake no duty to update or revise any forward-looking statements. Please see the press release that we issued today and our quarterly report on Form 10-Q for more information on risks and uncertainties. And now I'd like to turn the call over to Denny. Dennis Lanfear: Thank you, Carrie, and good afternoon, everyone, and welcome to our Q3 2025 earnings call. As we get started, let me first welcome Arvind Sood to Coherus Oncology, our newly appointed Chief Strategy and Corporate Affairs Officer. Arvind is responsible for Investor Relations, Corporate Development and government affairs. Welcome, Arvind. Unknown Executive: Thank you. Dennis Lanfear: Things are going very well and today, I'm very excited to tell you about the progress we have made on our strategic plan in the last quarter, as well as generally recap our progress for you over the past year as we approach the end of 2025. As you know, we take great pride in our ability to execute, and execution has been strong across the board. For example, you may recall last year me telling you that our objectives included driving the top line, reducing expenses and strengthening the balance sheet. I'm happy to report that we've made great progress across all 3. We are particularly pleased with our progress on the balance sheet and expenses, which shows a substantial improvement over the past year. My Chief Financial Officer, Bryan McMichael, will discuss these results with you directly. Now the Coherus Oncology value proposition for investors is all about our drugs, our evolving data and the opportunity for deals. We have set ourselves up for success with a sound strategy and have gained significant momentum and hit our stride. Regarding our drugs, LOQTORZI is a next-generation PD-1, active in low PD-L1 cancers and approved in nasopharyngeal cancer, where it is a revenue generator for us, providing growing sales and margin contribution. Our Chief Commercial Officer, Sameer Goregaoker, will give you the color and detail on that shortly and reiterate our confidence that we will achieve our revenue targets. Our focus as a cancer company is achieving a step change in patient survival. That is our goal. We believe the future of extending patient survival lies in combinations, and we are combining LOQTORZI with both our own proprietary pipeline assets across indications. LOQTORZI is also being used in combination with other companies' therapeutic assets. And upon approval of any of these drugs, will be a revenue multiplier, its second key role in our strategy. We are currently pursuing liver and lung cancer with casdozokitug. And with CHS-114, our CCR8 Treg depleter, we are pursuing head and neck cancer, gastric cancer, esophageal and now colorectal cancer, an area of expanded focus for us, all in combination with LOQTORZI, which brings me to the second thing for investors to keep in mind, our data. In just a moment, Dr. Rosh Dias, our Chief Medical Officer, will update you on our enrollment and clinical trial progress in more detail. But I will note here that enrollment across all of the initiated studies is in full swing and on a global basis, with the vast majority of our sites open as we drive to deliver data for you next year in these promising indications. With clinical development, we have hit our stride and with highly engaged clinical investigators enthusiastic about these highly promising mechanisms of action and enrolling their patients suffering from their unmet need to stop their cancers. Dr. Theresa Lavallee, our Chief Scientific and Development Officer, will spend a few minutes with you today discussing the mechanism of action of our drugs with particular focus on the therapeutic promise of T regulatory cells as a target. As you know, this field was the subject of a recent Nobel Prize in Physiology or Medicine, thrusting it to the fore and underscoring its therapeutic potential. As a leader in this rapidly advancing field, Coherus Oncology is proud to be the first company to demonstrate Treg depletion and subsequent CD8-positive T cell infiltration in a patient. The organizers of the 2025 SITC meeting invited us to present our data at a webinar recently, which was the highest attended of the year. CHS-114, our highly selective CCR8 Treg depleter, is potentially best-in-class. And given the broad distribution and role of Tregs in the body, selectivity takes out a dominant role. With our broad yet focused clinical program reading out over 2026, we are well positioned to continue the scientific leadership that we demonstrated in 2025. We have global rights to CHS-114, as well as casdozokitug. So let me make a few comments about potential deals, the third part of our value proposition investors should keep in mind. Treg depletion is potentially complementary, mechanistically with a wide variety of existing therapeutics where the proportion and density of T regulatory cells is correlated to poor outcomes. Recall my earlier comments about combinations. This means that adding something like CHS-114 to ADCs, bispecifics or radiation treatment or other therapeutic approaches may improve outcomes and extend survival. We are pursuing such partnering opportunities both in the U.S. where we are commercially focused, but also globally ex U.S., where we are not focused yet have full rights. Such arrangements will provide us with income from upfronts to offset ongoing clinical development costs, but more importantly, cost contribution to pivotal or registrational trials, which need to be conducted globally. Over the next 6, 12 and 18 months, we can expect our emerging clinical data to drive such deals, and we'll keep you updated on our calls. And with that, let me hand it over to Theresa. Dr. Lavallee? Theresa Lavallee: Thank you, Denny, and good afternoon. I'm excited to update you on Coherus Oncology's innovative pipeline aimed to advance cancer treatment. Let me start with this year's Nobel Prize for physiology or medicine, recognizing the importance of T regulatory cells and immune homeostasis. If Tregs are defective or missing, this results in severe autoimmune disease, providing strong evidence for the critical role these cells play in peripheral immune tolerance. Tumors exploit these cells as a key mechanism to evade the immune system. This is a problem because it results in cancer growth and progression. The presence of Tregs in tumors is known to be associated with poor outcomes to any cancer therapy, including chemotherapy, radiation and of course, PD-1 inhibitors. While this is well known, what has been a problem in the field is a way to selectively target Tregs in the tumor and not in peripheral tissue. CCR8 is a protein preferentially expressed on tumor-resident Tregs, enabling a targeted therapy approach to selectively remove these immune suppressive in the tumor. We have been focused on CCR8 as a drug target for several years and believe our program is set apart from the field. CHS-114 is a cytolytic antibody with ADCC enhancement designed to find and kill CCR8-positive Tregs. This mechanism is akin to an ADC molecule. And in this case, the payload is enhanced effector function leading to Treg killing. Our preclinical and clinical data have shown differentiation, potency and tumor response. CHS-114 was evaluated for binding to over 5,000 human proteins, the entire proteome available on the outside of the cell. Importantly, CHS-114 only binds to one protein, its target, CCR8. Eliminating off-target binding has the potential to have a differentiated safety profile. CHS-114 is the only known selective CCR8 antibody. Additionally, it has shown an acceptable safety profile, selective CCR8 Treg depletion in tumors and also a remarkable ability to lead to the increase of CD8 T cells in tumors, thus characterizing the tumors as hot or immunologically responsive. In the initial safety cohort of 7 U.S. patients evaluating CHS-114 with toripalimab, response was observed in a fourth-line head and neck cancer patient. All of these data not only show the idea works, targeting CCR8 will mainly remove tumor Tregs, but also show CHS-114 treatment remodels the tumor to be more immune active. This weekend at the Annual SITC conference, we will present additional biomarker data showing significantly enhanced immune activations in head and neck cancer patients following CHS-114 treatment with toripalimab. This is important as we are testing whether the combinations of CHS-114 with toripalimab can overcome PD-1 resistance in refractory patients. CHS-114's pharmacological and clinical attributes establish it as having good drug-like properties. And this, coupled with our program's focus on generating data to address 2 areas of increased scrutiny by the U.S. FDA. First, data in a Western population; and second, dose optimization, establish our scientific leadership in the space. The last point I want to make on CHS-114 is that it is a targeted therapy. So, we know who to treat, essentially tumors with a high prevalence of CCR8, its target. Tumor types that have a high degree of CCR8 include lung, colon, head and neck and gastric to name a few. Coherus Oncology is prioritizing some of these tumor types and is now enrolling in a new cohort evaluating CHS-114 and toripalimab in a patient population without any approved immunotherapy yet, microsatellite stable colorectal cancer. The clinical program is designed to generate data on a variety of solid tumors and further inform where CHS-114 and toripalimab treatment results in meaningful clinical benefit alone or in combination with chemotherapy. Now switching gears to discuss our other promising clinical program, casdozokitug. Another approach to overcoming immune evasion is activating NK cells. T cells and NK cells are the body's immune killer cells. Casdozokitug, Coherus Oncology's first-in-class IL-27 antagonist results in immune activation of both T and NK cells. At this week's International Cytokine and Interferon Society meeting, we presented preclinical and clinical biomarker data showing an important role for NK cell activation and casdozokitug's efficacy, particularly in first-line HCC, a tumor type rich with NK cells. The updated biomarker data continue to support that casdozokitug treatment leads to inhibition of IL-27 signaling and enhanced cytolytic immune activity by NK and T cells. Why is this important? Two reasons. One, casdozokitug treatment results in strong NK cell activation may give a mechanistic explanation for why the results showed a more than doubling of the complete response rate, activating both NK and T cells could optimize tumor cell killing and lead to its disappearance. The second reason I highlight this is that when a new drug is added to standard of care, we need to show the contribution of components or said plainly, is casdozokitug adding anything to standard of care. These data give further confidence the deepening of response is associated with casdozokitug treatment since patients who respond show IL-27 inhibition and significant NK cell activation. Also, I want to reiterate Dennis comments that identifying partnerships that accelerate the development of the pipeline is a priority. We own global rights for both casdozokitug and CHS-114, and these compelling clinical data across the 2 pipeline assets are supporting discussions with potential partners. Before I turn it over to Dosh, let me just summarize why we are excited about recent developments with our key pipeline molecules. We were thrilled the Nobel Prize for Physiology or Medicine recognizes the importance of T regulatory cells in immune homeostasis. We will present biomarker data at SITC meeting this week, showing enhanced immune activation in head and neck cancer patients following treatment with CHS-114 in combination with toripalimab. Also, our presentation of biomarker data earlier this week at the International Cytokine Meeting provides further support of casdozokitug's contribution on top of standard of care in liver cancer patients. With that, I'll turn it over to Dr. Dias, who will further describe the clinical development. Rosh Dias: Thank you, Theresa, and good afternoon, everyone. Given the clear unmet medical need and the potential for improvement over available therapies, we are aggressively advancing our programs for both casdozokitug and CHS-114 in our focused indications. For both molecules, investigators globally maintain strong engagement and enthusiasm for our programs with very active participation in our trials. Starting first with casdozo in first-line hepatocellular carcinoma. Our ongoing study is a 3-arm multinational study, randomizing patients to 2 doses of casdozo in combination with toripalimab and bevacizumab versus tori/beva and is designed to achieve 3 objectives: firstly, efficacy and safety data; secondly, address the FDA's Project Optimus and thirdly, address contribution of components as we move through the development pathway. As a reminder, this trial builds upon the very encouraging data we presented at ASCO GI in January of this year. In Study 201, we showed that casdozo in combination with atezo and bev achieved an overall response rate of 38% and importantly, a complete response rate of 17%, which was both an improvement in ORR, as well as a deepening of the responses compared with the initial data from this same trial and which compares favorably to historical benchmarks with atezolizumab of 30% and 8%, respectively, for ORR and CR. With these exciting results in hand, global investigator sentiment has been very enthusiastic about the potential of the casdozo, tori/bev combination. This trial is recruited to plan, and we remain on track to deliver early efficacy and safety data in the first half of 2026. Let's move now to CHS-114, our CCR8 targeting cytolytic antibody. Given the biology of CCR8, CHS-114 has potential utility across a multitude of tumor types, and we have a very targeted approach in 4 specific tumors where there's strong biological and clinical rationale for evaluation. First, in second-line head and neck squamous cell carcinoma. Earlier this year at AACR, we reported a partial response with significant tumor shrinkage in a fourth-line patient. Importantly, this patient was refractory to multiple prior therapies, including a PD-1, a TKI and a taxane. We were invited to highlight this data again during the SITC seminar a couple of weeks ago, which, as Denny mentioned, was most highly attended of the SITC webinar series. We're recruiting to plan in our ongoing study investigating 2 doses of CHS-114 in combination with tori in the second-line head and neck squamous cell population refractory to prior PD-1 therapy and are on track to report efficacy and safety data in the first half of '26. This data will inform us of the importance of CCR8 as a resistance mechanism in second-line head and neck squamous cells specifically. Second, in second-line upper GI adenocarcinoma, including a population of second-line gastric, GEJ and esophageal adenocarcinoma refractory to one prior line of therapy, we're also exploring 2 doses of CHS-114 in combination with tori. As a reminder, second-line gastric cancer is an indication where proof of mechanism has already been established with the CCR8 class in combination with tori. We're recruiting to plan and are on track to report efficacy data in the second half of '26. Third, we're pursuing esophageal squamous cell carcinoma. This takes advantage of the activity of tori irrespective of PD-L1 levels, and we're looking at both first line and second line where the medical need remains strong. In the second-line population, we're looking at limited dose expansion of CHS-114 in combination with tori, and our first-line cohort is a safety cohort aiming to gather data for CHS-114 in combination with tori and standard chemotherapy. Here, too, we're tracking -- we're on track to report efficacy data in the second half of '26. Fourth, as Denny alluded to earlier, we have expanded the CHS-114 program to include a colorectal carcinoma arm. In addition to a large unmet medical need, this tumor type also have strong supportive biological rationale given the elevated prevalence and density of CCR8-positive Tregs in CRC. Our approach in CRC aims to explore the combination of CHS-114 and tori initially in a fourth-line plus MSS population where the current standard of care in late line provides a mid-single-digit ORR and patients are in real need of additional therapeutic options. Our trial looks first at the combination in the non-liver mets population and will move quickly into the liver mets population, which historically has been more resistant to existing therapies. We're excited about the progress we're making with our clinical programs as we work towards getting superior alternatives to market for cancer patients in need and look forward to turning over multiple data cards in 2026. With that, I'll hand it over to Sameer. Sameer? Sameer Goregaoker: Thank you, Rosh. Today, I will focus my discussion on 3 areas. First, I'll cover LOQTROZI Q3 business performance. I will then discuss the evolving market dynamics, specifically in the community versus the academic setting. And third, I'll outline our plans for driving continued growth in the coming quarter. Q3 LOQTORZI net revenue grew to $11.2 million, a 12% increase quarter-over-quarter and 92% increase year-over-year. However, this is down from the 35% growth that we saw in Q2. So, I'll offer some perspective and context. Growth in Q2 included inventory accumulation as a result of previously depleted inventory levels. So, demand growth was actually about 20% in that quarter. In contrast, inventory levels remained flat in Q3, so almost all of our growth came from end customer demand. I'll point out that our sales team has 4 regions across the country. For this quarter, the average growth for 3 out of the 4 regions was 21%, close to the Q2 results. However, demand in the fourth region was flat, driven by post-restructure vacancies, which resulted in a lower share of voice impacting the overall national average. This issue has now been addressed, and I'll explain in a moment why consistent message reinforcement is critical across our customer base and how we're addressing it. Growth this quarter was driven by new patient starts in both new and existing accounts and increasing duration of treatment. The total number of accounts purchasing LOQTORZI grew over 15%, indicating increasing breadth of use. Additionally, 30% of existing accounts are now using LOQTORZI in a subsequent patient, indicating strong physician satisfaction. Longer-term, we expect to achieve a dominant share in the NPC market, which is estimated to be in the range of $150 million to $200 million. This translates into an expected average 10% to 15% demand growth over the next 3 years, which puts us on track to achieving our long-term goals. Transitioning now to market dynamics. As you know, there are approximately 2,000 LOQTORZI eligible patients each year. These patients are seen by both hospital-based head and neck specialists as well as community physicians. However, there are key differences in these 2 segments that we have to keep in mind to achieve a dominant share in both. First, hospital-based head and neck specialists see several NPC patients each year and are well informed on the NCCN guidelines and our clinical data. In this setting, we are seeing strong LOQTORZI growth, both in NCCN institutions and other large hospital systems. Accordingly, we are now shifting our focus from brand awareness to new patient identification and generating advocacy from academic KOLs. However, in our second segment, the community, the dynamics are very different. This is primarily because community physicians manage multiple tumor types constantly and NPC being rare is not always top of mind. The addressable opportunity in the community is very widely spread and physicians typically only see 1 to 2 new NPC patients each year. As a result, awareness of our preferred position in the NCCN guidelines and our clinical superiority data is relatively low. So, chemo alone or off-label IO continue to persist. So, the task in front of us is very clear. We have to consistently reinforce our clinical story in the community. But with a smaller sales force post divestiture, our reach and share of voice has been limited, particularly as we saw in this quarter's lagging region. With that background, let me now describe to you our 3-point plan to drive growth in the community. First, we're expanding our sales force by approximately 15% to increase our reach in select geographies. This is a very targeted expansion that we believe is financially responsible and will drive a positive ROI. Second, we're onboarding a remote sales team to drive engagement with oncologists that are not being reached by a sales representative. Covering these physicians in a cost-effective manner will expand our reach deeper into the community. And thirdly, we're significantly expanding our multichannel capabilities to educate community physicians. Specifically, we're developing a campaign of highly engaging KOL-driven digital programs. These will be distributed by our field team, our website and third-party distributors. In summary, we see significant growth opportunities for LOQTORZI in the coming quarters. In recently conducted promotional effectiveness research, physicians stated strong resonance with our overall survival messaging and the NCCN guidelines. We remain confident that our focused execution will drive strong demand growth, and we are on track to achieving our long-term commercial objectives. With that, I'll now pass the call to Bryan McMichael, our Chief Financial Officer. Bryan McMichael: Thank you, Sameer, and good afternoon, everyone. After more than a year of deal activity, Q3 2025 was the first full quarter following our exit from the biosimilar business. We used divestiture proceeds to pay off all near-term maturity debt and are now transitioned into an innovative company solely focused on novel oncology. Today, I will share key observations about the company's position at the end of Q3 as we head into year-end and next year's data readouts. First, we have significantly improved our balance sheet compared to the end of last year. The total of cash and investments at the end of Q3 was $192 million. Of the $429 million in total liabilities on the balance sheet at the end of the quarter, more than half or $254 million related to transition service agreements. These liabilities will be settled using reimbursements from buyers in the divestitures or cash collected directly from their customers. The remaining non-TSA portion of liabilities decreased 69% since the end of last year. By the end of Q3, we have successfully transferred or wound down a majority of the UDENYCA-related operations, freeing up Coherus to focus more on the priorities outlined by Denny, namely growing LOQTORZI sales and developing our pipeline. We are tracking towards a headcount of less than 140 FTEs by the -- around year-end. That's an update from the target of 150 FTEs communicated previously. Today, I will limit my discussion of the results to key updates. You can find detailed quarterly results and figures in our earnings press release. As Sameer covered in detail, growth in LOQTORZI volumes drove increases in net revenues from continuing operations in both the quarterly and year-to-date periods. Our continuing operations demonstrate strong execution on our strategy, starting with OpEx. R&D expenses were $27.3 million for the quarter, up 24% from Q3 last year. The increase was due to investments in our pipeline and were partially offset by savings from programs we deprioritized last year. SG&A expenses were $24.9 million for the quarter, which is down 11% compared to last year, primarily due to decreased headcount. As a reminder, these figures are for continuing operations. Total OpEx related to discontinued operations, which captures the biosimilar business, dwindled to less than $1 million in Q3 2025. To put the savings from the divestitures into context, OpEx for discontinued operations for FY 2024 totaled more than $40 million. For the full year 2025, we are reiterating our projection that SG&A expense from continuing operations will be between $90 million and $100 million. This range reflects costs incurred solely for Coherus programs and excludes non-reimbursed TSA costs and asset impairment charges. Before I hand the call back over to Denny, let me recap the progress we've made since transforming Coherus into the innovative oncology company it is today. There are 3 things to remember. First, we've bolstered our balance sheet by significantly decreasing our liabilities, while retaining sufficient cash, which we expect will be -- will fund operations through 2026 beyond key data readouts next year. Second, we are driving LOQTORZI sales -- by making targeted investments in the commercial infrastructure to enable growth in the coming quarters and years. Third, we've demonstrated spending discipline, streamlining our operations, including lower SG&A expenses and focused investments in R&D that target our pipeline molecule, CHS-114 and casdozokitug. With that, I'll hand the call back over to Denny. Dennis Lanfear: Thank you, Bryan. So let me summarize our progress this quarter for you and the momentum we are carrying into Q4 and why we're so excited. First, strong execution across the board in all critical dimensions of the business and disciplines. On the financial front, we drove the top line with higher sales of LOQTORZI while reducing the overall expenses and strengthening the balance sheet, as Bryan just talked about. We advanced the pipeline, as Raj talked about. As clinical trials combining LOQTORZI with our own proprietary assets continue to progress, we prepare to turn over key data cards next year on more than a half dozen studies. Importantly, having full global rights to our pipeline products at this point in the company's evolution enables partnering opportunities outside the U.S., which will serve as currency to offset ongoing clinical development costs all the way through approval. Lastly, let me just take a moment to thank all of our dedicated team members here at Coherus Oncology for their extraordinary commitment to the company and their high performance, as we work to create value for patients and for shareholders. Heidi, we're ready for the questions. Operator: [Operator Instructions] We will take our first question, the first question comes from the line of Mike Nedelcovych from TD Cowen. Michael Nedelcovych: I have one, and it's more of an R&D type question. It seems like the CCR8 mechanism would be complemented not just by anti-PD-1, but potentially both targets on the same molecule in a bispecific format. I'm curious if that makes biologic sense. And if so, if you've explored that option at all? Dennis Lanfear: Mike, thanks for the question. Dr. Lavallee would be happy to give you a little further insight on that. Theresa? Theresa Lavallee: Just to clarify, do you mean to make a molecule that targets CCR8 plus something else? Michael Nedelcovych: That's right. Yes, and potentially anti-PD-1 or the older. Theresa Lavallee: Yes. So, the challenge with that, I mean, people are looking at bispecifics. But I think that given the mechanism is a bind and kill mechanism to try to kill the Treg cell and then inhibit PD-1 on a cytotoxic T cell would be challenging. There are people making bispecifics for CTRE, but what I think looks really promising from treating with CHS-114 is not only the marked depletion of the Tregs, the immunosuppressive Tregs in the tumor, but bringing the CD8s in. So, I think a more traditional combination therapy approach to look at other ways of immune activating would probably give -- I mean, based on scientific hypothesis would give a stronger clinical response. But there are folks looking at CCR8 bispecifics. So, we'll have to watch those data. Operator: We will take our next question, and the question comes from the line of Brian Cheng from JPMorgan. Lut Ming Cheng: Maybe just first on LAQTORZI. How do we think about the trajectory today? And when do you think the next inflection point when you draw the line from today to -- I think you had a sales goal of $150 million to $200 million peak sales by mid-2028. How do you think that trajectory was going to look like? Where do you see the biggest gating factor is today? And I have a quick follow-up Dennis Lanfear: Yes, thanks for the question, Brian. Let me handle that one first, and then we'll go to the follow-up. I'll keep it, if I can get this right or I'll hand it over to Sameer. So, first of all, Sameer outlined, if we just take where we are today and you straight line 10% to 15% per quarter, you land in the target region of about $150 million to $200 million out in mid-2028-ish. So that's sort of the benchmark. Although I would point out 2 key things that were part of Sameer's recitation. First of all, we did an actual demand growth in Q2 of around 20%, even though the Q1 to Q2 growth was something like 36%, the rest of that was inventory. In Q3 over Q2, 3 out of 4 regions grew an average of 21%. So that's pretty good. That's 2 quarters in a row clipping along at 20%. Now there is one region that lagged because of some staffing issues and turnover issues that happened in Q3. But as Sameer recited, we think we've got a pretty good handle on that. If we are -- clearly, if we were to proceed at 20% per quarter at this rate, we would reach the target range, $150 million to $200 million much earlier than mid-2028. So, I think we're actually overachieving right now. But just where that sort of curve kicks in is difficult to say. I would also add, though, that Sameer gave us some very clear guidance on his plans to get us there and why the conversion of the community is dependent upon the education of the community. And this is really where we're focused. We have found that once these physicians are exposed to the clinical data that they see the significant benefit of LOQTORZI in terms of survival for these patients, they're easily converted. So really, it's just a matter of reach and the converts. And again, this is why we see that once these physicians use LOQTORZI, they use it again as a follow-up patient. Happy to take your follow-up question. Lut Ming Cheng: Yes. And then just on the colorectal front, just curious how you think about the benchmarks as we think about the data in colorectal later next year, fourth-line setting is fairly late line. How should we think about the benchmark for win there? And then I think just kind of stepping back as you think about 114 as holistically, there are multiple data reads coming across a number of indications. Do you have a sense of how you will ultimately prioritize indications since you do have a number of multiple -- a number of data readouts coming up? Dennis Lanfear: All right. So let me take the first one first here and hand that off to Dr. Dias. So, first of all, we think that -- as we said in our prepared remarks, we think that the Nobel Prize for physiology medicine, recognizing the importance of T regulatory cells is really, really something to know. We intend to show scientific leadership and be at the forefront of this, and we've done that. I'll just remind you of our remarks compared to -- relative to the SITC webinar and so on that Dr. Dias was on. And we felt compelled to move into colorectal where first-line colorectal is chemotherapy, same treatment for 20 years. So, this is a disease that is striking ever younger patients and is really, really critical. So, we're -- I think that we believe it's really worthy of thorough investigation. Regarding your specific questions to colorectal, Rosh, do you want to make some observations? Rosh Dias: Yes, sure. Thanks, Brian, for the question. So, on your first question on how should we think about the benchmarks for colorectal, I'll make a few points. First of all, colorectal, as Denny mentioned, it's a large indication and it's growing, particularly the younger population. And currently, it is an area where there are -- there's real room for improvement for patients in terms of potential improvements in the standard of care. The fourth line plus population has an overall response rate currently in the mid-single digits. The typical standard of care is chemotherapy. And again, it's around 5%, 6% in terms of the overall response rate. We tend to look at the totality of evidence, so we would want to beat that in terms of overall response rate, of course. but also durability is important, disease stability is important. There are multiple different factors that are important as you look at the whole totality of evidence. So, really excited about the potential for the Tori-CCR8 combination in late line. And obviously, the plan is to move into earlier lines subsequent to that. Dennis Lanfear: And Brian, let me take your question with respect to how we would prioritize these indications, and I'll let my team members chime in. First of all, we think there's strong clinical justification and mechanism of action justification for all of these. You can identify where Tregs are an issue, and those are the cancers we're going after. Regarding gastric cancer, there's always been strong efficacy shown, I will remind you, on a background of toripalimab in others' hands. So, we think that is -- has a very strong probability of success, and that's a very substantial indication. With esophageal cancer, that's an area where toripalimab has actually shown efficacy in low PD-L1 states, where it's approved in Europe, for example. So that's some place while it's not a huge indication, it's some place where we are very interested in investigating further. Regarding head and neck cancer, I think you're already familiar with the data that we've shown, the partial response and so on. And so, we think they're strong there. Frankly, we would probably investigate further indications with our CHS-114, but we think we have these very promising ones now. And I was just wondering, Theresa, any further comment on indication selection or the sort of things we would go after next? Theresa Lavallee: Yes, I mean I think that we've characterized a large number of solid tumors that have a high density and prevalence of CCR8-positive Tregs. I mean, so tumor types that we're currently not seeing that would be of interest, and there's been some hints of efficacy in competitor programs or lung cancer, breast cancer, we saw data at ASCO this year in pancreatic cancer. Our program is really designed to inform us of the best setting where we see the largest effect. So, is it the density of CCR8-positive Tregs, is it the percent of CCR8 positive Tregs? Or is it the ratio with the T cells? So, our program is really designed next year to read out some important information on how best to look at ways to do quick development and then development to get in combination with other agents to get broader efficacy across multiple tumor types. Dennis Lanfear: I would just add that our program, we believe, is both broad sufficiently across many of these indications, but also highly targeted, right? And so, I think that's really, in the end, going to be very beneficial for us. Lut Ming Cheng: Looking forward to the data next year. Operator: Your next question comes from the line of Jason McCarthy from Maxim Group. Jason Mccarthy: Yes. So for casdozokitug, what would we need to see from the Phase II to justify moving straight into a pivotal study? Dennis Lanfear: Thanks for the question, Jason. Dr. Dias, would you like to talk about that? Rosh Dias: Yes, absolutely. Thanks, Jason, for the question. So, one thing that's really important to realize, and I referenced this earlier, is that we really look at the totality of evidence, not any one single measure. We are hugely encouraged by the atezo-bev/casdozo data that we presented earlier this year. I'll remind you again that what we saw was initial results and then an increase in response rate and a deepening of the response over time. So, what we would like to see next year when we report our data in the first half of the year in this initial data at least is we'd like to see a very solid overall response rate. We'd like to see some durability there. We'd like to see some really nice durability in terms of how long some of those last and then an increase over time in response rate itself and then also a complete deepening of the responses as well. So, I think those are some of the key measures. But really, I would like to really emphasize that it's really totality of evidence rather than a single measure or 2. Operator: We will take our next question, the next question comes from the line of Nick Quartapella from Baird. Nick Quartapella: This is Nick on for Colleen. Can you help quantify the increase in duration on LOQTORZI that you're seeing? And can you speak of to what you think might be driving that increase and whether you think there's room for that to grow further? And I have a follow-up question after that. Dennis Lanfear: I'm sorry, Nick, what particular indication did you have in mind? Nick Quartapella: Sorry, this is on commercial for NPC. Dennis Lanfear: Great. Do you want to talk about that, Sameer? Sameer Goregaoker: Yes, sure. Thank you so much for your question, Nick. So, duration of therapy is -- continues to increase. So, every quarter, we're seeing an increase in the duration of therapy. We still haven't approached the average duration of therapy that we saw in the clinical trials, but that's simply because we haven't had enough time on the market to achieve that average duration of therapy. So, we're a little too early in the launch to give you an exact number on the duration of therapy, but both in a monotherapy indication as well as a combination therapy indication, each quarter, we're seeing an encouraging increase in the average duration. And when we have numbers where we can confidently say what the average on-market duration is, we'll communicate that on a future call. Dennis Lanfear: Did you have a follow-up, Nick? Nick Quartapella: I did, yes. And then for the CHS-114 tori study in second-line head and neck, can you speak to some of the expectations around the dose optimization data coming first half of '26, what you're hoping to show and then what would be the next steps -- what the next steps for that program would look like? Dennis Lanfear: Great. Head and neck, Rosh? Rosh Dias: Yes, absolutely. So, the study that we're doing is in second-line head and neck. We're looking at 40 subjects, a couple of biologically active doses of casdozo in combination with toripalimab. I'll say again, the trials are -- the trial is recruiting well and to plan, and we anticipate efficacy and safety data in the first half of the year. So again, the totality of evidence is important. The currently, at least in terms of the current standard of care in second line, with cetuximab, you're seeing roughly around 13% in terms of overall response rate, which is against the current standard of care. So, we'd like to substantially beat that. But again, we also want to see durability, right? We want to see durability, disease stability, et cetera. And I think seeing some of the results we communicated at AACR really kind of encourages us as we look at what we -- as we move forward in this ongoing trial. Theresa Lavallee: An important output of that study, too, is the biopsy data as well as the dose to get to a recommended Phase II dose. And we did have a very productive Type B meeting with FDA, getting alignment on the data package we'll bring to them next year to declare a recommended Phase II dose, which will enable us to move more nimbly to have a single dose to look at in multiple indications. Operator: [Operator Instructions] Your next question comes from the line of Douglas Tsao from H.C. Wainwright. Douglas Tsao: Denny, I guess sort of sticking to the colorectal study, I guess just trying to sort of understand sort of the rationale. I mean, I think, Dosh, you mentioned that you're looking in the fourth-line setting sort of single-digit survival levels. And so just from your perspective, your expectation in terms of finding a really compelling signal in a population that is already quite sick. Dennis Lanfear: Thanks for your question, Doug. So let me make this remark for you. First of all, going to the fourth-line setting is part of an overall development plan that moves us much further up the treatment paradigm over time. And I think that we have a very efficient and well-conceived strategy, and we can talk about at a future time to do that. With regard to your question in particular, I'll let Dr. Lavallee talk about 2 things. First of all, the mechanism of action and the rationale, particularly for CRC for CHS-114 or Treg depleters. And then secondarily, how results -- positive results from that study will set us up for future studies. Theresa? Theresa Lavallee: Yes. So, the importance of the clinical program with 114 goes to what I started with, that it's really designed to inform us. So, the colorectal is an important tumor type for several reasons that it has a good density and prevalence of CCR8-positive Tregs. Alexander Rudensky, one of the real pioneers in Tregs and CCR8 biology has published several papers on the diversity and differentiation of Tregs, particularly in the colon, showing that the CCR8 positive Tregs are really the pathogenic ones. So, gives it a stronger sense in that tissue that, that tumor should be particularly sensitive. Colorectal has not MSS colorectal. So, we know from the microsatellite instable population that a PD-1 inhibitor can work in the disease in the right context. But 85% to 90% of colon cancer is MSS microsatellite stable CRC, which PD-1 inhibitors have failed. And a large component of that is the high density and prevalence of Tregs. So, colorectal is particularly exciting given the biology. Shionogi with a CCR8 antibody that is not ADCC enhanced showed a complete response and partial response with single-agent treatment at ASCO this year. We've seen some long-term stable disease in our early clinical program. So, that signed together with toripalimab really sets as an exciting opportunity to bring immunotherapy to a tumor type that hasn't had any. So, the totality of data, the preclinical, the clinical and the biology of the target give it a very important attribute. As Denny said, the other things we're testing are the highest density of CCR8 positive in gastric cancer and head and neck cancer. And then esophageal, which is a little different in that toripalimab has differentiated activity and an approval in Europe. So, I think strategically, the whole program gives us a lot of levers to look at how we can do the fastest development with the highest impact to advance the program. Dennis Lanfear: Thank you, Theresa. Doug, I would just anecdotally add that we are very honored to have Dr. Alexander Rudensky as a key member of our Scientific Advisory Board because he is really one of the seminal leaders in this entire field of Tregs, which has now come to the fore. And I think he's responsible really for a large part of our scientific leadership in this field, which, as I said in my prepared remarks, we look forward to continuing into 2026. Operator: This concludes today's question-and-answer session. I'll now hand the call back to Dennis Lanfear for closing remarks. Dennis Lanfear: Thank you, Heidi, and thank you all for joining us on the Coherus Oncology Q3 call this afternoon. I would just add that we will be at the UBS Conference in sunny with Palm Beach, Florida, and we will also be attending Jefferies in London, and we hope to see you there. Thank you. Bye-bye. Theresa Lavallee: Good bye. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Welcome to the Third Quarter 2025 WillScot Earnings Conference Call. My name is Gary, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Charlie Wohlhuter. Charlie, you may begin. Charles Wohlhuter: All right. Thank you, Gary. Good afternoon, everyone, and welcome to the WillScot Third Quarter 2025 Earnings Call. Participants on today's call include Brad, Chief Executive Officer; Tim Boswell, President and Chief Operating Officer; Matt Jacobsen, Chief Financial Officer; and Worthing Jackman, Executive Chairman. Today's presentation material may be found on our Investor Relations website at investors.willscot.com. Before we begin, I'd like to direct your attention to Slide 2 containing our safe harbor statements. We will be making forward-looking statements during the presentation and our Q&A session. Our business and operations are subject to a variety of risks and uncertainties, many of which are beyond our control. As a result, our actual results may differ materially from comments made on today's call. For a more complete description of the factors that could cause actual results to differ and other possible risks, please refer to the safe harbor statements in our presentation and our filings with the SEC. With that, it's my pleasure to turn the call over to our Executive Chairman, Worthing Jackman. Worthing Jackman: Thank you, Charlie. Good afternoon. We appreciate you joining us for today's call, where we will discuss the current operating environment and strategic priorities, third quarter results and our updated outlook for 2025. As many of you know, I joined the WillScot Board about a year ago, became Chairman this past June and was named Executive Chairman in early September upon our announcement that Tim will be succeeding Brad as CEO, effective January 1. My expanded role has been designed both to assist Tim and the senior leadership team in achieving our strategic plan, returning to growth and driving shareholder value creation. With ongoing cyclical headwinds and an intense competitive environment, we must compete differently and execute better to drive growth. With a focus on returning to growth, we expect that a mix shift in revenue to more differentiated, higher-value offerings should create more consistent and predictable results while also reducing variability from more commoditized or transactional lines of business such as dry storage. When revenue inflects back to positive growth, adjusted EBITDA growth should outpace top line growth. We see the ability to drive adjusted EBITDA margins above 45% as units on rent trends begin to improve given the associated high incremental flow-through. That is in addition to initiatives underway to optimize our platform outlined at our Investor Day in March. There are multiple aspects of our optimization plan, a new component of which is evaluating our branch network and fleet storage acreage needs following the integration last year of WillScot and Mobile Mini's field sales and operations teams. We see opportunity to reduce our real estate footprint and related expenses, along with eliminating excess fleet, which Matt will review in his remarks. Together with continuing efforts to streamline corporate support functions and drive a more decentralized operating model, we see a pathway to help accelerate margin improvement. We believe we have the right strategy and team in place. But to earn credibility and build momentum, we must increase accountability across the organization and deliver on our commitments. The company has fallen short over the last 2 years to deliver against expectations that it set and takes full responsibility. Guidance is a key focus for me. Management's previous approach relative to expectations exposed the company if activations did materialize when expected, end market demand was less than anticipated, competition increased on more transactional lines of business or sales effectiveness and execution issues arose. I believe that expectations should be set against outcomes under our control, providing cushion to either exceed guidance or absorb the unknowns and more importantly, to minimize the risk of surprising investors. Going forward, we'll be taking a more conservative approach to guidance to minimize the risk of negative surprises versus communicated expectations. It's important to emphasize, however, that our internal plan and incentive comp targets will always hold us accountable to deliver results above this more conservative guidance approach. With that, I'd like to pass the call over to Brad for some brief remarks on this, his final earnings call. Matt and Tim will then review our current operating environment, third quarter results, our updated outlook and strategic priorities before heading into Q&A. Brad? Bradley Soultz: Great. Thanks, Worthing. I'd like to underscore Worthing's comments and emphasize that we are fully aligned to deliver on our commitments and to drive profitability and returns higher. Accountability is paramount, and I firmly believe we've have aligned the organization and the team is well prepared to execute on our strategy. Tim has been by my side throughout the evolution of the company, and he knows this company and this industry through and through. I have immense trust in his leadership and excited for what is to come. With the leadership we have in place and a well-defined strategic plan, I'm more confident than ever in our ability to achieve our top line growth, operational excellence and profitability goals. With that, I'll turn it over to Matt for a review of our third quarter financial performance. Matthew Jacobsen: Thanks, Brad. Before I jump in, I just wanted to thank you for your leadership over the last 10 years and for all you've done for the company and for me, both professionally and personally. On behalf of the finance team, we wish you the best in your future endeavors. As noted in our earnings release, third quarter 2025 financial results were mixed. We delivered strong cash flow and leasing revenues were stable sequentially from Q2 to Q3 across both our modular and storage portfolio with favorable rate and mix offsetting volume headwinds. Looking at the results. Revenue for the quarter was $567 million, down $34 million year-over-year, driven primarily by increased accounts receivable cleanup of approximately $20 million in the quarter as we continue to accelerate improvements in our order-to-cash process and lower delivery and installation revenues related to our large project with the LA Rams in the prior year that we discussed in the Q2 call. This accounts receivable cleanup overshadowed what would otherwise have been a sequential quarter stability in our leasing revenues, which I'll jump into here shortly. Sales in new and rental units increased 10% year-over-year. Our ability to take out variable costs in the business supported a 42.9% margin on adjusted EBITDA of $243 million for the quarter, which was up 60 basis points sequentially from the second quarter. Slide 5 is a new slide that takes a deeper look at leasing revenue trends with and without the impact of write-offs related to our order-to-cash improvement initiatives. In total, leasing revenues were $434 million in the quarter, a 5% year-over-year decline. However, Q3 year-over-year leasing revenues, excluding write-offs, were only down 1.3% year-over-year. So this cleanup is driving a bit of noise in the top line results. The key takeaway here, however, is the underlying product leasing revenue across each of our modular, portable storage and VAPS portfolios were stable sequentially. On a year-over-year basis, the 1.3% decline, excluding write-offs is a result of favorable rate and mix, largely offsetting volume declines. VAPS revenues were flat year-over-year despite volume headwinds. Within the storage portfolio, rate and mix improvements of 10% partially mitigated a 14% volume headwind. And within the modular portfolio, average monthly rates improved 5%, largely offsetting a 6% decline in volume. As you know, the sequential stability in leasing revenues is important since our revenue growth in this business is a factor of sequential trends that compound over time. We expect the year-over-year impact of the cleanup efforts around accounts receivable to decrease as we get into 2026. Importantly, the cleanup work we've completed this year of aged receivables has largely already been reserved through the provision for credit losses and SG&A in prior years, and we're beginning to see real improvements in our collections experience, such as the net impact to EBITDA of write-offs and our bad debt within SG&A is a $4.3 million positive impact to adjusted EBITDA year-over-year. Adjusted free cash flow in the quarter was $122 million, representing a 22% margin or $0.67 per share. Year-to-date, adjusted free cash flow was $397 million at a 23% margin. Free cash flow has remained stable through the recent revenue contraction, providing continued flexibility to reinvest in our business, further strengthen our balance sheet and pursue M&A opportunities as they present themselves. We have invested about $206 million in net CapEx year-to-date or about a 16% increase over the prior year. This mainly reflects investments in high-demand categories such as FLEX, complexes and continued fleet refurbishment, along with investment in our newer product categories. During the quarter, we paid down $84 million in borrowings and returned $21 million to shareholders through both repurchases and our dividend distribution program. On October 16, we amended and extended our ABL credit facility, reducing our estimated annual cash borrowing costs by approximately $5 million based on current debt levels and extending the maturity through October 16, 2030. The new agreement reflects the quality of our borrowing base, enhances our financial flexibility, locks in more favorable rates and terms and positions us to continue funding organic investments and targeted M&A opportunities. Once again, I'd like to thank our lending group for their long-standing commitment, support and outsized commitments, which facilitated a successful process. After the amendment, we have no debt maturities until 2028 and ample optionality to fund our capital allocation priorities. Before I move on to our updated outlook, as Worthing mentioned, earlier this year, we began reviewing several of our real estate positions on a property-by-property basis as leases have expired with the intention of reducing our real estate footprint while maintaining market coverage. Over the past several years, our real estate costs have increased by 10% or more per year as long-term leases renewed at current market rates and as we've added additional properties through M&A and through store idle fleet. To facilitate these exits, we've identified certain surplus fleet for disposal. For the 9 months ended September 30, 2025, we had identified fleet with a net book value of $27 million for disposal and accelerated the depreciation on these units, essentially reducing that book value to 0 or to a nominal scrap value. You would have seen this in our increased depreciation in the second and third quarter primarily. Over the past few months, we've expanded these efforts into a multiyear network optimization plan, aimed at enhancing operational efficiency and reducing structural costs. This effort builds on the integration of our field sales and operations teams last year and includes a strategic review of our network, including our total real estate footprint. As part of this initiative, we expect to continue to identify fleet for disposal to facilitate real estate exits while ensuring we maintain sufficient supply to meet future demand. And we estimate the net book value of rental fleet units that could be disposed as part of this optimization plan to be in the range of $250 million to $350 million. This plan could reduce leased acreage by more than 20% and avoid between $20 million to $30 million of annual real estate and facility cost increases over the next 3 to 5 years, reducing our annual real estate cost increases from over 10% per year to mid-single digits. To the extent we finalize a multiyear network optimization plan by the end of 2025 and that plan is approved by our Board of Directors, we may accelerate the recognition of the $250 million to $350 million of incremental depreciation expense into 2025 as a noncash restructuring charge. Now turning to our updated outlook for 2025. We have revised full year guidance to reflect the current operating environment and our updated more conservative approach as Worthing laid out in his opening comments. This outlook includes expectations on near-term demand and unit on rent levels, factoring in the absence of a typical seasonal uplift as well as further progress on order-to-cash improvement initiatives and a slower-than-expected ramp within clearspan and perimeter solutions. For Q4 2025, we expect revenue of approximately $545 million and adjusted EBITDA of approximately $250 million. We believe this outlook is conservative and provides sufficient cushion to meet or exceed those levels while establishing an initial baseline for 2026. For the full year 2025, this results in revenue of approximately $2.26 billion, adjusted EBITDA of roughly $970 million and adjusted free cash flow of approximately $475 million, inclusive of about $275 million of net CapEx. With that, I'd like to pass it over to Tim to discuss our areas of focus looking ahead. Timothy Boswell: Thanks, Matt, and good afternoon, everyone. Before opening the call for Q&A, I would like to elaborate more on WillScot's strategic priorities to better position us for growth, increase margins and returns and ultimately drive shareholder value as we transition into 2026. First is reestablishing organic growth in the business through our local market initiatives, enterprise accounts and our adjacency offerings. Historically, approximately 80% of our revenue is derived locally and improving performance starts with ensuring consistent sales coverage across the network, then driving productivity. Following last year's sales reorganization, we have implemented best-in-class sales enablement tools and consistent sales coverage and sales leadership such that we have a simplified structure with clear accountability for performance heading into 2026. Our focus on enterprise accounts and new industry verticals continues to show great traction. We rebuilt and strengthened this team in Q2 and expect that enterprise accounts revenue in the second half will be up approximately 5% year-over-year despite the seasonal storage headwind that Matt described. Data center and power generation infrastructure are very active subsectors for us right now across the United States. With expansion of existing relationships and more intentional focus on our nonconstruction verticals, we expect that our enterprise portfolio will carry a mid- to high single-digit growth rate into 2026. Value-added products and our newer product line additions remain compelling organic growth levers for us. VAPS revenues are up 5% year-over-year on a per unit basis on modular units and approximately 22% on storage units. Climate-controlled storage units on rent were up 44% year-over-year at the end of October. FLEX units were up 30% year-over-year, and we expect our perimeter and clearspan offerings will continue ramping into 2026. So as Worthing mentioned, there are some positive signs in a favorable mix shift within the portfolio and a significant amount of operating leverage in our traditional offerings and local markets when those stabilize and recover. This leads to our second area of focus, which is operational excellence and improving the customer experience. Continuous improvement is central to our culture, and we collect extensive customer feedback that tells us where we can improve service levels. Billing and collections have been great examples that we introduced at the March Investor Day. Through the course of the year, our shared services team has made meaningful gains through enhanced quality control and faster response times. These efforts have resulted in a roughly 10% year-over-year decline in days sales outstanding to the low 70s, very strong cash flow performance and meaningfully improved customer satisfaction scores. We expect further improvements in the order-to-cash process, resulting in continued working capital reductions and reduced bad debt and write-off expenses heading into 2026. Our network optimization initiative that Matt described is another example where we see an opportunity to reduce operating costs and increase efficiency in our network and fleet and move towards our 45% to 50% EBITDA margin range. Importantly, both of these opportunities were contingent on completing our integration of field operations last year. Combined with our ongoing focus on improvements to our transportation and logistics function, I expect that we will continue to find these types of synergies as we work to optimize the platform and focus on the customer experience. Developing human capital is a third pillar, which transcends every part of our operations. I've spent a significant portion of my time this year getting to know our talent at all levels in the organization. I am incredibly humbled and impressed by the quality of our team. But we need more depth and stronger development pathways for our people, and we have been inserting external talent strategically in the areas where we need to operate differently. The structure to scale is in place and driving this talent evolution over the next several years is a personal passion of mine and a critical ingredient for sustainable growth as well as our employee experience and culture. And as we all know, sustainable growth and returns correlate with shareholder value creation. We're strengthening our ROIC focus across the organization and see multiple balance sheet and asset optimization opportunities across working capital, our fleet and our real estate footprint to name a few. And we will continue to focus on reducing leverage into our updated leverage range over time. As Matt mentioned, that will include an increased allocation of capital to absolute debt reduction as we reinflect towards growth, but we do not feel constrained from pursuing high-return investments in the business given the strength of our cash flows. Together, these initiatives represent our path to strengthen our financial position and deliver sustainable higher returns. The platform that we have built under Brad's leadership is stronger and better positioned to compete in the market today than at any point in our history. We intend to execute with a high degree of urgency and accountability, and I believe we have the team to deliver on our growth ambitions and drive shareholder value. Lastly, I'd like to take a moment to thank Brad for his partnership over the nearly 12 years that we have worked together. It has truly been a pleasure working alongside you and learning from your leadership. Your guidance, your integrity, your collaborative spirit and your unwavering commitment to excellence have made a lasting impact on me, the broader team and the company. I'm honored and humbled to lead our team in pursuit of the highest standards that you've set and that inspire us all to be better every day. And I know that I and so many others in the company will continue to draw upon your leadership lessons as we chart the path forward for WillScot. Thank you, Brad. And on behalf of the company, the best wishes to you and your family. This concludes our prepared remarks. Operator, would you please open the line for questions? Operator: [Operator Instructions] Our first question today comes from Tim Mulrooney with William Blair. Timothy Mulrooney: First, I just want to say farewell to Brad. It's been a pleasure working with you these last few years, Brad [indiscernible] on your next chapter. Bradley Soultz: Thank you. Timothy Mulrooney: So on the revenue outlook, I just wanted to ask about the lowered top line outlook this year. If we set aside the seasonal retail headwind that you telegraphed earlier in the quarter, what other parts of the business underperformed relative to your revised guidance that you gave on the second quarter call? Were there any other end markets or regions that you'd characterize as being a bit surprising on the softer side relative to where you were sitting a few months ago? Timothy Boswell: Tim, this is Tim Boswell. I'll take that one. Certainly, the seasonal storage component is one of the biggest contributors, circa $20 million or so of revenue relative to our original expectations. There's about another $20 million across the write-off activity that Matt talked about. And that's important because those are all out-of-period adjustments to kind of aged accounts. And on that Page 5 in the presentation, which we can go back to, when you strip that impact out, you actually see very solid sequential stability of those lease revenue streams. So those are the 2 biggest components. The only other pieces I'd call out relative to the guidance coming out of Q2 would be the Canadian market. That's roughly $130 million of total revenue for us. That economy has been hit hard since Q2, I think, for obvious reasons related to the trade posture here in the U.S. So we have seen a slowing in our Canadian market. And then the ramping of our clearspan and perimeter businesses are still quite attractive in terms of the market opportunities that we see but ramping slower into Q4 than we anticipated. And as Worthing mentioned, we have built in some conservatism into this outlook so that we're exceeding these expectations going forward. So that's not an insignificant part of the overall message here. But certainly, the write-off activity accelerated. I'm really happy with where the portfolio is from a cleanup standpoint. And while it does create some noise in the top line, the customer experience side of that is really important for us. That's the area where we've probably gotten the most negative feedback in terms of NPS and customer satisfaction historically. And we definitely see that temperature coming down as we go into 2026, which is an important part of our strategy going forward to drive the customer experience positively. Timothy Mulrooney: Okay. That's a lot of helpful additional color with the write-offs. And I hadn't given enough consideration to the Canada dynamic as well that I probably should have. So that's good color. Maybe sticking on this policy point. I wanted to ask about any potential impacts that you're seeing on your business from the federal government shutdowns. I know it's a smaller piece of your overall revenue stream, but I thought I'd ask because I know you've talked about government and other verticals tied to government like military, maybe education as being a growth vertical for your business moving forward. Timothy Boswell: Yes. Good news, bad news. They are growth verticals going forward, I guess, is the positive piece. And as part of our enterprise portfolio, we have added dedicated resources to go after government opportunities at the federal state and local levels, both in the U.S. and Canada. Good news is that's not a huge part of our business today. So we've seen negligible disruption across the -- either unit on rent portfolio today or the payment side of things, which is also important. So no material impact sitting here today and still enthusiastic about the ability to penetrate those sectors better going forward. Operator: The next question is from Andy Wittmann with Baird. Andrew J. Wittmann: I wanted to ask about the fleet review that is ongoing here and sounds at least possible, if not likely to be more explicitly defined by the end of the fourth quarter. But this $250 million to $350 million of fleet basically write-down or impairment or scrap here, do you think that this is actual scrap like it's going to the junkyard because you mentioned in the press release kind of tired old, been sitting? Or do these get sold off and maybe wind up in your same markets as discounted units? I'm just kind of curious as to what the final disposition of this is going to be. And you talked about the book value here. I did some quick math. It looks like that's about 4% of your net book value. Is it fair to think that this would be then probably less than 4% of your fleet because these are kind of below average unit price. Maybe you could just comment on some of that, please. Matthew Jacobsen: Yes. Sure, Andy. This is Matt, and I'll hit your questions. We do sell our fleet in the normal course of business as rental unit sales, as you know. But we kind of view this as excess fleet that we've got and the intent there is to dispose and scrap of it. As we look at the percentages, though, that's -- it's more than the 4% that you're talking about, kind of at the middle of that range, you're getting closer to probably 10% of kind of total, but it's excess fleet, right? The whole point here is we've got adequate fleet to service our customers in the market and to grow in the future. And this is fleet that today we're paying to store on some excess acreage and there's other indirect costs and things around that, that we can optimize. And so we're taking action now to review this with the Board, obviously. And as you said, we'll give more of an update once that continues a bit more, but it is probably more about 10% kind of around that midpoint. So it's a big thing, but I think it's something that we should do, and we know that there's cost savings associated to this in the future. Timothy Boswell: Andy, this is Tim. The only thing I'd add is if you look at that chart in the deck that looks at non-res starts and the cycle that we've been through here, we're sitting here today in a position where non-res square footage starts are off about 30% from the peak and appear to be stabilizing in line with 2017 or 2018 levels. So if you can think about the ramp of the company up through 2022 and 2023, we've got enough idle fleet in the business to support growth prospectively over the next couple of years. And we can do that, we can eliminate some of this excess, reduce the related real estate, still have adequate market coverage, still have adequate idle inventory to drive the business more efficiently. So this is about tightening things up, moving back towards the 45% to 50% EBITDA margin range and allowing our team in the field to operate more efficiently. Andrew J. Wittmann: Yes, that's clear. And I remember, obviously, Mobile Mini had a similar type of scale write-down when they did a kind of a cleanup like this, and that was a very good thing probably a decade ago. So okay. Just for my follow-up question, I wanted to kind of ask about the fundamental trends in the business. And it's often asked how your order book and your activations have evolved during the course of the quarter. Maybe, Tim or Matt, you could talk about that, just to maybe give us a flavor of where we are in this kind of bottoming process. It's been elusive. And so I thought just getting kind of your latest thoughts on it would be helpful. Timothy Boswell: Yes, Andy, this is Tim. It has been elusive. I won't deny that. If you look at the modular order book sitting here today, it's actually now down about 1% year-over-year relative to the pending order book in early November last year. We actually converted a fair amount of it over the last 1.5 months or 2 months such that activations in modular have been up low single digits over the last month, and I'm optimistic that we'll see growth of similar magnitude in November. So I view that as stable. It's good to see the order book converting, but I certainly wouldn't call that a victory or overall change in the trajectory of the business. I think that's the conversion of the order book that we've been hoping to see through the course of the year. Storage is still quite weak, right? So no real change in the trajectory of the traditional storage business. On the climate controlled storage business, all signs are flashing green with orders and activations up circa 60% year-over-year. So that initiative continues to show great traction. Modular is stable and consistent with what we've been seeing all year and continued weakness across the traditional storage business. Operator: The next question is from Angel Castillo with Morgan Stanley. Angel Castillo Malpica: Brad, I guess, first, just to start out, it's been a pleasure working with you and wish you all the best in a new chapter. And Worthing, welcome and looking forward to working with you in your new role. I actually had a question for you. I guess I wanted to go back to your opening remarks. It just wasn't entirely clear to me, I guess, as you commented on the operational strategy or some of the changes that you're talking about here, whether this was indicative of kind of continuation of the initiatives the company laid out at Investor Day or whether based on what you've seen so far since taking over as Chairman, understanding that it's only been a couple of months. But just whether you believe that there's anything kind of incremental or more meaningful changes required, whether it's at a portfolio level or operational strategy than what's maybe already been laid out at Investor Day. Worthing Jackman: Sure. Well, again, my remarks endorsed the initiatives that the company laid out at the Investor Day, but then went on to expand that portfolio of initiatives to include the asset optimization and network optimization that Matt and Tim referred to, and that's laid out in the press release. The company has also, since that Investor Day, made structural changes within the sales organization, within the field to help bring more decentralization and accountability to the field. I'd tell you the energy level I've seen throughout the organization has been fantastic. We've talked about green shoots in the past. I know people hate to hear green shoots. But I think today, you heard a lot about all the good things happening with regard to activations and rate, et cetera. But what I also found when I came here was just kind of a dark cloud of the impact that declines in traditional storage has over the business because it's basically masking all the good things that have been happening. I look back over about a 3-year period and the company has probably taken a $150 million hit, EBITDA hit from that more commoditized or transactional side of the business, but obviously has not fallen that much. They've clawed back about half of that through growth in other areas. And when we talk about this mix shift in the portfolio to more differentiated, higher value-added products and the success around enterprise accounts, et cetera. I mean, it's truly a shift in the book that will insulate us going forward once this whole runout, finishes on traditional storage to have a different higher margin, more predictable business, more defensible business. We're probably in the sixth or seventh inning of the decline in traditional storage that has -- we're 70% or 80% of the way through that. Once we get that behind us, obviously, what's happening beneath the surface, so to speak, will come to the [ time ]. Angel Castillo Malpica: That's very helpful. And maybe just related to the disposals. Tim, you talked about, I think, 10% of the fleet essentially being reviewed here for potential disposal. At the Investor Day, I think you had identified $600 million of kind of potential revenue growth that you could achieve, I think, at 20% of kind of new fleet cost, thanks to kind of your refurbishment capabilities overall. Is that still the right number? Or do these disposals imply a smaller opportunity kind of at that lower 20% of cost and kind of future growth? Just kind of any implications of that to CapEx? Is there a requirement then if we grow? How does that change, I guess, the algorithm around the required CapEx to grow beyond this point? If you could touch on that, that would be helpful. Timothy Boswell: Good question, Angel. And no, we would not dispose of any fleet that we thought would constrain us and constrain our ability to grow in the future. So we view this disposal as purely targeting surplus that we do not need over the next several years, that allows us to tighten up both the branch network and the fleet without compromising ability to service customers either with product or with proximity to customer in our real estate footprint. No, I don't think this materially changes that concept at all. We still absolutely have the lowest marginal cost in the industry. If we want to activate older fleet through our refurbishment process, we've got the capability to do so. I think that capability is differentiated. To the extent we're adding new fleet, which we are in certain pockets today, tends to be allocated more towards our complexes and FLEX, which are performing great. We obviously did a small regional acquisition in climate-controlled storage this year and got some excess capacity through that acquisition, which we are deploying. So that's how we're thinking about fleet investments going forward, and I don't see the disposal here as changing that narrative whatsoever. Operator: The next question is from Kyle Menges with Citigroup. Kyle Menges: It'd be helpful to hear just trends you're seeing with local and regional customers, especially as you're looking into 2026. And in your view, what do you think you need to see really in the markets to see some recovery within those local and regional accounts? Timothy Boswell: Kyle, this is Tim. I'll start and anybody else can jump here and -- jump in. Nice to meet you. We really haven't seen any change in market trends at the local level. As I mentioned in my remarks, our enterprise portfolio is going to be up approximately 5% year-over-year total revenue in the second half of the year. That implies that the rest of that local market and regional exposure continues to be down. And I don't have any indicators right now, whether you look at the Architectural Billings Index or other third-party indicators that says that, that underlying market trend is changing at the local level. I think what is changing, if you think about our structure is the stability of our field-based sales organization. Worthing just alluded to some structural changes we've made there in terms of how the sales leadership function is organized. We've also added over 10% to the field sales organization through the course of this year, and there is a natural ramp time in those resources. So I've got some optimism that we'll see greater productivity out of those resources as we go into 2026. We've got our team in town in Scottsdale this week for budget meetings. And the message is irrespective of changes in those local market conditions. We know we weren't performing optimally over the last 18 months and there's an opportunity here to outperform ourselves at the local level. And that's the challenge that we're pushing down to our local market teams as we go into 2026, and we're not sitting here holding our breath waiting for the market to rebound. Kyle Menges: Got it. That's helpful. And then on the enterprise customer side, good to hear that you're expecting those customers to grow mid- to high single digits next year. I'm curious what your sense is. Is that growth in line with the market, maybe a little bit below or above? Would love to hear that. And then my understanding is enterprise customers would have greater VAPS penetration. I am curious, though, it seems like maybe competition is heating up with others coming out with offerings that are comparable to your VAPS offerings. in this space, just your confidence in maintaining market share with VAPS as well with the enterprise customers? Timothy Boswell: This is another area where I think outperforming ourselves is step number one. This is a function that looking back over the last 5 years, just given the relative size of our company had been relatively immature. And going into really Q2 of this year, we took a step back, put some of our best field-based leadership into this function, reorganized the team by industry vertical across 5 or 6 high potential verticals, construction being the largest today. But historically, we've never intentionally gone into federal government, which I talked about earlier. Retail, we've had some presence but not with a lot of intentionality. Professional services, energy and industrial or other sectors where we see opportunities to grow our penetration in those markets. So step one is let's outperform our historical baseline, and we're absolutely doing that. Your comment around value-added products and propensity to consume those at the enterprise level, I would just broaden and make a more general statement that when we're having enterprise-level RFPs, the ability to bundle not just value-added products, but climate controlled clearspan, parameters and all aspects of this broader space solution offering that we're putting together is pretty attractive, right? So I think it's cross-selling those products within the enterprise, not just value-added products is a big part of the opportunity that we see going forward. Operator: The next question is from Phil Ng with Jefferies. Philip Ng: Well, Brad, thank you. I appreciate your partnership over the years. Tim, congratulations to the new role. Looking forward to working with you. I guess from a high level, you guys talked about how you want to shift your portfolio away from more commodity products to differentiated offerings, driving more of a decentralized model. Does that require a meaningful step-up in CapEx and SG&A? There was an element of holding management more accountable and you're kind of rebuilding the field-based structural changes. Are you realigned the KPI and incentive comp and having a higher portion of your comp tied to variable, especially on the sales side of things? Timothy Boswell: Okay. I'll start and anybody else who would like to jump in, please do so. So we had a question a minute ago about, hey, does this fleet disposal change -- fundamentally change the capital requirements in the business going forward? No, I don't think it does. I think the mix of that CapEx has absolutely changed. And that process started probably a year, 1.5 years ago. So I don't see a significant change in the overall magnitude of CapEx requirements in the business. I think the mix of where that capital is going is likely to be very different than it would have been over the last 5 years in some of the categories that I mentioned. Actually, see an SG&A opportunity in the business, not an incremental add, especially as we look across our corporate functions. And some of that efficiency, I think, is supported by the fact that we've completed a lot of the integration activities that were related to the Mobile Mini acquisition now almost 5 years ago. So I don't really see any fundamental changes to the cost structure or the CapEx requirements in the business based on those comments. Philip Ng: Incentive comp and variable comp? Timothy Boswell: So we have always had a significant portion of our annual bonus plan that is tied to forward-looking revenue metrics in our business. As you're well aware, this is a sequentially compounding business. every period, we should be incentivized to put more units on rent at higher prices with more value-added products and services to drive that forward-looking lease revenue stream. And that's roughly about 30% of our annual short-term incentive bonus plan. We will tweak that calculation methodology a little bit to be more closely aligned with the metrics that our sales force is compensated based on. And I think that's extremely healthy. But that's really a refinement rather than a significant change, Phil. Philip Ng: Okay. Super. And then in your prepared remarks, you mentioned reestablishing organic growth. What are like the one or two things you want to call out that will help accelerate that? Is there a big shift in terms of your go-to-market strategy? And I did -- if I heard you correctly, a pivot to some of these different end markets. How are you going to tackle that? -- historically, there's been a big focus on M&A and AMR growth. Is there more of a pivot now towards organic growth on the volume side and just a big shift in terms of what markets you're going to really go after now? Timothy Boswell: Absolutely more of an emphasis on the organic volume side across all product lines. And in some cases, as Worthing alluded to, I think we need to compete a little bit differently, leveraging our service infrastructure and customer service capabilities in some of those more commoditized product lines where maybe the product itself isn't as differentiated. But through our scale and capabilities, we can actually offer a differentiated experience to the customer. So that's absolutely a big focus within the company right now in terms of ease of doing business, speed of delivery and consistency of execution across all our product lines. But I think it becomes even more important in some of those legacy more commoditized lines. Meanwhile, we are allocating capital and resources to grow in some of those more differentiated product lines like complexes, FLEX, climate controlled, et cetera, all the stuff that we've been talking about. So that's one of the 3 kind of commercial go-to-market pillars. A second would be everything that we've done in the field-based sales organization. I mentioned we've added over 10% to that population through the course of this year. That population is ramping up from a productivity standpoint in many cases, and we would expect to see benefits from that going into 2026. And then the enterprise portfolio is the place where I'd say, we are tapping into new verticals with more intentionality than we have in the past and also being more strategic with existing relationships and growing wallet share and deepening partnerships with existing contractors, especially in the construction vertical. So we've got 3 pillars to that go-to-market strategy across adjacencies, the field sales force and enterprise, and we're pushing hard across all 3. Operator: The next question is from Manav Patnaik with Barclays. Ronan Kennedy: This is Ronan Kennedy on for Manav. As far as the rental footprint and fleet optimization and the ongoing evaluation as to whether you will do the further acceleration of the recognition of depreciation expense. I know we've talked about potential impacts on CapEx structure requirements and mix. But is there any potential change and lessons learned around capacity and utilization management into this initiative and out of it going forward? Matthew Jacobsen: Ronan, thanks this is Matt. Thanks for the question here. I think for us, it's kind of a kind of where we're at right now with the acreage that we've got and the fleet that we have. I mean, I think, we're always trying to manage the fleet, and we spend a lot of time planning the amount of CapEx and maintenance that needs to go into the fleet. And none of that has changed because of this. As we're just at a point where, as Tim spoke about, we're off about 30% from peak levels, and we have excess fleet that we need to get cleaned up right now, and now it's time to do it. So I think markets are going to ebb and flow over time. You always have to keep an eye on these things, but just kind of a point of where we are right now. Ronan Kennedy: Okay. And then just if you could shed some further light with regards to the changed approach and guiding. Obviously, there's an element if you are going to have that less transactional subject to the volatility around activations, et cetera. But was there anything else from philosophy or process or perhaps even anchoring to leading indicators that had good historical correlation, but has changed given the length and severity of the decline in non-resi or intensifying competition? How should we think about that? Matthew Jacobsen: No, I think it's just -- this is Matt again. It's just a change in approach, right? We want to make sure that we're setting guidance out there that's got a little bit of cushion to it so that we can beat it. That's really what it is. We've had some times where we haven't met those expectations, pretty quite a few here in the last couple of years, and we want to turn that around. That's it. Worthing Jackman: Yes. I'd also add, it's Worthing. You mentioned a protracted decline. I think the historical approach basically set a range of expectations that could materialize based on whether it be execution, the competitive environment or recovery in the markets, in the end markets. And I think the decision now is just to make sure we're not making bets on things we don't control. And so let's let a lot of things be upside. Let's make sure we're guiding conservatively. But I think also going into it, look, the company has spent the last couple of months tightening up how they forecast the business. And I think you look at -- Matt, you didn't cover it, but I think you look at the October results and activations and units on rent. I mean every metric that we forecasted for the month, we met or exceeded. And so it's just nice to see the effort the team has made throughout the organization to try to tighten down the forecasting, to not try to call a turn and to keep a lot of things that are out of our control as upside. Operator: [Operator Instructions] The next question is from Scott Schneeberger with Oppenheimer. Scott Schneeberger: Brad, I really enjoyed working with you, best wishes. I guess for the first question, it's going to play off of Ronan's discussion there on guidance. I know you're not going to provide 2026 guidance right now. We're not going to get that until probably February. However, with the trends you're seeing here into the end of the year across the primary asset classes, how should we think about volume and price on modulars and storage as we enter next year? And what type of influence would that have just kind of starting out next year as an endpoint of '25 into '26? Timothy Boswell: Scott, it's Tim. I'll give you my current view of the playing field here. And as I said a minute ago, I don't see anything sitting here right now in the third-party leading indicators that says that we found stability. I mean, you track the ABI as closely as anyone and most recent reading was around 43%, which is pretty soft, and it's been that way for 3 years, right? You have seen some slowing in the rate of decline of non-res square footage starts, which is encouraging. And that's definitely a precursor to a bottom, but there's nothing that says that, that has actually occurred yet. As I look across the portfolio right now, spot rates across most of our product -- modular product line are really solid. Ground level offices are really the only category where we've made some strategic decisions to soften our pricing stance. But I see stability or opportunity across much of our modular portfolio going into 2026. Storage, I mentioned earlier, order book, if I exclude -- seasonal orders right now is down about 6%. So you've still got that mid- to high single-digit volume decline implicit in the current storage order book as we're going into 2026. And I've seen continued softening in the rate environment for traditional storage. And that's not just us. I think that's fairly well documented across the industry at this point. So definitely some mixed trends as I look at the leasing KPIs across the legacy kind of product line. Climate-controlled storage, I mentioned, volumes, rates, value-added products associated with them are all trending very strongly. So that's a place where I think we can make some luck going into 2026. And overall, if you just think about the volume trajectory in the business, we're trending down year-over-year across traditional modular and storage. If we were to see an inflection there, you're probably looking at the second half of the year sometime, but we don't have any crystal ball, and some of that's going to be dependent on the market environment. So as you well know, we typically give our full year guidance on the Q4 call. The reason for that is, at that point, you typically have better leading indicators and visibility for the U.S. construction cycle, which tends to ramp up as you go from March and April into Q2. And we'll stick to that practice in terms of providing the formal guidance. Scott Schneeberger: Tim. I appreciate all that color. It's helpful. And prompts a few follow-ups, but I'll ask them later in a follow-up. I wanted to ask another question just on the optimization of the footprint and the assets. I guess on the assets portion of it, what -- are we going to see it more in modular? Are we going to see it more in traditional storage? I know it's a little bit of everything, but can you give us a sense of where you're really going to focus in on? And this feels like it could potentially be a first step. Is this a tip of the iceberg, the $250 million, $350 million or -- and it could be more as you go because you do have a few years of utilization potential to grow into and you'll be coming at it from one angle. It just feels like there could be a little bit more. So what assets and what made you decide upon this size right now? Timothy Boswell: Scott, I'd say -- this is Tim, and then Matt jump in. We've actually approached this more from the real estate side of things, right? And the priority #1 here is reduce operating costs and inefficiency in the system. And as you accumulate surplus fleet, you get drop lots and things like that and industrial real estate is expensive. So what we've looked at are actionable real estate opportunities over the next couple of years where you actually have an actionable ability to reduce those costs. And where we see those cost reduction opportunities if we see surplus fleet associated with those locations that we can dispose of in order to take advantage of that savings, that's kind of the lens that we've used to approach this. Absolutely, yes, we'll keep an eye on changes in overall market activity. If markets ramped up, maybe you want to dispose less, although we're at pretty low utilization levels right now. If markets continue to decline, you might take a different approach. But we're using actionable real estate cost reduction as the guiding light in this initiative. Matthew Jacobsen: Yes, Scott, this is Matt. The only thing I would add is that we started this really kind of beginning of the year and did some property-by-property analysis, and you've seen us do some of these throughout the year. Given where we're -- what we've seen, we saw the opportunity to kind of look at all of this at once, everything we kind of see in the next 3 or 4 years to really try and pull it all together and have a multiyear plan. So that's what you're seeing right now. From an asset perspective, I mean, think of this, it's very tied to forward-looking demand. Complexes and FLEX and these newer products are high-demand products, the differentiated products. It's not those, right? It's more going to be around the transactional type things where we've seen a real reduction in demand over the last few years as non-res has come down and the local smaller local projects have done. So it's some storage containers. It's going to be some single units, those single, smaller units typically, but any single. So it's not these differentiated products. It's stuff that we have ample supply of, and we know we can still meet the demand that we need to meet with remaining fleet. Scott Schneeberger: Got it. And so it's real estate first that you're going. And then when you're at a selective location, you're then assessing the assets at that location. That's the order process. Matthew Jacobsen: That's correct. Operator: We have now reached the end of today's call. I'll now turn the call back over to Charlie. Bradley Soultz: This is Brad. I'll take the closing here. First, I'd just like to say I'm proud of and humbled to have been part of this fantastic team as we've navigated the initial chapters of this young and great company. In closing, I'd like to thank my family, our customers, shareholders, all of you on this phone and most importantly, this team for the support over the years. And I'll remain an invested and exciting supporter of this company for the long future. Thanks. Operator: Thank you, ladies and gentlemen. This concludes today's conference. You may now disconnect your lines.
Operator: Good morning, ladies and gentlemen and welcome to the AirSculpt Technologies, Inc. Third Quarter 2025 Earnings Call. [Operator Instructions] Please note that this event is being recorded. I will now hand the call over to Allison Malkin of ICR. Please go ahead. Allison Malkin: Good morning, everyone. Thank you for joining us to discuss AirSculpt Technologies results for the third quarter of fiscal 2025. Joining me on the call today are Yogi Jashnani, Chief Executive Officer; and Dennis Dean, Chief Financial Officer. Before we begin, I would like to remind you that this conference call may include forward-looking statements. These statements may include our future expectations regarding financial results and guidance, market opportunities and our growth. Risks and uncertainties that may impact these statements and could cause actual future results to differ materially from currently projected results are described in this morning's press release and the reports we will file with the SEC, all of which can be found on our website at investors.airsculpt.com. We undertake no obligation to revise or update any forward-looking statements or information except as required by law. During our call today, we will also reference certain non-GAAP financial measures. We use non-GAAP measures in some of our financial discussions as we believe they more accurately represent the true operational performance and underlying results of our business. A reconciliation of these measures can be found in our earnings release as filed this morning and in our most recent 10-Q, which will also be available on our website. For today's call, Yogi will begin with an overview of our third quarter and share an update on our strategic priorities. Then Dennis will review our financial results in more detail and provide our outlook. With that, I'll turn the call over to Yogi. Yogesh Jashnani: Thank you, Allison and good morning, everyone. During the quarter, we made strong progress on our key initiatives that focused on new growth opportunities, margin improvement and debt reduction. While third quarter revenue was lower than anticipated, this is reflective of timing instead of trajectory of our business. Most significantly, we are setting the stage to realize a broader market opportunity to provide body contouring solutions that address the unwanted side effects related to GLP-1 use. This represents a long-term growth engine for AirSculpt. Our capabilities, scale and brand uniquely position us to capture this major opportunity in aesthetic surgery, which we are calling the GLP-1 transformation. To that end, we have expanded and refined our strategy to focus on 3 key areas: introducing new services to capture the GLP-1 opportunity, enhancing our sales and marketing strategy and financial discipline in the areas of margin improvement and capital allocation. First, we are introducing new services to capture our GLP-1 market opportunity, which is broader and more durable than I initially expected. We see our skin tightening pilot programs as part of a long-term opportunity that is highly complementary with our core body contouring business. GLP-1 medications have fundamentally reshaped how consumers approach weight loss and wellness and we are seeing this change is beginning to create demand for aesthetic procedures that align to our existing brand and capabilities. In the long term, we believe these procedures can account for a significant portion of AirSculpt's revenue and drive meaningful growth. For context, global GLP-1 prescriptions have grown at roughly 38% annually between 2022 and 2024, with total sales expected to reach $100 billion by 2030, according to a study from McKinsey & Company. GLP-1 therapies are reshaping the aesthetics landscape with 63% of GLP-1 patients seeking aesthetic treatments post use, representing new consumers to the market. Equally encouraging is that nearly 2/3 of patients that have lost 11% to 30% of their body weight have multiple concerns with GLP-1 medication side effects, driving growth in patient needs for skin tightening and overall reshaping after significant weight loss. At AirSculpt, we have begun to serve this patient base as our protocols, scale and brand trust give us a meaningful head start to further capitalize on this opportunity. While it's still early, in our pilots, we are seeing higher conversion rates amongst GLP-1 patients. The first step towards realizing this potential was our successful pilot of skin tightening that began in Q2 and has recently been expanded to multiple centers. While we saw a lift in tightening services in the third quarter, we found that many clients coming in for this procedure have lose skin beyond what skin tightening can address. As a result, we have begun to add new procedures to address loose skin when skin tightening alone is not sufficient, thus expanding our total addressable market. This represents a natural extension for us as the scale player in this space. Looking ahead, we will continue to invest to capture this meaningful opportunity. Our second area of focus is enhancing our sales and marketing strategy. In Q3, we adapted our marketing spend to align with the moderation in our revenue trend and prioritized initiatives that drive higher conversion. As we move forward, our marketing approach will balance near-term lead generation with longer-term brand building with a more diversified media mix, including targeted influencer campaigns and television advertising. This is designed to strengthen lead quality, improve conversion and deepen our focus on the affluent consumer base. With our sales team, we are implementing new training modules and tools as we remain focused on improving conversion. Finally, we have also improved financing options for our patients. Our third area of focus is maintaining strong financial discipline, both in our margins and capital allocation. Year-to-date, we have generated more than $3 million in annualized cost savings, net of investments in new growth initiatives. We expect to continue unlocking incremental value from our current operations, which we anticipate will expand our operating margin going forward. Turning to capital allocation. We have repaid nearly $18 million of our debt year-to-date. Debt repayment continues to be the primary focus of our capital allocation strategy in the near term. Beyond that, we will continue to invest in growth initiatives, including new procedures. In Q3, we made the decision to close our center in London. As part of a strategic review of all our centers, we saw this was the only unprofitable center and would have required significant investment to turn around. Instead, we have chosen to focus our resources on delivering growth to our North America locations where we continue to see considerable opportunity. We are updating our annual outlook and expect 2025 revenue of approximately $153 million as compared to our previous guidance in the range of $160 million to $170 million. We expect 2025 EBITDA of approximately $16 million, the bottom end of our guidance of $16 million to $18 million. For the fourth quarter, we are seeing improving same-store sales performance compared to a year-to-date trend. Additionally, our implied fourth quarter EBITDA guidance highlights stronger margins, both sequentially and year-over-year. Turning to personnel news. This morning, we announced Michael Arthur will be joining AirSculpt as Chief Financial Officer starting January 2026. He assumes the CFO position from Dennis Dean, who will retire, as we had previously announced following a transition period. Michael is a seasoned executive who brings public market experience and has led financial organizations through growth, complexity and change. I am confident he will add meaningful strength to our leadership team. Over the next few weeks, Dennis will work closely with Michael to ensure a seamless transition and I'm looking forward to working with him as we position AirSculpt to realize its true growth potential. Secondly, on Wednesday, we filed an 8-K announcing that Dr. Aaron Rollins has resigned from the Board citing personal reasons. He confirmed this was not due to any disagreements between him and the company, its management or the Board on any matter related to the company's operations, policies or practices. We thank Aaron for all his contributions to AirSculpt and wish him all the best. In summary, we have expanded and refined our strategy to focus on 3 key areas: introducing new services to capture the GLP-1 opportunity, enhancing our sales and marketing strategy and financial discipline in the area of margin improvement and capital allocation. While near-term revenue reflects a period of transition, our growing suite of procedures, balanced marketing strategy and disciplined execution give us the confidence in our long-term trajectory. And with that, I will now pass it over to Dennis. Dennis Dean: Thank you, Yogi and good morning, everyone. As I mentioned in my remarks last quarter, I'd like to thank the team at AirSculpt for the opportunity to lead this organization as Chief Financial Officer for the past 4 years. It has been an exciting journey and I'm certain that Michael is the right choice for CFO. I'm committed to ensuring a smooth transition of my responsibilities and look forward to watching AirSculpt reach greater heights after I exit the business. Now turning to our financial performance. As mentioned, revenue for the quarter was $35 million, a 17.8% decline versus the prior year quarter, with same-store revenue down approximately 22%. Cases declined 15.2% to 2,780 with same-store cases down approximately 20% and average revenue per case for the quarter was $12,587, a decline of approximately 3% from the prior year quarter but above the midpoint of our historical range of $12,000 to $13,000. The percentage of patients using financing to pay for procedures was 52%, which is comparable to what we experienced in the second quarter. As a reminder, we receive full payment of all procedures upfront and we have no recourse related to patients who finance their procedures with third-party vendors. Cost of services decreased by $2.9 million compared to the prior year period and as a percentage of revenue increased to 42.5% versus 41.8%. Selling, general and administrative expenses decreased $6 million in the quarter compared to the same period in fiscal 2024, which reflects the impact of our cost management activities and reductions in our equity-based compensation. Our customer acquisition cost for the quarter was approximately $3,100 per case as compared to $2,900 in the prior year quarter. Adjusted EBITDA was $3 million compared to $4.7 million for the fiscal 2024 second quarter. Adjusted EBITDA margin was 8.7% compared to 11% in the prior year quarter. The declines in adjusted EBITDA and adjusted EBITDA margin is the result of our revenue declines. Net loss for the quarter was $9.5 million and adjusted net loss for the quarter up $2.4 million or $0.04 per diluted share. Our net loss included 2 noncash charges recorded during the quarter. The first relates to our Salesforce technology project. When we initially started the Salesforce project in Q4 of 2022, we planned for it to cover everything from marketing and sales to operations and clinical processes but we realized that the strength of the platform lies in marketing and sales. So that is where we are focusing our energy. As a result, we recorded a noncash impairment charge of $4.6 million during the quarter related to those components we do not expect to be used. For operations and clinical needs, we are pursuing alternative solutions that are better tailored to those workflows and for our business. We continue to be pleased with the portion of this project that we have implemented related to marketing activities and expect to complete the rest of the Salesforce implementation related to the sales function in the first quarter of 2026. We also recorded a loss of approximately $2.3 million related to the closure of our facility in London. This charge primarily relates to an impairment to the long-term assets we have recorded at the center. Additionally, we recorded approximately $1 million to selling, general and administrative expense during the quarter related to accelerating the amortization of the right-of-use asset at this facility. This increase in lease expense had no impact to cash. During the quarter, we generated $400,000 of revenue at the London center and our adjusted EBITDA was a negative $150,000. For the 9 months ended September 30, 2025, we recorded revenue at our London center of $1.4 million and our adjusted EBITDA was a negative $600,000. Turning to our balance sheet. As of September 30, 2025, cash was $5.4 million and gross debt outstanding was $57.9 million and our $5 million revolver remains undrawn. Our leverage ratio as calculated according to our credit agreement was 3.04x on September 30, 2025 and we are in compliance with all covenants under the terms of our credit agreement. As a reminder, during the second quarter, we repaid $16 million of debt, including $5 million on our revolver and a $10 million prepayment as a result of using proceeds from our capital raise and cash from operations. These activities reflect our ongoing commitment to strengthening the balance sheet, which allows us to move forward with an improved capital structure and enhanced flexibility. Cash flow from operations for the quarter was a use of cash of $225,000 compared to an increase of cash of $1.8 million in the third quarter of 2024. Turning to our outlook. For 2025, we are updating our revenue outlook to approximately $153 million versus our previous revenue guidance in the range of $160 million to $170 million. We are reiterating the low end of our adjusted EBITDA guidance of approximately $16 million within our range of $16 million to $18 million. For the fourth quarter, our revenue guidance implies a smaller year-over-year decline and we are seeing improving same-store sales performance compared to our year-to-date trend. At the same time, our implied Q4 EBITDA guidance highlights stronger margins, both sequentially and year-over-year. I will now turn the call over to the operator to begin the question-and-answer portion of the call. Operator: [Operator Instructions] Our first question comes from Joshua Raskin of Nephron Research. Marco Criscuolo: This is actually Marco on for Josh. So cost controls actually looked pretty strong relative to our estimates for the quarter. So I was just wondering if you could go a little deeper on the cost-cutting measures you have taken by line, whether it be G&A or cost of service. And then looking forward, how should we think about the sustainability of the savings you're generating? Should we expect those to continue into the fourth quarter and into next year as well? Dennis Dean: Marco, it's Dennis. Thanks for the question. Yes, a lot of our cost controls, as we had kind of communicated over the past couple of quarters, has focused primarily in the SG&A realm. There are some things that we've done within the cost of services. But primarily, it's been in our SG&A and our support that we've had at regional positions and things of that nature. So that's been primarily the focus on it. We're continuing to heavily focus on that. Clearly, as we kind of guided our number into the fourth quarter, even though we are experiencing some -- the revenue softness, the cost controls are really kind of helping bridge some of that gap for us. So really pleased with that. We keep uncovering things as we kind of push on various vendors and those sorts of things and are identifying additional opportunities. So we expect to continue on this approach being diligent but most of that was in the SG&A line. Marco Criscuolo: Great. That's helpful. And if I could just squeeze one more in. It was good to hear about the progress you're seeing with the stand-alone skin tightening service. But could you just go into a little more detail on what you're seeing there in terms of uptake and how you envision the pace at which that's expanded across the rest of the centers? And then also, if you could just go a little deeper on what new services you're looking to add to address that GLP-1 population. Yogesh Jashnani: Marco, this is Yogi. Thanks for the question. As it relates to skin tightening, our thesis is proving out in that we are seeing there's demand for solutions that address loose skin. Now what we are also seeing is that the pool of qualified candidates for stand-alone skin tightening was smaller than we anticipated, mainly because the loose skin was beyond what skin tightening could address. So while that meant Q3 revenue was muted, we see this as a broader and more enduring opportunity for a suite of procedures to further address additional loose skin. That comes in the form of skin excisions or skin removals, for example. And many of those can be done in our clinics under local. It fits within our model pretty perfectly. So we have started to pilot some of that already. Skin tightening has been expanded to multiple centers. Skin excisions is in pilot right now. And even without marketing it, we are starting to see good demand for that. So we will continue to expand on that. Just as a quick reminder, for all of these procedures, it takes 3 to 6 months for patients to see full results. And so while we are starting off on these, it will take us a few months to get the before and afters and then turn those around into marketing and expand it from there. Operator: [Operator Instructions] Our next question comes from Sam Eiber of BTIG. Sam Eiber: Maybe I can start on a Q3 question and then I definitely want to come back to the GLP-1 opportunity. But Yogi, you talked about a timing issue this quarter. Would love, I guess, your thoughts on exactly maybe what happened here. I know last quarter, leads and consultations were stepping up a bit. So I would just love to better understand the timing issue in Q3. Yogesh Jashnani: Yes. All right. Sam, thank you for the question. So for Q3, we continue to operate in a challenging consumer environment, especially for considered purchases. That hasn't changed since Q2. While we saw leads and consults continue to remain strong, they were strong in Q2 and they continue to remain strong in Q3. We continue to see that consumers are hesitant to go from, I'm interested, I want to talk to you guys, I want to get a quote, to purchasing. However, we are seeing Q4 same-store sales trends are better than year-to-date. And as we are transforming the business, we realized there is a bigger opportunity with GLP-1 users than we initially thought. We initially thought skin tightening would be able to address a broader sliver but we are seeing that the demand is bigger and the needs are broader, which we can address. And we are already starting to see that GLP-1 users are converting better than non-GLP-1 users. So the strategic play is with introducing the new procedures, adapting our marketing and sales to capitalize on that. So in summary, while short-term revenue is lower than expected, we are excited about the broader GLP opportunity in front of us. Sam Eiber: Okay. That makes sense. Very helpful, Yogi. All right. Maybe coming to the GLP-1 opportunity. I would love to, I guess, better understand surgeon interest in the skin excision opportunity within AirSculpt centers, right, their ability to capture maybe some of the economics for these procedures among these patients. And then maybe as a follow-up to that, how you're thinking about any shifts in marketing or brand awareness for AirSculpt to go after this opportunity? Does that need to change at all as you kind of go after this new subsegment of patients? Yogesh Jashnani: Sam, I'll address both parts of that question. As it relates to surgeon interest and expertise, I think you were asking about both, if I understood your question correctly. Look, there is -- both are actually a pretty strong positive for us. I had to -- at a couple of points, slow things down and make sure that we are doing a pilot in fewer locations than where I had surgeon interest. So surgeon base is definitely interested in doing skin excisions and that is evident in our pilot as well. And surgeons are more than capable -- we have an elite network of over 80 surgeons, plastic and cosmetic, who provide excellent care. And many of them have the abilities and have been doing this in their -- whether it's in their private practice or in their past lives as well. So no concerns from that perspective. Now there will be -- to your other question, there will be changes in marketing and sales. It is much more about making sure that we get the messaging right to people who are GLP-1 users or who have loose skin. So that's where we are testing into what is the right messaging, what is the right targeting and what is the right place in the cycle of GLP-1 use that people are looking for loose skin as a problem. Remember, we've been talking about loose skin and also fat removal is another big idea here because with GLP-1, there is uneven weight loss and uneven volume loss. So we continue to see people coming in for removing those stubborn fat deposits that GLP-1 was unable to address as well. Operator: Thank you. Ladies and gentlemen, we have reached the end of the Q&A session. I will now hand back to Yogi Jashnani for closing remarks. Yogesh Jashnani: Thank you again for joining us. I also want to thank the AirSculpt team and our network of over 80 surgeons that provide excellent care and results to our patients. Together, we are powering the next chapter in AirSculpt's growth. We look forward to share our progress when we report Q4 results and wish you a happy and healthy holiday season. Operator: Thank you, sir. Ladies and gentlemen, that concludes today's event. Thank you for attending and you may now disconnect your line.
Operator: Ladies and gentlemen, thank you for standing by. My name is Colby, and I'll be your conference operator today. At this time, I would like to welcome you to the American Healthcare REIT Q3 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Alan Peterson, Vice President of Investor Relations and Finance. Please go ahead. Alan Peterson: Good morning. Thank you for joining us for American Healthcare REIT's Third Quarter 2025 Earnings Conference Call. With me today are Danny Prosky, President and CEO; Gabe Willhite, Chief Operating Officer; Stefan Oh, Chief Investment Officer; and Brian Peay, Chief Financial Officer. On today's call, Danny, Gabe, Stefan, and Brian will provide high-level commentary discussing our operational results, financial position, changes related to our increased 2025 guidance and other recent news relating to American Healthcare REIT. Following these remarks, we will conduct a question-and-answer session. Please be advised that this call will include forward-looking statements. All statements made during this call other than statements of historical fact are forward-looking statements that are subject to numerous risks and uncertainties that could cause actual results to differ materially from those projected in these statements. Therefore, you should exercise caution in interpreting and relying on them. I refer you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results, financial condition and prospects. All forward-looking statements speak only as of today, November 7, 2025, or such other date as may otherwise be specified. We assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. During the call, we will discuss certain non-GAAP financial measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. Reconciliations of non-GAAP financial measures discussed on this call to the most directly comparable measures calculated in accordance with GAAP are included in our earnings release, supplemental information package and our filings with the SEC. You can find these documents as well as an audio webcast replay of this conference call on the Investor Relations section of our website at www.americanhealthcarereit.com. With that, I'll turn the call over to President and CEO, Danny Prosky. Danny Prosky: Thank you, Alan. Good morning or good afternoon, everyone, and thank you for joining us on today's call. I am very pleased to report that the third quarter was another very strong quarter for AHR. We continue to build upon our strong first half momentum, generating same-store NOI growth of 16.4% across the total portfolio, marking our seventh consecutive quarter of double-digit same-store NOI growth portfolio-wide. This performance once again reflects the depth and quality of our portfolio, our strategic initiatives, which include leveraging our platform across our operating portfolio, the strength of our regional operating partners and the enduring demand tailwinds that support health care real estate. Within our operating portfolio, our RIDEA structured segments, which include our integrated senior health campuses, also known as Trilogy, and our SHOP segment continue to drive outsized growth, which is the result of our team's proactive and hands-on asset management approach. As I look across our industry, I maintain my conviction that this is the best operating environment for long-term care that I've seen in my entire 33-year career. This is most evident to me when reviewing our strong RevPOR growth and the fact that Trilogy and SHOP same-store occupancies are currently above 90% and continue to trend in a positive direction. Shifting to our external growth activity, we're executing diligently on scaling our operating portfolio with our regional operating partners. In aggregate, we have closed on over $575 million of acquisitions year-to-date, all of which is within our RIDEA segments. Among these new acquisitions, I'm happy to announce that we're expanding our highly curated stable of operators. We introduced 2 new relationships to our group of operators this year, which will broaden our geographic diversification while reinforcing our focus on operators that share our values, including a strong employee culture, ability to deliver ongoing outsized financial performance and most importantly, a keen focus on delivering high-quality care and results for our residents. I'd like to congratulate Stefan and the entire investments team, along with Ray Oborn and his senior housing asset management team again as they have continued to identify and acquire a tremendous volume of very high-quality managed senior housing assets. These acquisitions not only provide immediate earnings accretion to AHR, these assets should also provide strong ongoing organic earnings growth for years to come. Along with the acquisitions I just noted, the team has continued to backfill our pipeline of awarded deals, which now stands at well over $450 million. These transactions are expected to close in the fourth quarter and early 2026. As we execute on our external growth plans, we continue to demonstrate discipline and remain opportunistic in our capital markets and capital deployment activity, which should drive further earnings accretion in 2026 and future years. We're now on track to grow normalized FFO per fully diluted share by 20% over last year, while also continuing to improve our balance sheet metrics and leverage profile. As Brian will note during his remarks, our net debt to EBITDA at the end of the third quarter is now down to 3.5x. Our strategy remains consistent. We're not simply chasing near-term accretion. We are building durable long-term growth through operating alignment with best-in-class regional operators, disciplined capital allocation and capital markets activity while always putting resident care and outcomes first. Finally, I'm proud to note that in September, we published our inaugural corporate responsibility report, publicly disclosing the governance, social and sustainability priorities that have long been embedded in AHR's culture. This milestone reflects our belief that responsible stewardship and performance are inseparable. Before turning the call over to Gabe, I want to thank the entire AHR team and our operator partners for their exceptional work. Together, we are executing with precision and purpose for all AHR stakeholders, providing high-quality care and outcomes for residents, which is leading to strong financial performance for our shareholders. And now, Gabe, over to you. Gabriel Willhite: Thanks, Danny. Operationally, the third quarter of 2025 was another strong quarter for us with outstanding results across the business. Once again, we delivered sector-leading same-store NOI growth compared to the third quarter of 2024. Not only did we sustain the momentum from the first half of the year, but we also built a solid foundation for continued success with strong occupancy gains in the third quarter prior to entering what's historically a slower winter season. That being said, occupancy trends into the fourth quarter suggest that seasonality could be muted due to the accelerating demand growth from the baby boomer population. Now let's dive into our results in more detail, starting with Trilogy. Same-store NOI grew 21.7% year-over-year. Occupancy averaged 90.2% in Q3, up more than 270 basis points from last year, while average daily rate increased roughly 7%. That performance reflects not only continued pricing power, but also ongoing improvement in quality mix. Within Trilogy, its high quality of care and outcome standards continue to drive outsized demand as residents, families and now to an increasing degree, Medicare Advantage plans seek out the highest quality of care providers. Trilogy is continuously working to add to and also to optimize its Medicare Advantage partnerships with the plans most aligned on quality, which is in turn increasing access for residents to Trilogy and driving more Medicare Advantage census growth across the Trilogy portfolio. We expect this mix shift to drive robust revenue growth that reflects the strength of the platform for 2 primary reasons. One, Medicare Advantage reimbursement rates are significantly higher than other reimbursement sources and growing faster than other sources; and two, increasing accessibility for Medicare Advantage plans provides a tailwind for continued census growth. So for example, Medicare Advantage accounted for 7.2% of total resident days at Trilogy during the third quarter, an increase from 5.8% a year ago. It's a great example of how Trilogy has proactively leveraged high-quality care and outcomes to identify the best partners and ultimately create economic value and yet again demonstrates Trilogy's remarkable ability to utilize many different operational and strategic levers in order to drive continuously strong growth. Turning to SHOP. Same-store NOI increased 25.3% with RevPOR up 5.6% year-over-year and NOI margins expanding nearly 300 basis points to 21.5%. We also achieved record move-in activity during the spring and summer seasons. And for the first time, like Danny mentioned, our SHOP same-store spot occupancy is currently above 90%. Those gains were achieved without significantly sacrificing pricing discipline, reinforcing our view that the secular demand for long-term care remains durable, especially for the highest quality operators as residents and families continue to invest in superior care and service. As demonstrated by our operating portfolio results, fundamentals remain extremely favorable. Construction starts across senior housing remain near historic lows, while demographic growth in the 80-plus cohort accelerates. These structural supply-demand imbalances should support a multiyear runway for further occupancy gains, rate growth and NOI growth. As we move into the winter months, we're confident and we're well positioned to maintain the occupancy gains achieved through the busier spring and summer selling season. Overall, we continue to view this as the early innings for long-term care demand growth that's being captured most effectively by operators with scale, quality outcomes and a strong regional presence. Trilogy and our SHOP partners certainly exemplify that. I'd like to thank each of our operator partners for their enduring commitment to their residents and their employees and their contributions to another very successful quarter for AHR. We know we could not deliver these results without them. Finally, our team is actively executing on our strategic initiatives designed to enhance our operating platform. Our strategic alignment with Trilogy unlocks unique opportunities for outperformance and value creation. For example, we're leveraging Trilogy's centralized revenue management system across other operating partners. The analytics and also the operational strategies and functionality from that program, which combines a multitude of factors, including market rates, occupancy, unit-specific attributes and discount control features have already contributed to our growth at Trilogy by optimizing revenue, especially with respect to highly occupied facilities, which we know is a category that's rapidly expanding. We're in various pilot phases with our regional operators to extend this tool among other initiatives we've identified across our operating portfolio. We continue to view this as a differentiator and a key component of our strategy as we plan for rapid expansion and look to support our regional operators as they scale to meet this transformative growth opportunity. I'll now pass it to Stefan to discuss our external growth activity. Stefan K. Oh: Thanks, Gabe. Since our last call, we have been very active, closing a number of transactions while continuing to backfill the pipeline with equally strong and high-quality investments. In doing so, our investment strategy remains unchanged as we continue to focus on accretive relationship-driven growth. We're emphasizing opportunities where we have long-term conviction in the operators and markets and where our capital can directly improve care outcomes and long-term asset performance. During the quarter, we completed approximately $211 million of acquisitions and closed approximately $286 million of new investments subsequent to quarter end, bringing our year-to-date closed acquisitions to over $575 million within our operating portfolio. These transactions expand our exposure to high-quality assets in strong regional markets and deepen existing relationships with trusted operators. A key highlight of our recent activity is our new partnership with WellQuest Living, who now manages 4 communities we acquired in California and Utah. WellQuest aligns closely with our mission to deliver best-in-class resident care through integrated wellness-focused environments. WellQuest will complement our current SHOP exposure on the West Coast, allowing us to access new submarkets that screen attractively within our investment framework and offering us the ability to underwrite potential acquisitions that will leverage WellQuest's core care competencies as a high-quality needs-based senior living operator. WellQuest rounds out the new operator relationships we previewed earlier this year. And between WellQuest and Great Lakes management, it has already allowed our team to evaluate even more potential off-market opportunities, which is something we strive to do with all our trusted regional operating partners. Beyond acquisitions, we continue to optimize our portfolio mix. During the quarter, we executed $13 million of non-core dispositions, further concentrating our capital on assets within our operating portfolio that can deliver superior risk-adjusted returns. Our team has not slowed in identifying new opportunities to complement our existing investments year-to-date as we maintain a pipeline of over $450 million in awarded deals that are still in the due diligence process or that we have added since we provided an update in early September. We expect to close this awarded deal pipeline by the end of 2025 or early 2026. On the development front, we started several new development and expansion projects this quarter. Our in-process development pipeline now consists of projects with a total expected cost of roughly $177 million, of which we have spent approximately $52 million to date. We believe that these projects should extend our multiyear growth runway at attractive yields and the mix of new campuses, independent living villas and wing expansions should provide solid income at various points over the next few years, allowing for predictable cash flow that will translate to retained earnings for future new development starts to help mitigate future funding risks. To summarize our executed investment strategy thus far and our future plans, we are deploying capital deliberately, favoring operating partnerships where we see the best risk-adjusted returns, prioritizing newer assets and maintaining discipline on underwriting. We believe this strategy will prove resilient as we scale across our operating portfolio with our various partners, and we expect it will generate strong, sustainable returns next year and in the future years to come. With that, I'll turn it over to Brian. Brian Peay: Thanks, Stefan. The third quarter of 2025 was another very solid quarter of organic earnings growth, disciplined execution of external growth by acquiring assets that we expect will provide sustainable earnings for years to come as well as select capital markets execution. We achieved normalized funds from operations of $0.44 per fully diluted share in Q3, reflecting a 22% increase year-over-year. This increase was made possible by greater than 20% same-store NOI growth from our operating portfolio segments, which continues to propel our earnings, additionally buoyed by the strong initial performance from the assets we've added to the portfolio over the last 3 quarters. Given our visibility into Q4 and the solid results achieved year-to-date, we are increasing and narrowing our full year 2025 NFFO guidance to a range of $1.69 to $1.72 from $1.64 to $1.68 per fully diluted share, implying growth in excess of 20% year-over-year at the midpoint. This increase is driven by increased organic growth expectations and as we enter the remainder of the year with RIDEA spot occupancy north of 90% across our operating portfolio. As such, we are increasing our total portfolio same-store NOI growth guidance to a range of 13% to 15% from 11% to 14%. This increase is comprised of the following changes to segment level same-store NOI growth guidance. Integrated Senior Health campuses increased to a range of 17% to 20%, reflecting continued strength at Trilogy. SHOP increased to 24% to 26% as a result of the solid occupancy momentum through the summer selling season. Outpatient medical increased to 2% to 2.4% from the prior range of 1% to 1.5%, given positive renewal activity. Triple-net leased properties increased to negative 25 basis points to positive 25 basis points. During the quarter, we sold approximately 2.9 million shares through our ATM program for $116 million in gross proceeds, and we settled 3.6 million shares under a previously announced forward sale for another $128 million. We also entered into new forward agreements totaling 6.5 million shares for $275 million in gross proceeds, providing additional funding flexibility as we pursue external growth opportunities. Our disciplined capital markets approach allows us to match equity inflows with investment timing, minimizing dilution, preserving optionality and building further capacity to continue adding high-quality assets to our portfolio. That discipline has also allowed us to continue to improve our balance sheet even as we've executed more than $0.5 billion of accretive acquisitions this year. Our net debt-to-EBITDA ended the quarter at 3.5x, representing a 0.2x improvement from the end of the prior quarter and a 1.6x improvement from the third quarter of 2024. Stepping back, 2025 is shaping up as another milestone year for AHR, defined by significant organic earnings growth, continued deleveraging to provide capacity to scale our portfolio with our regional operating partners. As we enter the final quarter, our focus remains on maintaining this momentum and positioning the company for another strong year in 2026. With that, operator, we'd like to open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Ronald Kamdem with Morgan Stanley. Ronald Kamdem: Great. Congrats on a great quarter. Just one quick one and a follow-up. I think the 90% spot occupancy, I think, was a sort of a key marking point for investors and the thesis was always that there would be operating leverage at this point to continue the growth going. So I just wonder if you could talk about just how much more occupancy upside do you see from here realistically in the portfolio and the pricing strategy as you sort of hit this point to continue to maximize growth. Danny Prosky: All right. Well, I'll go ahead and start with that one. So I would say the maximum upside from 90% to 100% is 10%. So that's our max. I get asked all the time, where do you think you're going to be at the end of next year? What is the maximum? The truth is I don't know. What I've been saying all along is I expect over the next few years and over the past couple of years, which we've already seen, that we're going to see all of the metrics continue to move in our favor just because of the supply-demand fundamentals, right? We've seen occupancy go up, we've seen RevPOR go up, we've seen margins, NOI, et cetera. I expect over time, that will continue. I don't necessarily think that every single quarter is going to have higher occupancy than the prior quarter. We've seen a lot of that. We did see a little bit of a downtick at the beginning of this year because of flu at our SHOP portfolio. Obviously, Trilogy did very well in Q1 because of the skilled side of the business. It's now early November. It's only been a little over a month since we ended the quarter. So far, I can't say that anything has made me feel differently with what we've seen. That being said, we've got the holidays coming up. And we oftentimes see a little bit of a downturn right before the holidays. I can tell you that we consistently see Trilogy's skilled occupancy drop a little bit right before Christmas, and then it picks up during the first 10 days of January, that seems to happen every year. I expect the trend will continue. I expect us to continue to be able to price at a rate higher than inflation. I've been -- I think it's going to be around 200 basis points, sometimes a little more, sometimes a little bit less. But I think if you're seeing 3% inflation, I think we should be able to price at a 5% increase or better. Clearly, as occupancy goes up, it gets a little bit easier to do that. And I expect that the positive trend will continue. As far as the maximum and the amount, it's really hard to say. Ronald Kamdem: Great. And then if I could just get a quick follow-up in there. Clearly, you guys have been busy on the external growth front in terms of starts, acquisitions, the pipeline. But I guess my question is just there was a Wall Street Journal article about a large PE player maybe even selling some senior housing. Just can you talk about the competitive environment? Why hasn't it gotten more competitive given some of the unlevered returns that you guys are getting in the space? Danny Prosky: Yes. So I saw that article as well. I know that at least one of the acquisitions we did was from that seller, and maybe more, but I know one for sure. I think that you've seen maybe a little bit more people buying, but I also think -- I'll let Stefan comment because he's closer to it than I am. I also think you've seen more opportunities as results improve across the industry, I think you've seen more people come to market as the buildings that they've developed, let's say, in the last 5 or 10 years, start performing better and better. I think you've seen more assets come to market. So demand may have ticked up a little bit, but I think supply has as well. I don't know, Stefan, what do you think? Stefan K. Oh: I think that's exactly right. I think what you've been seeing is a lot of folks have been holding out on selling and kind of waiting for the performance to improve before they make a move. And now that's happening, some of these private equity groups that have maybe even gone beyond the end of their expected fund life are now making moves to take these assets out to market. So it's -- I think you are seeing a bigger number of assets or a larger group of assets that are being put out in the market. But I also think that this is RIDEA, and it's a difficult business. And so groups are -- it's a hard market to enter into, and it takes a long time for you to learn this business. And I don't think they're just going to jump in without being diligent about how they're approaching this market or this industry. Operator: Your next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Austin Wurschmidt: So I want to go back to a topic from last quarter and something, Gabe, that you hit on a little bit in your prepared remarks. And just kind of help me understand the step down a little bit in ADR growth this quarter versus last quarter, specifically within that skilled segment of Trilogy. And would you just expect over time Medicare Advantage to continue to improve on a sequential basis given that partnership that you had previously put in place? Gabriel Willhite: Yes. Austin, thanks for the question. It's a good one. Trilogy has got a lot of levers to pull within the average daily rate in their skilled business. And part of that is like what we've talked about, optimizing quality mix to prioritize Medicare and Medicare Advantage plans and deemphasize lower reimbursement sources because Trilogy provides a high quality of care that comes with a high expense. And so they're trying to optimize from those payer sources. So obviously, they're prioritizing Medicare and Medicare Advantage plans. As you get to higher and higher occupancy, it's easier to have for that prioritization process to take place. And even within those 2 different Medicare-driven payer sources, with Medicare Advantage plans, you have pricing that varies considerably among the different plans that you partner with. What Trilogy is doing now is trying to find the Medicare Advantage plans that align with them on quality and are willing to provide a reimbursement that matches up with the quality that they're providing. So I do think that they'll have more flexibility, and they are constantly reevaluating which plans they're partnered with and whether the rate makes sense. And I do think they'll have a sustained ability to optimize those partnerships and in turn, really drive rate with Medicare Advantage. On the negative -- more negative side, Medicare is not growing as fast as it was last year because it's always retroactive to inflation and inflation has just come in. So last year's rate increase for Medicare was over 6%. This year, the national rate is going to be 3.2%, I think Trilogy is going to be a little bit above that, not materially. And so that would be a little bit of a growth headwind for Q4, but we do expect it to be at least partially offset by gains in Medicare Advantage. Austin Wurschmidt: That's very helpful. And then maybe sticking with Q mix, should the improvement in Q mix within Trilogy be a driver of both NOI growth and margin expansion as that continues to improve? Or is the trade-off and higher rate, an offset to the higher senior housing margin portion of it? Danny Prosky: Yes. So it doesn't take away from senior housing, right? The senior housing beds are separate from the skilled beds. But I think what you'll see is you'll see more Medicare and Medicare Advantage and less private and Medicaid. And certainly, you're going to see higher NOI and higher margin with Medicare and Medicare Advantage than you will with private pay and Medicaid. On the AL beds, the AL and IL -- unless Trilogy makes a decision to convert a wing from AL to skilled, those are separate lines of business. Does that make sense? Austin Wurschmidt: Yes. No, that's helpful. I mean I was talking about the entire component because the margin stepped down sequentially within Trilogy same-store pool. I recognize there's some short-term expense maybe headwinds in there, but just talking kind of bigger picture and over time, given the fact that I think the resident days component of senior was up over 200 basis points sequentially and yet that margin stepped down. And I'm just trying to get a sense of how that trends over time because obviously, the rate you're getting on the senior housing piece within Trilogy is much lower than the rates within the skilled component. So just trying to balance those 2, but understand how that flows to the bottom line as well. Danny Prosky: Yes. So as I kind of start off by saying earlier, I expect margins will continue to improve. It doesn't mean they're going to go up every single quarter over the prior quarter. I mean, clearly, the margins, it was better this year than the same quarter last year. You're right, it did tick down a little bit for Trilogy over Q3 -- I'm sorry, versus Q2, excuse me. I think we saw something pretty similar last year. Several things happened in Q3 that affect the margin. And it's not one item. They purchased a lot of flu vaccines, for example, in Q3, which is constrained the number of beds they have. It's a big dollar number, but they don't get the revenue until they administer those shots later on in the year. I think there's a component also related to employee health insurance where employees -- Trilogy self-insured, so employees go through the deductible and there's a little bit more cost to Trilogy. It's really a bunch of things of that nature. The Q2 margin was jumped up considerably versus Q1. So I think it's a combination of those things. Over time, I would expect the margin to continue to improve. It doesn't mean we're not going to have one quarter where the margin drops a little bit from the prior quarter. Gabriel Willhite: And keep in mind, Trilogy is Midwestern concentrated, right? So the winter months come with higher expenses just related to the weather and things like that. But to Danny's point, I think it's spot on. We're not sacrificing margin to go into 2 different Q mix here. We do expect that to result in higher margin. Operator: Your next question comes from the line of Michael Carroll with RBC Capital Markets. Michael Carroll: I wanted to touch back on Gabe's earlier comments in his prepared remarks about leveraging Trilogy's revenue management system with your existing SHOP tenants. I mean how much of the portfolio of that traditional SHOP portfolio is currently utilizing Trilogy software here? And can you provide some examples on how that's driving better results? I mean, are we seeing that in the numbers today? Gabriel Willhite: Mike, it's a great question. I think we're uniquely positioned, like I said, I think it's a differentiator for us to have the type of alignment we do with a platform like Trilogy, who does it at a really high level. For those that don't know, we've got a really unique incentive plan with Trilogy, where they have -- we have the first of its kind manager equity plan where we issue their incentive compensation using the currency that's AHR stock. So we've completely aligned their incentives to support our other SHOP operators in a way that's pretty unique to us. What that does is gives Trilogy a financial incentive to meet with our operators to let them know what their best practices are, and that's been going on for years. We took it this year to the next level where we've got assessment tools and also dashboard capabilities that we can roll out from Trilogy's platform to our shop operators as they desire to participate in it. I don't want to overstate where we're at right now. I don't think the numbers today are fully reflective of the benefit of that Trilogy platform. We're still in pilot phases with operators on that. I think what you'll see is over the next year and 24 months, probably an outsized input from Trilogy's platform as we really start to lean into it and optimize for it, and it's not going to be just limited to revenue management, it's going to be sales, marketing and search engine optimization. It's going to be employee training, employee retention strategies. It's going to be potentially IT solutions. And even today, we're leveraging Trilogy's development capabilities because they've got internal development, to identify opportunities within our existing SHOP portfolio where we can basically copy the expansion strategy that Trilogy has been using effectively to expand very highly occupied buildings on land that we already own and derisk the development with really high IRRs. Unfortunately, not a ton of dollars available in that way, but we're just incrementally growing in every way we can and really leaning into Trilogy's platform in any way we can. Danny Prosky: Yes. So we've already identified the first non-Trilogy campuses. We'll be utilizing Trilogy's development arm to do expansions and add builds. Gabriel Willhite: And to be clear, to get out in front of maybe your follow-up question, Mike, we're not planning to do ground-up development with other operators through Trilogy at this point. That's not what -- that's not the strategy. It's really to take opportunities that currently exist within the portfolio to expand on buildings that we already own. Michael Carroll: How receptive are these operators to having the system kind of rolled out into their platform? And I guess, how difficult is it to actually implement? I mean, are we talking about a few quarters here to kind of get it implemented? Or is it a longer-term process? Gabriel Willhite: It's a great question. I think the reason why we're partnered with the operators that we are is because they're very good. With being very good, certainly comes a reluctance to have somebody else tell you what to do. They certainly are reluctant to having REITs tell them how to run their businesses, and I completely understand why. They want to run them the way they do. It's, I think, far easier when you see somebody like Trilogy, who's also an operator who's gone through the same things that they have, who has the same issues that they have, but can demonstrate that they've executed at a high level on certain things. I don't expect Trilogy to be de facto operating for other operators and using every one of these different verticals and strategies to push through to them to force them what to do. What I do expect is for us to be able to identify certain soft points in certain operators and be dynamic in it and suggest, hey, if Trilogy can help you in this particular issue, please utilize them and do it. It also, I think, will be really helpful for operators that need to scale. So we prioritize regional operators because we think it provides better quality outcomes for our residents and you can control the culture better, provide upward mobility for your employees. There's a lot of benefits that come from it. What you sacrifice is a little bit of scale and resources. If we can augment what they already do well with just some back-office support and more resources to help them scale, I think it's a benefit for both and people are more willing to partner with Trilogy on those initiatives as well. Brian Peay: And by the way, I would just add to that, that this is really a lifelong journey. I mean Trilogy was a great operator when we bought into them 10 years ago. They're a much better operator today. And I would anticipate that they will continue to learn and grow and change and evolve. And all of those things would be available to our operator base. Danny Prosky: And some are more receptive than others. Operator: Your next question comes from the line of Farrell Granath with Bank of America. Farrell Granath: My first question is about your pipeline. So I know this last quarter and then this quarter, we've been seeing an acceleration from the $300 million to $450 million. So I was wondering if you could add a few comments about that momentum and how to think about that going forward. Stefan K. Oh: Yes. Thanks for the question. So I think if you think back to where we were a year ago, we were basically doing acquisitions where we had the inside track and then the opportunity for us to start doing external growth came about, and we were really just ramping up our pipeline at that point. So I think I think what you're seeing now is the fruits of that and also the fact that we have added 2 new operators to the mix. So it's been a very, I'd say, linear progression in terms of how we've gotten here. But I think what we're seeing now is kind of where we expect it to be, and it's giving us, I'd say, a strong end to 2026 -- 2025 and then a good start for 2026. Danny Prosky: Yes. So Farrell, I can't tell you what we're going to do in 2026. But I can tell you that we're going into 2026 with a much more robust pipeline than when we entered 2025 simply because our stock didn't reprice until late 2024 to the point where external growth became very attractive. But I feel pretty good about 2026. Farrell Granath: Okay. And I also just wanted to get any updated thoughts on your MOB portfolio, seen an improvement in performance also with the guidance bump, but we've also seen peers selling large chunks of MOBs. I was curious if your thoughts around reinvesting yields for the sale of MOBs or if you're content with the current performance. Danny Prosky: So this is Danny, Farrell. So we started selling MOBs 4, maybe 5 years ago, and we've sold about 1/3 of them. I believe at the peak, we had about 112. And I think today, we're somewhere in the 70 range, give or take. Now we've sold 1/3 as far as number of buildings. It's less than 1/3 as far as NOI because we sold the worst 1/3, right? We sold the smaller ones, the ones that had less growth. I think you're seeing a little bit of benefit there in our growth within MOB. It's actually ticked up. And back during COVID, we were about 35% MOB from an NOI perspective. Last quarter, we were under 17%. And I expect that number will continue to go down. Number one, we're divesting MOBs, although we've divested -- we're always going to be selling a few. We sold most of them, but I think there's a few more that we'll be selling probably this year and next. And of course, we're growing our RIDEA side of the business, both Trilogy and SHOP at a much faster clip. So it's not -- we've already been selling MOBs and redirecting that cash into seniors housing. I expect we'll continue that. Now the MOBs that are remaining are ones we like. They tend to be more institutional, larger, better buildings. And I think we'll see more growth out of those than we would have seen from the ones we sold. So we're not necessarily looking to just get out of the business, but it's certainly not where we see the best risk-adjusted returns today. We haven't bought an MOB in years. Operator: Your next question comes from the line of Michael Stroyeck with Green Street. Michael Stroyeck: So we touched on this a bit already, but within the Trilogy business, the percentage of resident days coming from Medicare, Medicare Advantage has declined modestly as the year has progressed. I guess, is there a seasonality component to that? Or has it become, I guess, incrementally more difficult to push occupancy from those payer sources in recent months? Gabriel Willhite: You're exactly right, Mike. There's a seasonality component to it. So typically, the trough of occupancy for skilled nursing is in September each year. You see through the summer months, kind of occupancy declines a little bit and then ramps and peaks in Q1 of the year kind of in the colder seasonal months. What we're seeing, though, this year is less seasonality than what we typically do, and that's what's driving Trilogy's 270 basis point plus occupancy increase year-over-year. Michael Stroyeck: All right. And that same, I guess, seasonality applies to like the payer sources. Is that fair? Gabriel Willhite: Yes. Michael Stroyeck: Okay. And then I guess, sticking with Trilogy, with the higher acuity versus last year, how much have they had to increase headcount in recent quarters? And how quickly would Trilogy be able to pull back on expenses if there is a scenario where it does become harder to achieve additional increases in acuity? Danny Prosky: Honestly, I couldn't tell you exactly how much headcount they've added. I can tell you that when they have to flex their staffing, they typically do it with their flex force or with additional hours as opposed to additional staff. So they have -- they set up their own travel nurse organization right around during COVID. And basically, if they need more or less staffing, they utilize those Trilogy travel nurses to flex the force up or down. It's not so much that they hire and let people go. It's more that they flex their existing staff. Brian Peay: Yes. And keep in mind, Trilogy's turnover is industry-leading, which is to say it's less. So it's around -- it's in the 40% range. Traditionally, for their peers, you're going to see a 100% turnover rate. And it's strictly because Trilogy is such a great operator that they're able to retain their people. But I bring that up to say that essentially, hiring is a perpetual process at Trilogy. They are constantly replacing those 40% that are leaving and constantly trying to improve the workforce. And part of that is census driven, but it's more just a perpetual way of life there. Operator: [Operator Instructions] Your next question comes from Alec Feygin with Baird. Alec Feygin: Maybe to speak for the first one, can you speak about the deal volume and the competition for the newer senior housing that you have identified? And how often are you likely to compete with the other public REITs for deals in your market? Danny Prosky: It doesn't feel -- I mean, Stefan, you're closer to it than I am. It doesn't feel like it's all that often. We tend to do smaller transactions, 1 building, 2 building as opposed to $0.5 billion or $1 billion deals. It doesn't mean we haven't done those, and we wouldn't do those in the future. But it's -- with the deals that we're competing on, a lot of them are brought to us through our operating partners. I mean, a significant percentage are brought to us through our operating partners. So when I look at who's bidding, yes, there are some of the other REITs out there, but more often than not, it's going to be a non-REIT competitor. I don't know, Stefan, what would you add? Stefan K. Oh: Yes. I mean, I would echo that. About half of what we're -- what we have in the pipeline closed have been deals that have been off market. And that's one of the advantages that we have certainly had with the addition of WellQuest and Great Lakes to our operator pool is that not only are we diversifying into new markets and opening ourselves up to finding other locations and markets that we like that we can buy, but we've also been able to partner with them on a number of deals where they are just -- they're bringing them to us directly. As far as other marketed deals that we're competing on, I mean, it is really a mixed bag. I mean we're seeing -- we are occasionally seeing the REITs. We're occasionally seeing other PE that have been in the space for a while. And sometimes we're seeing local investors or local operators as well. Alec Feygin: Nice. Thanks for the color. Second one, maybe to invert an earlier question, but are there any best practices from regional operators that could help Trilogy, especially in new markets like Wisconsin? Is the -- can it be a 2-way street? Has it been a 2-way street? Danny Prosky: That's a good question. I mean I'm sure they have. I mean we have an operator summit every year where a big chunk of it is talking about best practices. I'm trying to think of some of the specific things. Gabe, if you give any color or Stefan? Stefan K. Oh: Yes. I mean the operator summit is very well attended. And I think regardless of who is in the audience, whatever operators up there talking about their best practices, they're getting good attention. I mean we have definitely seen some cooperation and partnering with -- between some of the operators and how to work on specific parts of the operations or when it comes to maybe bundling versus unbundling pricing and things like that. So there have definitely been several occasions where we've seen our operators benefiting from each other's knowledge and experience. Operator: Your next question comes from the line of Michael Goldsmith with UBS. Michael Goldsmith: Now that we're seeing more SHOP deals come in, can you talk a little bit in more detail around the acquisition strategy? Do you have a view of independent living versus assisted living versus memory care? And then are you targeting unstabilized deals or stabilized deals or you just more agnostic? Just trying to get more understanding of the strategy going forward. Danny Prosky: I would say all of the above. Our acuity probably is -- I think certainly in comparison to Welltower and Ventas, I would say we probably have a higher acuity portfolio, more AL and memory care, although we have IL and we acquire IL, it's not that it's all AL and memory care. We're really looking for quality buildings that will continue to provide good earnings growth for the next 5 years, not just what can we buy today at a 7.5% or 8% cap that will be immediately accretive. And it's a mix. I mean most of what we bought last year and this year tends to be newer product. A lot of it built in the last 10 years. Not all of it, we prefer newer buildings, but there hasn't been a whole lot of development over the last 5 years. So there's not as much new product as there has been in years past. We've got some stabilized stuff that is in the 90s that we are at a more stabilized cap rate. And there's a lot of newer assets, some stuff that just -- if you look at the 5-building portfolio we did with Trilogy, 4 of those buildings only opened within the last year. So they're all new, but they're not yet stabilized. And with the stabilized buildings, you're getting a lower in-place cap rate. You're getting more growth opportunity. You're getting a situation where once it's stabilized, you're going to get a higher yield than something that's already stabilized, and a lower price per unit. You're going to get more of a discount to replacement cost on something that's unstable versus something that's stable. So it's a mix, but we're always trying to find assets that will continue to provide good organic earnings growth in '26, '27, '28, '29, et cetera. Michael Goldsmith: Got it. And maybe just as a related follow-up. Just maybe can you talk a little bit more about the process and what you're focused on? Are you focused on the operator? Are you building a data platform to analyze acquisitions in micro markets on certain demographics or incomes or home values? Just trying to get an understanding of where the focus is. Danny Prosky: So I'll start off, and then I'll let Stefan finish. I'll give him the hard part. But what I would say is that we tend to identify the operator before the building. We are more likely to work with our existing operators and say, look, here's an opportunity in your market. And by the way, when we go see it, they'll be with us. What do you think of this building? Oftentimes, they know it, maybe they've managed it in the past. Or hey, what's in your market that you think we can go out there and try to buy before it goes to market? It's -- we typically don't find a building and then put it under contract and then say, okay, now let's figure out who's going to operate it. So we tend to go after the operator before the building. And in the case of Great Lakes and WellQuest, we identified them way before we went out and found buildings. We worked with them to help build the portfolio, and that's why we've already got a substantial number with each operator. But I don't know -- and I know the processes are different, Stefan, but maybe you can give us a little bit more light on that. Stefan K. Oh: Yes. I mean that is the main point. And that's exactly what we've been doing in terms of going to the operator, identifying the operator, and that's why we've had that strategy. It is really to find the operator who has the expertise in certain markets and regions. And then from that point, identify potential communities that we might want to acquire. And we are doing that hand-in-hand with our operators. We -- if something comes to us on a marketed basis, literally, the first thing that we do is we go and we talk to our operator in that market, and we ask them what they think about it. And if it's interesting enough, we'll underwrite it together. We'll go out and tour the property together and really go from beginning to end through the process all the way through transition to make sure that we're fully aligned on every community that we're acquiring. And we feel much better conviction when we can do it in this manner than if we were just trying to do it on our own and identifying properties and then going out and trying to find the right operator. To us, that it needed to be reversed. We had to be working with the operator first. Operator: Your next question comes from Seth Bergey with Citi. Seth Bergey: I guess I just wanted to follow up a little bit on the pipeline. Of the kind of existing pipeline, is that primarily with existing operators in Trilogy? Or is that -- are there any kind of other new operators that we should be thinking about that you're looking to kind of add to the mix? Danny Prosky: I think it's all existing operators in Trilogy. There's nothing in our pipeline that is -- that would be an operator outside of our existing grocer. Stefan K. Oh: Including WellQuest and Great Lakes, of course, now considering them existing operators. Seth Bergey: Yes. And then I guess just following up a little bit around the kind of competition just as senior housing continues to perform well. Are you seeing any changes kind of with asset pricing as you kind of look at the opportunity set? Stefan K. Oh: I think, as I mentioned earlier, really, we have not seen much of a shift. Perhaps there's been maybe a moderate uptick. But quite frankly, it's been very stable. I think buyers are -- they're still being very efficient in how they're underwriting. We haven't seen any kind of fervor in terms of driving up pricing on a consistent basis. Operator: And with no further questions in queue, I'd like to turn the conference back over to Danny Prosky, President and CEO, for closing remarks. Danny Prosky: All right. Well, thanks, everybody, for joining. We really appreciate your interest. And obviously, if there's any follow-up questions, feel free to reach out via myself, Brian, Alan, and we're always available. Thanks a lot. Have a great weekend. Operator: This concludes today's conference call. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Rapid Micro Biosystems Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your first speaker today, Mike Beaulieu of Investor Relations. Please go ahead. Michael Beaulieu: Good morning, and thank you for joining the Rapid Micro Biosystems Third Quarter 2025 Earnings Call. Joining me on the call are Rob Spignesi, President and Chief Executive Officer; and Sean Wirtjes, Chief Financial Officer. Earlier today, we issued a press release announcing our third quarter 2025 financial results. A copy of the release is available on the company's website at rapidmicrobio.com under Investors in the News and Events section. Before we begin, I'd like to remind you that many statements made during this call may be considered forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements, including, but not limited to, statements relating to Rapid Micro's financial condition, assumptions regarding future financial performance, anticipated future cash usage, statements relating to the company's term loan facility, guidance for 2025, including revenue, expenses, gross margins, system placements and validation activities, expectations for and planned activities related to Rapid Micro's business development and growth, including the expected benefits from our distribution and collaboration agreement with MilliporeSigma, customer interest and adoption of the Growth Direct System, and the impact of the Growth Direct System on their businesses and operations, and statements regarding the potential impact of general macroeconomic conditions on our business and that of our customers. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors, including our ability to meet publicly announced guidance, the impact of our existing and any future indebtedness on our ability to operate our business, our ability to access any future tranches under our debt facility and to comply with all its obligations thereunder, our ability to deliver products to customers and recognize revenue and market and macroeconomic conditions. For a more detailed list and description of the risks and uncertainties associated with Rapid Micro's business, please refer to the Risk Factors section of our most recent quarterly report on Form 10-Q filed with the Securities and Exchange Commission as updated from time to time in our subsequent filings with the SEC. We urge you to consider these factors, and you should be aware that these statements should be considered estimates only and are not a guarantee of future performance. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 7, 2025. Rapid Micro disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. And with that, I'll turn the call over to Rob. Robert Spignesi: Thank you, Mike. Good morning, everyone, and thank you for joining us. I'll begin this morning's call with a brief overview of our third quarter performance. Next, I will discuss the record multi-system order we announced this morning and then review our MilliporeSigma partnership. I'll conclude my prepared remarks with a few comments on our updated 2025 outlook and then turn the call over to Sean for a more detailed review of our financial results and outlook. This morning, we reported total third quarter revenue of $7.8 million, above the midpoint of our guidance range, representing our 12th consecutive quarter of meeting or beating revenue guidance. Within product revenue, consumables, which are a key indicator of customer demand and usage, increased 40% to a quarterly record. This strong performance helped offset a difficult comparison in system revenue, which included 5 Growth Direct placements versus 7 in the prior year. Service revenue grew 12% compared to Q3 2024. Recurring revenue, which is comprised of consumables and annual service contracts, increased more than 30% year-over-year. Third quarter gross margins were 9%, reflecting a 70 basis point improvement from the prior year quarter. Higher revenue and productivity gains drove service margins to 40% in the quarter. While product margins were slightly negative, we expect progress on our product cost reduction and manufacturing efficiency initiatives to deliver positive product margins in Q4. Looking forward, we expect continued meaningful gross margin improvement in 2026. Now I'd like to turn to the significant commercial win we announced earlier this morning. In October, we secured a record multi-system order from an existing top 20 global biopharma customer, with contributions beginning in the fourth quarter and extending into 2026 and beyond. This customer is deploying Growth Direct Systems across multiple sites in North America, Europe and Asia Pacific. Additionally, the customer will utilize the Growth Direct platform across several manufacturing modalities and fully leverage all of our applications, including environmental monitoring, water and bioburden. This milestone underscores the Growth Direct platform's position as the leading fully automated solution capable of meeting the demands of increasingly complex, large-scale and global biopharmaceutical manufacturing. It also reflects the trust and strong partnerships we've built with our customers, and illustrates how customers have and will continue to adopt the Growth Direct platform. Importantly, we expect this customer to make additional purchases as they continue to expand and standardize across their network. This achievement is a testament to the outstanding work of our commercial team, and we are now focused on timely and efficient execution as our operations and service team support this global deployment. In addition to this multi-system order, broader customer engagement remains strong. Last week, we attended the annual PDA Pharmaceutical Microbiology Conference, the largest global industry event focused on microbiology and pharmaceutical manufacturing. Our key takeaways were twofold. Confirmation of the accelerating industry trend towards automation and validation from existing and prospective customers that the Growth Direct platform is the right product for modernizing pharmaceutical manufacturing and quality control. Now turning to our collaboration with MilliporeSigma. We remain closely engaged with our commercial team as they develop their global sales funnel. In the third quarter, they began to order Growth Direct Systems. Though as previously indicated, their purchase commitments will remain modest in 2025 and become more meaningful in 2026. Next week, Daiichi Sankyo will support our annual Growth Direct Day near their facility outside Munich, Germany. As you'll recall, this event will feature existing and prospective customers discussing the benefits and sharing best practices of the Growth Direct platform. And this year, we're pleased to welcome colleagues from MilliporeSigma and several of their prospective customers, making it our largest Growth Direct Day ever. In addition, later in November, our sales and marketing colleagues will work alongside the MilliporeSigma team in the Jason Booth's at the Pharma Lab Congress, also taking place in Germany. This will be a valuable opportunity to jointly engage customers and further accelerate commercial momentum for both organizations. Turning to the second component of our MilliporeSigma collaboration. We are nearing completion of an initial product supply agreement. We are currently conducting material validation studies and assessing additional areas to potentially expand the scope of the agreement. This agreement is a meaningful step towards driving margin improvement as these programs are expected to lower our direct product costs and improve gross margins, with financial benefits starting in the second half of 2026. In summary, we're pleased with our execution and very encouraged by the momentum building as we exit 2025. With strong year-to-date performance across the business and initial contributions from the recent multi-system order, we are raising our full year total revenue guidance to at least $33 million, which includes at least 27 Growth Direct System placements. As we look ahead to 2026, there will be 3 core drivers of revenue growth. First, a robust pipeline. Our sales funnel remains strong with multiple customers planning multi-system global rollouts. These opportunities are similar to our recent record order motivated by a compelling ROI and a drive to standardize and automate global manufacturing networks. Second, our business model is anchored by an expanding global installed base of over 150 fully validated Growth Direct Systems, generating durable recurring revenue from consumable and service contracts. And third, our collaboration with MilliporeSigma continues to progress well. They have begun to order Growth Direct Systems, and are building a global funnel of opportunities that we expect to contribute meaningfully to system placements in 2026. In addition to these revenue growth drivers, we remain equally focused on improving profitability. Margin expansion will accelerate in 2026, driven by internal product cost reductions and manufacturing efficiency initiatives, as well as anticipated benefits from the MilliporeSigma supply collaboration. Finally, we are well positioned to capitalize on industry tailwinds, including the accelerating use of automation technology and increased investments in the onshoring of U.S. pharmaceutical manufacturing. The Growth Direct strong customer value proposition, combined with our growing global top-tier customer base, optimally positions us for future pharma industry investment and growth. And with that, I'll turn the call over to Sean. Sean Wirtjes: Thanks, Rob, and good morning, everyone. Third quarter revenue of $7.8 million increased 3% compared to the $7.6 million we reported in Q3 2024. We placed 5 Growth Direct Systems and completed 4 validations in the quarter, and now stand at 174 cumulative systems placed globally, including 152 fully validated systems. Product revenue was essentially flat at $5.2 million in Q3, with record consumable revenue offsetting the impact of 2 fewer system placements compared to Q3 2024. Service revenue was $2.6 million, an increase of 12% compared to Q3 last year, driven by higher service contract revenue resulting from an increase in the cumulative number of validated systems on a year-over-year basis. Third quarter recurring revenue, which consists of consumables and service contracts increased 32% to $4.8 million with consumables growing 40% in the period. Nonrecurring revenue, which is comprised mainly of systems and validation revenue, was $3 million. Third quarter gross margin was 9%, marking our fifth consecutive quarter of positive gross margins and a sequential improvement of over 500 basis points compared to Q2. Product margins were negative 7% in the quarter, compared to negative 1% in Q3 2024. While consumable margins improved meaningfully compared to Q3 last year as we continue to make good progress on our product cost and manufacturing efficiency initiatives, overall product margins were slightly lower due to a short-term shift in the mix of revenue from systems to consumables. On a sequential basis, Q3 product margins improved by 4 percentage points compared to Q2. Service margins were 40% in the third quarter compared to 29% in Q3 last year. The improvement was driven by higher revenue and productivity as well as lower service headcount. Total operating expenses were $12.1 million in the third quarter, representing a decrease of 5% from the $12.7 million we reported in Q3 2024, due largely to benefits from the operational efficiency program we announced in August last year. Within OpEx, R&D expenses were $3.5 million, sales and marketing expenses were $2.9 million and G&A expenses were $5.6 million. Interest income was $0.3 million and interest expense was $0.4 million in the third quarter. Net loss was $11.5 million in Q3 compared to a net loss of $11.3 million in Q3 last year. Net loss per share was $0.26, both in Q3 this year and last year. With respect to noncash expenses and capital expenditures, depreciation and amortization expenses were $0.8 million. Stock compensation expense was $1.1 million and capital expenditures were $0.1 million in the third quarter. We ended the quarter with approximately $42 million in cash and investments. Now I'll turn to our outlook. As Rob highlighted earlier, we are raising our full year 2025 revenue guidance to at least $33 million, which includes at least 27 Growth Direct System placements. This guidance reflects the initial contribution from the large multisystem customer order we recently received. We expect this order to contribute meaningfully to system placements and system revenue in Q4 with related installation and validation service revenue recognized in the first half of 2026. These new systems are also expected to begin generating consumable revenue as they ramp to routine use in the second half of 2026. Turning to consumables. We expect Q4 revenue to step down sequentially and be consistent with Q2 levels with variability driven by the timing of customer orders and shipments. With respect to service revenue, we expect to temporarily step down to roughly $2 million in Q4 due to the timing of validation activities. Specifically, most validations of recently placed systems were either completed by the end of Q3 or are planned for 2026, including the validation of systems under the multisystem order we received this quarter. We continue to expect to complete at least 18 validations in the full year 2025 with at least 3 in the fourth quarter. Turning to gross margins. We expect our gross margin percentage to be in the mid-single digits in Q4. Breaking this down, we expect positive product margins for the first time, driven by higher system placements and continued progress on our product cost reduction and manufacturing efficiency initiatives. Conversely, we expect service margins to step down both sequentially and year-over-year. This reflects lower service revenue and a challenging comparison to last year's Q4, which remains our highest service revenue quarter on record. For the full year, we expect our overall gross margin percentage to be in the mid- to high single digits. We expect further meaningful gross margin improvement in 2026, driven by our ongoing product cost reduction and manufacturing efficiency initiatives, as well as increasing volume leverage and anticipated benefits from the MilliporeSigma supply collaboration as we progress through the year. We expect operating expenses to step down from Q3 to Q4, and to now be around $48 million for the full year, with full year depreciation and amortization expense of approximately $3 million, stock compensation expense of $4 million and CapEx of $2 million. For the fourth quarter, we expect interest income of $0.5 million and interest expense of $0.6 million to largely offset each other. Finally, we continue to expect to end the year with roughly $40 million in cash and investments. That concludes my comments. So at this point, we'll open the call up for questions. Operator? Operator: [Operator Instructions] And our first question will be coming from Thomas Flaten of Lake Street Capital Markets. Thomas Flaten: Congrats on the quarter. Sean, I just want to make sure I understand. In the last call, you indicated that you would be at the low end of the 21 to 25 system placement and now you're going to be at least 27, which leads me to believe there might be more than $1 million in terms of the guidance raise. Can you just square that circle for me? Sean Wirtjes: Yes. I think there's a couple of moving pieces here, Thomas. So we talked about -- so on the large multi-system order, I think when we talked last quarter, we have said consistently that we have a number of these kind of in the background where we have not been assuming them in the guide. So the transaction that we're talking about today is not something that was considered back then. So it is additive. We've got some things going the other way in Q4 in terms of the guide. So for example, service because of mainly timing, I think it's good news for 2026 service revenue. It does have a short-term impact on Q4 service revenue, will actually be lower than we expected it to be going back a quarter. So you've got some puts and takes here that are kind of netting out to that increase in the overall increase in the revenue guide. Thomas Flaten: Got it. And then kind of at a broader level, I know the multi-system order is across 3 geographies, and you said that you're going to benefit from onshoring. I'm curious, though, if you look more broadly, the demand you're seeing from a geographical distribution, what does that look like? Robert Spignesi: Yes, Thomas, it's Rob. So it's generally consistent with where it has been. So we -- as you know, we operate in North America, Europe and Asia. I think this most recent multi-system orders is a pretty good example, is a good proxy of end market conditions that we're seeing. Things are -- I wouldn't say they're more robust in one region than another. And many times, it's really dependent on the specific company that we're working with. So we anticipate -- it depends quarter-to-quarter and timing is always an issue depending on where in the world things are coming from. But I think the takeaways from this -- from our announcement is that our value proposition is resonating. Customers are trusting us to deploy globally, and we're seeing generally broad-based demand from our customer base to deploy globally. And notably, this particular win was not due to U.S. onshoring. So we expect that to be a potential benefit in 2026 and beyond. Operator: And our next question will be coming from Paul Knight of KeyBanc. Paul Knight: Rob, congratulations on the order in the quarter. This is what? You're going to have 6 delivered in Q4 on this order. What -- did you say total order size? Robert Spignesi: I didn't say total order size, nor do we say how many we're going to deliver this quarter specifically out of the order, Paul. But we're not going to disclose the exact order size, but you can think of it as a double-digit order. Paul Knight: Okay. And then the next question is in the world with analytical instruments, it's kind of an instrument becomes ubiquitous across the world within each major biopharma. So the question is how many multiple -- how many multiple orders are you looking at? How many customers are saying, I've got to have this in all 3 continents? Robert Spignesi: Yes, we -- certainly, we're striving for ubiquity, Paul. So that of course, is the ultimate goal. So we've had historically customers purchase multi-system orders and deploy globally. This is a notable example of a large single order, and we anticipate more of these going forward. As we said, we've got multiple multi-system orders in our funnel, and we -- our plan is to continue to develop those and close those, and get our customers going. Moreover, we also expect over time, that Merck Millipore relationship to build upon this momentum and success. And that's how we look at the next -- certainly into '26 and beyond. Paul Knight: And there's 2 aspects to Merck Millipore, right? A, you expect them to sell some units in their own channel and the other, more cost efficiencies. Where do you think you're on the cost efficiency journey with them? Are you just getting started and we really see that in '26? Sean Wirtjes: Yes, I think that's right, Paul. This is Sean. We are working through -- I think Rob mentioned some of this in his remarks, the process of looking at materials specifically right now. Some of the key materials that go into our consumables are things that we can procure from Merck. But as you do that, you've got to work through testing, validation, make sure it's all going to work and the performance is where you want it to be. And then there's a process of kind of moving that over to manufacturing, working through your existing inventory and transitioning over to the new inventory with that material in it. So I would think about the benefits from that kind of as we're looking at right now is probably second half of next year is when we'll start to see some benefits from that activity. Operator: And our next question will be coming from Brendan Smith of TD Cowen. Brendan Smith: Congrats on the [indiscernible]. Just wanted to get a sense of how you all are thinking actually about this momentum against the current backdrop. I guess we've heard broadly that pharma biotech spending has been, again, kind of broadly hitting instruments and services maybe more than other segments. Obviously, you all are still seeing some pretty steady demand, maybe with some nuances. But I guess my question is really as folks are getting their '26 budgets together and maybe start feeling more comfortable with revisiting some of that spend. Do you guys expect that could potentially be an outsized growth tailwind like in the first half of next year? Or is kind of the steady sequential growth we've been seeing how we should think about it in the next couple of quarters? Robert Spignesi: Yes, Brendan, it's Rob. I would say that it's -- we don't -- we're not seeing a demonstrable -- we haven't seen a demonstrable change. It's a little hard to prognosticate at this point about 2026, although it seems to be getting, I would say, maybe a click or 2 better. As we said in several -- what we are seeing though, the 80-20, if you will, is at least over the past several quarters, it's been fairly consistent where, to your point, yes, the CapEx budgets have been more scrutinized and things are going through more diligence, if you will. But as we've said several times, high ROI compelling investments are getting through. And I think we've been able to continue to be a beneficiary of that. And I think this most recent announcement is a clear and present example that pharma will continue to invest in high ROI projects. And also, as I've mentioned on previous calls, in some cases, in this most recent one, I think, is a good example where there's a strategic impact across an enterprise in multiple sites, we have seen growth direct projects be a bit more resilient to the vagaries of the budget tightening. Brendan Smith: Got it. Yes, makes sense. And then really quickly, just maybe piggybacking off of the onshoring conversation a little bit. Is also something we get asked about quite a bit. I guess it's feeling like most people are assuming it's not going to be a huge factor in '26, but could maybe start to hit in '27. Does that kind of gel with how you're thinking about it or what you're hearing? Or should we think maybe more '28 plus? Just kind of... Sean Wirtjes: I think -- yes. I think that's -- Listen, I don't think it's going to be a floodgate from what we can tell. And just we've been involved over the years in a lot of construction projects with new labs. So what you'll see is it won't be uniform. In some cases, entire sites are being built from a greenfield. In other cases, other sites are being expanded, which can move a little faster. In other cases, even labs are being expanded. So you'll have this maybe uneven mix. As we talked about last time, there might be a log jam with some of the design and A&E firms out there. So that may play a factor. But I think you could start to see potentially the leading edge. More broadly, I won't speak for RMB specifically, but more broadly in 2026. And then I would generally agree, '27 could be certainly feature more and then '28 and beyond, absolutely. Operator: And our next question will be coming from Dan Arias of Stifel, Nicolaus & Company Inc. Unknown Analyst: This is [ Rowan ] on for Dan. Maybe a quick one. Regarding the large multi-system order in October, how long does it typically take to plays validate and start seeing a ramp on consumable pull-through from these systems? Just trying to get a better view on the time line there. Or maybe just in general, as you alluded to having other, I guess, orders in the pipeline there, or potential orders in the pipeline? Sean Wirtjes: [ Rowan ], it's Sean. I think as we look at this particular deal, I think we expect it to kind of follow the following path. I think the placements, they're going to have a meaningful impact in Q4. And moving into the first half of next year, we expect to get those systems installed and validated. I think we have a motivated customer, and we are ready to go with them in that time frame to get that work done, which I think is a tailwind as we think about services in that time period. And then as we get into the second half of the year, what typically happens and what we expect in this case is that they'll -- we'll get the validations done. They'll kind of work through their internal process and start to ramp up into GMP use, and we expect to see at least the front end of that in the second half of next year from a consumable standpoint. So that's the kind of time frame we typically expect to see. I think different customers can move with different speed depending on resourcing and things like that. But I think this one we feel good is there's good alignment between us and the customer to work along that time line. Unknown Analyst: Okay. And maybe just one more quickly. In the past, Rapid has alluded to wanting to penetrate adjacent markets such as personal care. How much traction are you all seeing in that market? What has become of those efforts? Robert Spignesi: Yes. Thanks, [ Rowan ]. It's Rob again. So as we have mentioned, there are sizable adjacent markets. Personal care, as you mentioned, is certainly one of them. Our current strategy from a Rapid Micro direct sales commercial effort is principally focused on global pharmaceutical and biopharma. Our strategy to develop those adjacent markets, personal care, med device and others is generally focused on our collaboration with Merck MilliporeSigma. Some of those markets, they're large or can be large. They tend to be a bit more fragmented, a little bit different sales cycle. So having a larger sales force that Merck MilliporeSigma has focused on those markets and more uniformly spread globally is really our strategy to go after those markets. And our collaboration agreement allows for that, and encourages that, frankly. Great. And I think that's the last question. So thank you all for the question. We'll conclude the call at this time. Appreciate everyone's time and attention, and we look forward to speaking with many of you soon. Thank you. Operator: And this concludes today's program. Thank you for participating. You may now disconnect.
Operator: Good day, everyone, and welcome to the Open Lending Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this call is being recorded and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Ryan Gardella, Investor Relations. Please go ahead. Ryan Gardella: Thank you. I appreciate you joining us. Prior to the start of this call, the company posted their third quarter 2025 earnings release and supplemental slides to its Investor Relations website. In the release, you will find reconciliations of non-GAAP financial measures to the most comparable GAAP financial measures discussed on this call. Before we begin, I would like to remind you that this call may contain estimates or other forward-looking statements that represent the company's view as of today, November 6, 2025. Open Lending disclaims any obligation to update these statements to reflect future events or circumstances. Please refer to today's earnings release and our filings with the SEC for more information concerning factors that could cause actual results to differ from those expressed or implied in such statements. And now I will pass the call over to Jessica to give an update on the business and financial results for the third quarter of 2025. Jessica Buss: Thank you. Good afternoon, everyone, and thank you for joining us today. We are pleased to announce our results for the third quarter of 2025, which we believe reflects the transition we are making from a company stabilizing their business to what I would consider the new norm of running and operating Open Lending. When I assumed the role of CEO, 2 of my key objectives were to promote earnings stability and to guide the company towards predictable results for our shareholders. We have sought to achieve these objectives by fostering less volatile profit share unit economics and more segmented and sophisticated pricing changes. We have executed on both of these objectives with positive outcomes, as I will discuss today. In addition to the work we have done on our core Lenders Protection platform, we have recognized the need to diversify Open Lending's current offering to meet the evolving needs of our lender customers. Based on customer feedback, our first new product initiative was to deliver a pricing, underwriting and decisioning tool for our lender customers to use for their prime auto borrowers. Therefore, we are excited to announce the introduction of ApexOne Auto, our new prime credit automated decisioning platform. ApexOne Auto not only diversifies Open Lending's revenue by product, but also adds a reoccurring revenue stream driven by subscription-based minimum application volumes. ApexOne Auto will address the approximately $500 million per year opportunity to serve segments of the automotive credit market that our current decisioning engine does not. Built on our core LPP offering, ApexOne Auto extends our analytics into the prime auto lending segment, a strategic expansion that addresses the industry's shift towards higher-rated credit, where our customers and their borrowers demand faster, more efficient and more accurate loan decisioning and pricing. Over the years, we have received strong interest from our customers for products addressing the prime auto loan segment. To date, we've already launched with 2 customers with additional interest in the pipeline. There is strong applicability within our existing client base as the industry gravitates towards comprehensive solutions for the entire credit spectrum. Unlike our traditional LPP offering, ApexOne Auto Decision loans are priced and placed without the insurance wrapper or profit-sharing component, focusing purely on an automated advanced decisioning process that many financial institutions aren't equipped to handle internally. It is also worth noting that ApexOne Auto and LPP are complementary products with loans not approved in ApexOne Auto being seamlessly directed to LPP for review. As a result, we believe the use of ApexOne Auto by our customers may result in additional revenue from our core lenders protection platform over time. We believe ApexOne Auto is a logical expansion of our brand, helping to protect ourselves from competitive intrusion, while also giving financial institutions one vendor to provide them with decisioning support over the entire auto credit spectrum, which we anticipate will help us with customer retention. From an expense and investment perspective, ApexOne Auto was developed internally and no large outside capital investments have been made. ApexOne Auto gives Open Lending a new revenue opportunity that utilizes our existing expertise and, in the future, may contribute positively to our growth. We will continue to update our investors on our progress. While we recognize it is still early days as we begin the rollout of ApexOne Auto with our current LPP customers, we are committed to the future of Open Lending, and we are here to stay. Now I wanted to talk through our ongoing efforts to improve profitability and produce less volatile profit share unit economics in our core Lenders Protection platform. We are proud to say that we have delivered 3 consecutive quarters of positive adjusted EBITDA and reduced volatility in back book performance, including a positive CIE adjustment of $1.1 million. Further, we continue to apply conservative profit share unit economics to our current period originations, which we believe enhances the quality and sustainability of our earnings. Third quarter results also benefited from an 8% year-over-year increase in program fee unit economics, reflecting a more favorable mix of lenders. We facilitated 23,880 certified loans in the third quarter of 2025, down from 27,435 in the third quarter of 2024. This decrease primarily reflects our deliberate tightening of lending standards and targeted rate adjustments in lower-margin credit segments, particularly within SuperThin and credit builder profiles. We believe these tightening and repricing actions have positioned our book for more sustainable profitability in future vintages. Moreover, and just as importantly, we believe we have a higher quality book than we have had in the past in terms of having more loans with the characteristics that we believe drive profitability. We will continue to monitor and measure our progress to promote our desired outcomes. To that extent, I wanted to highlight 3 incremental pieces of data from our earnings supplement that I think deserve to be recognized on our call today. First, our certain mix by channel for the quarter was 89.8% through credit union and banks with the remaining 10.2% coming from OEMs, with a drop in the OEM production, primarily driven by our tighter underwriting requirements on lower credit debt files. As we have flagged in the past, we expect OEM 3 to perform more like a credit union, and we are now seeing them begin to steadily ramp up volume on our platform. There may be a dynamic of steadily or slightly increasing OEM share due to this ramping up. We expect these loans, however, to have similar loss ratio performance to those of our credit union customers and believe these loans will contribute positively to the overall quality of our book. Additionally, across the credit union landscape, we have seen financial health continue to improve with another quarter of strong credit union share growth. While we're mindful of ongoing challenges such as rising delinquencies, affordability pressures and moderating wage growth, these dynamics also create opportunities, and we're taking a proactive approach to capture them. Second, while flat compared to the second quarter of 2025, we are continuing to see refinance volumes recover and believe that this could be a positive tailwind for certain volume in 2026. And third, we're dedicated to continuously enhancing and validating our disciplined underwriting standards. Our current credit builder exposure has been reduced and SuperThin files now comprise a negligible amount of new originations. For the most recent quarter, our credit depth concentration in SuperThin and credit builder loans was 6%, down from 24% in the third quarter of 2024. On the pricing and predictive modeling front, we've partnered with a leading third-party expert to execute a series of onetime efforts aimed at reconfiguring and strengthening our pricing models. However, on the whole, this is not a onetime event. This will be regularly fine-tuning our pricing models with new data and new variables that reflect current and anticipated changes to macroeconomic conditions to stay ahead of the curve. This is a muscle memory that we will look to continue to build given our desire to be a best-in-class pricing and risk decisioner in the auto space. As further evidence of our commitment to making tough decisions and investing in the right places, we've also engaged with a third party to help our lender partners improve their performance with repossessions. We believe the servicing of claims is one of the driving factors of performance and severity once a loss occurs. Next, I wanted to walk through our progress on driving customer retention with enhanced service and technology. We've now rolled out the first phase of our lender profitability dashboards to customers, which have been well received thus far. These dashboards provide real-time data on the full life cycle value of our Lenders Protection platform, ensuring that customers see tangible value in our product before defaults start to happen. Since rollout, we have received early positive feedback from customers. I also wanted to mention that in the quarter, we added 10 new logos and had no customers cancel, which we believe is a testament to the changes we have made to improve customer retention. In the third quarter, we also hosted our 12th Annual Executive Lending Roundtable with 264 attendees, including credit union and bank partners. This was a fantastic and successful event that gave us an opportunity to hear directly from our customers and solicit feedback and ideas to help us increase the value of our products and relationships. We're thrilled to have had the opportunity to connect with our customers and are grateful they dedicated the time to identify and execute on the action items that we jointly feel are necessary to enable more opportunities to grow and to be better partners. Our industry has always been a relationship business, and there is no better return we get than on strengthening these relationships to ensure we continue to add value for our customers, their customers and our joint mission. We hold this event annually and look forward to next year's event. In addition, I'm pleased to announce the amendment to our reseller agreement with Allied Solutions, which has been a strong and loyal partner to Open Lending for over 12 years. This revised agreement demonstrates the strengthening of our partnership with Allied and their belief in our product. Allied has been instrumental to our growth since the early days of Open Lending. This updated agreement builds upon our original partnership, which has enabled us to expand our reach within the credit union ecosystem through Allied's valuable introductions and endorsements. Recognizing the evolution of our business, we've thoughtfully realigned the terms to better support mutual incentives and long-term sustainability, ensuring both parties are positioned for continued success. The new terms align very well with the behaviors and outcomes we are trying to build into our culture to retain and grow both current customers and new logos. This amendment also brings us future cost savings, which Massimo will speak more about shortly. We've also made continued progress on reducing costs and improving the accountability of our employee base. We continue to execute towards our committed operating expense reductions and now have clear line of sight to achieving our cost-saving goals. On the talent front, we continue to focus on retaining and attracting top talent to further our mission. We're actively looking to bolster our team in certain areas where we feel there is room for improvement, including actively recruiting for a new Chief Revenue or Growth Officer. We also look forward to a refresh to our go-to-market strategy once we have identified and appointed a new Chief Revenue Officer. We are also pleased to announce Ben Massey, who has been with us since 2022 and our Assistant General Counsel since January 2024, has been named General Counsel and Corporate Secretary effective November 7. Lastly, I would like to formally introduce and welcome Massimo Monaco, our newly appointed CFO, to his first Open Lending earnings call. Mas has been with us for just over 2 months, and he has already made a tremendous impact on the organization in many areas. Before I pass it over to Mas for a review of the numbers, I wanted to address some of the macroeconomic movements we have all observed in data recently. We have seen a lot of headlines about the K-shaped economy, highlighting vulnerabilities in near and non-prime borrowers. As of mid-October, over 6% of below prime auto loans in the industry were over 60 days delinquent, which is the highest currently on record. However, as you all know, we have been strengthening our book and tightening our credit box for over 8 months already. We believe we have taken steps to account for the conditions that are affecting others in our market segment right now, which we believe is why we have seen minimal impact to our profit share revenue in Q3 from the current credit environment on our prior vintages. As I mentioned earlier, we are constantly adding new information to our pricing and decisioning models to ensure we are ahead of the curve. And right now, we believe our changes starting in the first quarter of 2025 have positioned us well. The bottom line is that there is a lot of good news and insights within what appears to be another consistent quarter. And now I'd like to pass the call over to Mass for a more detailed review of the numbers. Massimo Monaco: Thanks, Jessica. I'm pleased to join you all on my first earnings call as Open Lending's CFO. As Jessica mentioned, I joined in August after more than 2 decades in financial leadership roles across the residential mortgage and financial services industry. I'm excited to bring that experience to Open Lending as we continue to strengthen our financial discipline and pursuing our growth strategy. It's a privilege to be part of such a talented team, and I look forward to connecting more with our investors and analysts soon. After spending a few months in the seat, I firmly believe that Open Lending has a bright future with significant potential and growth opportunities ahead. I look forward to building on the strong foundation already in place, driving renewed growth and value creation to our stakeholders, while advancing the company's mission to serve the underserved. Now let me walk through the numbers for the quarter and guidance before Jessica and I open up the line for Q&A. During the third quarter of 2025, we facilitated 23,880 certified loans compared to 27,435 certified loans in the third quarter of '24. Total certified loan volumes reflect typical seasonal patterns, and our strategic tightening of underwriting standards aimed at building a higher quality loan portfolio. To add on what Jessica mentioned earlier, when we exclude SuperThin and credit builder certs, our cert volume for the quarter were up approximately 7% year-over-year, highlighting continued momentum in our core higher-quality segment. While we anticipate volumes to remain relatively stable through the remainder of ' 25 on a seasonally adjusted basis, we believe we are well positioned for renewed growth in 2026 with improved underwriting and pricing actions. Our credit union and bank channel loans typically have higher program fees compared to our OEM loans, which leads to more favorable economics. Total revenue for the third quarter of 2025 was $24.2 million, up 3% from the prior year period and includes a positive $1.1 million change in estimate profit share revenue associated with historical vintages compared to a $7 million reduction during the prior year quarter. To break down total revenue in the third quarter of 2025, program fee revenues were $13.3 million, profit share revenues were $8.5 million and claims administration fees and other revenues were $2.4 million. As a reminder, profit share revenue comprises the expected earned premiums less the expected claims to be paid over the life of the contracts and less expenses attributable to the program. The net profit share to Open Lending is 72%. When cash constraints previously received is in excess of the expected profit share revenue, the amount of excess funds and the projected future losses are recorded as an excess profit share receipt liability. Profit share revenue in the third quarter of 2025 associated with new originations was $7.4 million or $310 per certified loan, as compared to $13.8 million or $502 per certified loan in the third quarter of 2024. As Jessica mentioned previously, one of the steps we've taken to reduce future volatility in profit share revenue related to the change in estimate is to book more conservative unit economics at the time of originations. At these levels, the unit economics equates to 72.5% loss ratio. And with the pricing actions now in place, we expect newer vintages to ultimately perform closer to a mid-60s loss ratio. We plan to continue booking at conservative unit economics going forward. Additionally, we do not anticipate recording future positive change in estimates to these newer vintages until the vintages are more seasoned. As Jessica mentioned, in the third quarter, we amended our contract with Allied, which we anticipate will generate over $2.5 million in annual cost savings once the changes are fully implemented in 2027. As part of this contract amendment, we've made a onetime payment to Allied of $11 million, which will generate ROI by eliminating a portion of future commission fees from businesses that is referred to us by Allied. This evolution to our relationship with Allied reinforces our mutual commitment, extending the term through 2029 and underscoring our commitment to prudent partner management. We believe this will contribute positively to our financial outlook. Overall, this revised agreement positions Open Lending for sustained growth while supporting valued partners like Allied. Operating expenses were $26.6 million in the third quarter of 2025 compared to $15.5 million in the third quarter of 2024, representing an increase of 71% year-over-year. Excluding the aforementioned onetime payment to Allied of $11 million, operating expenses were relatively flat to the third quarter of 2024. One of my priorities moving forward will be to closely monitor and control operating expenses and find efficiencies in our spending. The reduction the team already made will have a full financial benefit in 2026. Net losses for the third quarter of 2025 was $7.6 million compared to net income of $1.4 million in the third quarter of 2024. Diluted net loss per share was $0.06 in the third quarter of 2025 as compared to a net income per share of $0.01 in the third quarter of 2024. Adjusted EBITDA for the third quarter of 2025 was $5.6 million as compared to $4.5 million in the third quarter of 2024. Our third quarter '25 adjusted EBITDA excludes the onetime payment of $11 million made in connection to the amendment to the reseller agreement with Allied. We exited the third quarter with $287.7 million in total assets, of which $222.1 million was in unrestricted cash. We had $214.8 million in total liabilities, of which $134.4 million was an outstanding debt. Moving on to our capital allocation priorities. We have $21 million remaining on our share repurchase program, which expires in May of '26. Our intent is to utilize our balance sheet to invest in our organic business in a controlled and measured manner to fuel profitable growth. Further, the cash interest expense on our debt continues to be about equal to the amount of interest income being generated on our cash and cash equivalents on a quarterly basis. We remain in compliance with all of our covenants under our credit agreement and expect to remain in compliance based on our projected performance. Finally, I wanted to address our guidance. For the fourth quarter, we are expecting total certified loans to be between 21,500 and 23,500. With that, I will open it up for questions. Operator? Operator: [Operator Instructions] I will take our first question from Peter Heckmann with D.A. Davidson. Peter Heckmann: It's good to hear about ApexOne Auto, the new credit decisioning tool. Jessica, I think you mentioned it was going to be on a subscription basis. But I think you said something about some -- like a volume component. Can you talk a little bit more about how that might work? How much of the payment might be fixed versus volume-based? Jessica Buss: Yes. Nice to hear from you, Peter. Thank you for the question today. Yes, ApexOne Auto will be a completely subscription-based product with -- we're looking to do 3-year contracts, which will have monthly minimums and then any overage per loan will be charged based -- that is over the minimum amount. So it will equate to like a per loan fee. None of it will be variable, meaning that we will have a minimum. So the only variable amount would be if there was an overage. And then anything that is -- and I think I mentioned this during the script, anything that is not then decisioned in ApexOne would be eligible to go into the LP (sic) [ LPP ] product, so they would be complementary to each other. But anything related strictly to ApexOne would be with a noninsurance wrapper and would not be subject to any change in the revenue once booked, it would be on the subscription basis. Peter Heckmann: Okay. That makes sense. That makes sense. And then Mass, just a follow-up on the Allied change in terms. I think you said you would approximate about a $2.5 million annual savings. Did you say that, that was going to start phasing in next year? Or it was just going to be for the full year 2027? Massimo Monaco: A small amount we expect to phase in, in 2026, the second half of 2026, but the lion's share of it will be realized in 2027. Jessica Buss: And Peter, it will have applicability then sort of going forward in perpetuity, right? It will have a benefit. Peter Heckmann: Right. It's an ongoing benefit. Jessica Buss: Yes, correct. Operator: Our next question comes from Joseph Vafi with Canaccord. Will Johnson: This is Will Johnson on for Joe. Maybe just one kind of high level on the macro environment. Just curious kind of any more color you can share on when you think things could kind of stabilize and trends, you're seeing in the Manheim Index? And just any thoughts on conversations with customers? Jessica Buss: Yes. As we've sort of weave through our script, we feel like 2025 was a transition year. There was lots of tightening and changes we needed to make to our pricing models that we felt, and we do feel have proven to put us in a much better and less volatile financial position. We feel like we're very well positioned for sort of growth in 2026. There's a few things we can point to. We obviously aren't giving guidance into '26. We're seeing a lot more flow coming in from the refi channel. We believe OEM is starting to build some very positive momentum now live in 32 states with a few of the larger states coming live towards the end of the year. We are bringing in a new CRO, which we believe will also bring more of a strategic lens to how we approach our credit union. And of course, we are seeing an improvement in retention of our credit unions. If you were to actually look at year-over-year, our cert growth our cert volume, excluding credit builders and SuperThin's, which is where we took most of our underwriting action, our cert growth is actually up 7% year-over-year. So I think that gives us a good starting pad as we move into 2026. Operator: We will move next with John Davis with Raymond James. Taylor DeBey: This is Taylor on for JD. Maybe just to start on the 4Q certified loan assumptions. It looks like certs are supposed to be down about 14% year-over-year at the midpoint. So just curious what you're expecting from a refi versus purchase volume perspective, and then just also the contribution expected from your FIs, credit unions and OEMs. Jessica Buss: Yes. So seasonality, fourth quarter is one of our lowest volume quarters. So we did take that into consideration. And then again, we will still have some of the impact of the OEM strengthening that we put into place as that works through sort of its full year effect. There could be some uplift from refi. We are doing 3 different things right now to become more refi ready at working with active refi partners and our current credit union base, whether we see that uplift in the fourth quarter or we see that more going into 2026. And then, of course, again, there's still some uncertainty as to when we'll get some of the full benefits from OEM 3. I don't know -- and about 90% of our business is coming from the CU and the bank. So we would expect that to sort of stabilize as we move into the fourth quarter and into 2026. I think kind of our goal with, I'll say, OEM 1 and 2 is to -- that, that volume will remain below 10% of our overall sort of volume. I don't know, Mass, if you have anything else to add to that? Massimo Monaco: No, I agree. And we're comfortable with that OEM 3 or OEMs 1 and 2 at less than 10% of our volume or around 10%, but they could still grow as we grow the overall portfolio, the OEMs 1 and 2 could grow along with it. But the mix has been our focus. Taylor DeBey: Got it. Makes sense. And then maybe just one more on ApexOne. It's obviously very early days with 2 customers launched, but just curious longer term, what you're expecting from an uptake perspective and then a growth contribution perspective as well? And then does this make sense for all of your lenders to use or just a certain subset, just love to hear some detail on that. Jessica Buss: Sure. We would love to share. We're very excited about its launch and a product that we've been working on for the last couple of years as we've gotten feedback from our credit unions. And again, really wanted to diversify into the full credit spectrum. If we sort of look at the credit unions, we do business with today, we estimate that about 25% of the apps that we see are the subprime apps. And if we were able to capture what we -- and which is what is required, ApexOne, sort of look at all the applications, and we were to get about a 50% adoption rate, we're looking at revenues somewhere between $30 million and $40 million, which we consider to be significant. But again, early days, and that will take time as we start to sign credit unions up. We have seen a lot of interest from our credit union clients. Again, there's been sort of the flight to quality on paper as the macroeconomic environment is what it is. And so this also, I think, protects us from sort of being more resilient to different market cycles. So again, we're excited about this product for many different reasons. And we also think it has applicability outside of our credit union customers, right? So there's other institutions, financial institutions that are interested in getting into and learning about and participating in auto decisioning that don't have those tools that we may be able to partner with. Operator: [Operator Instructions] And we show no further questions at this time. I will now turn the call over to Chief Executive Officer, Jessica Buss, for closing remarks. Jessica Buss: Thanks, everyone, for your participation and support today. The third quarter represented tangible progress against the initiatives I laid out in my first quarter as CEO and believe that Open Lending is now in a stronger position today than it was just 6 months ago. We believe we are well positioned for growth in 2026, and I look forward to updating to you on our next call. Thank you. Operator: Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.
Operator: Good morning, and welcome to the Palomar Holdings, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Mr. Chris Uchida, Chief Financial Officer. Please go ahead, sir. T. Uchida: Thank you, operator, and good morning, everyone. We appreciate your participation in our earnings call. With me here today is Mac Armstrong, our Chairman and Chief Executive Officer. Additionally, Jon Christianson, our President, is here to answer questions during the Q&A portion of the call. As a reminder, a telephonic replay of this call will be available on the Investor Relations section of our website through 11:59 p.m. Eastern Time on November 14, 2025. Before we begin, let me remind everyone this call may contain certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include remarks about management's future expectations, beliefs, estimates, plans and prospects. Such statements are subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by such statements. Such risks and other factors are set forth in our quarterly report on Form 10-Q filed with the Securities and Exchange Commission. We do not undertake any duty to update such forward-looking statements. Additionally, during today's call, we will discuss certain non-GAAP measures, which we believe are useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute to results prepared in accordance with U.S. GAAP. A reconciliation of these non-GAAP measures to their most comparable GAAP measure can be found in our earnings release. At this point, I'll turn the call over to Mac. D. Armstrong: Thank you, Chris, and good morning. Today, I'm pleased to walk through our exceptional third quarter results. It was another outstanding quarter for Palomar, highlighted by record gross written premium, record adjusted net income, the 12th consecutive earnings beat and our fourth adjusted net income guidance increase in calendar 2025. These results underscore the strength of our distinct franchise and the effectiveness of our disciplined underwriting, diversified portfolio and consistent execution. We've intentionally constructed a portfolio of specialty products designed to perform through all parts of the insurance market cycle. Our portfolio consists of a unique mix of admitted and E&S residential and commercial property and casualty risk that provide balance and earnings consistency. Additionally, our newer businesses like crop and surety are scaling nicely and enhance the diversification of the book given their lack of correlation to the broader P&C market. Even when -- with the increasing balance of our book, we are not standing still. The Palomar team remains not only entrepreneurial, but also steadfastly committed to profitable growth. We continue to strengthen our franchise, entering select specialty markets that offer compelling risk-adjusted returns. As part of this effort, last week, we announced the acquisition of the Gray Casualty and Surety Company, a leading surety carrier with a strong national presence and an exceptional management team. This transaction meaningfully enhances Palomar's surety platform, bolstering our market position and complementing our existing operations. The acquisition immediately adds scale and provides access to attractive markets such as Texas, Florida and California. Gray only enhances the sustained execution of our Palomar 2X initiative of doubling adjusted net income over a 3- to 5-year time frame. We're thrilled to welcome the Gray team to Palomar. Returning to the third quarter, we delivered another quarter of strong financial results, highlighted by 44% gross written premium growth and 70% adjusted net income growth. Our operating metrics were equally as strong with an adjusted combined ratio of 75% and adjusted return on equity of 26%, demonstrating the strength of our underwriting discipline and the earnings power of our model. Our strong top line growth was not driven by a single line of business as all our product groups, say, for fronting experienced double digits growth in the third quarter. The balance in our mix of business, commercial and personal lines products written on an admitted and excess and surplus basis allows us to navigate property and casualty market cyclicality definitely. The balance book, combined with the numerous growth vectors across all our lines of business allowed us to outperform industry growth and profitability benchmarks in the third quarter and emboldens us to do so for the indefinite future. Turning to our business segments. Our Earthquake franchise is a great example of the balanced approach we take to constructing our portfolio. Our book of admitted and E&S residential and commercial earthquake products grew 11% year-over-year in the third quarter. A sequential improvement from the second quarter. Growth was driven by the sound performance in the residential earthquake market as we continue to see healthy new business production and strong policy retention, a robust 88% for our Flagship Residential Earthquake business. We continue to benefit from our 10% inflation guard, which affords our residential earthquake book meaningful operating leverage in a softening property catastrophe reinsurance market. Additionally, we have a robust pipeline of high-quality residential earthquake partnerships that we believe will provide incremental growth as we move into 2026. In our Commercial Earthquake business, the rate pressure experienced in the first half of the year persisted into the third quarter. During the quarter, the average commercial risk price decreased approximately 18% on a risk-adjusted basis, with large commercial accounts seeing more pressure than small commercial risks. Despite the rate pressure in the market, our commercial earthquake book grew during the third quarter, which reflects the strength and breadth of our franchise. We do not believe the rate pressure in commercial earthquake will ease over the near term, but we still expect to see growth for the remainder of the year and in 2026. We expect that the earthquake book will experience single-digit growth in the fourth quarter, although that is somewhat exacerbated by a onetime unearned premium transfer received in the fourth quarter of 2024. Overall, we remain convicted in our long-term ability to profitably grow our Earthquake business. The underlying profitability remains at a very high level with our earthquake average annual loss at a level considerably below that of 2023 and 2022. The stature of our residential earthquake book, which was 61% of the total earthquake book in the third quarter, combined with the expected further softening of the property cat reinsurance market will enable us to grow net earned premium even if primary commercial rate decline in 2026. As we have said time and time again, we have purposely built the earthquake book of business to navigate any market cycle. Our Inland Marine and Other Property category grew 50% year-over-year, which was a strong acceleration from the 28% growth in the second quarter. The quarter's performance was driven primarily by our admitted and residential property products, including but not limited to Hawaii hurricane, E&S flood and admitted builders risk. The Hawaii book grew close to 20%, and Laulima has emerged as the second largest rider of stand-alone hurricane coverage in Hawaii. Our residential flood product, while still a modest contributor to premium today, has experienced strong steady growth. We also believe our partnership with Neptune Flood will serve as a key catalyst accelerating the product's growth over the next 3 years. The Neptune partnership commenced writing new business on October 1, and we are encouraged with the initial production, which has been amplified by the temporary closure of the National Flood Insurance Program. Our Builders Risk franchise continues to stand out, growing 53% in the quarter. Like our Earthquake business, our suite of builders' risk products includes commercial and residential products written on both an admitted and E&S basis. Builders Risk is a national product with no geographical boundaries, and we are investing in talent where building activity remains robust. During the quarter, we added experienced underwriters in the high-growth markets of Boston and Dallas to sustain our growth and extend our reach. Importantly, we are achieving this growth in our Inland Marine and Other Property group despite the challenging commercial property market that has impacted our excess national property and commercial all-risk lines, again, underscoring the value of our differentiated and balanced mix across residential and commercial, admitted and E&S products. Our Casualty business delivered 170% year-over-year gross written premium growth, representing a nice sequential improvement from the 119% growth in the second quarter. We remain focused on segments of the casualty market where there is sustained rate adequacy. We are maintaining a disciplined approach to attachment points and net limits, leveraging quota share reinsurance to manage volatility and allow the portfolio to season appropriately. Through the third quarter, our average net line across casualty remained below $1 million with our largest line of business, E&S General Casualty, averaging roughly $750,000. In the quarter, we saw strong performance from the excess and primary general casualty, which grew more than 110% year-over-year in our Environmental Liability business that was up 119%. Real estate E&O, which is our longest tenure casualty line grew 65%. This quarter, we also wrote our first healthcare liability premiums, providing capacity to a segment amidst a hard market with technical rate increases exceeding 20%. Our casualty reserving philosophy also remains conservative and consistent. It is informed by ongoing analysis of loss emergence trends, attachment points and portfolio composition. As we've discussed in prior quarters, we continue to carry more than 80% of our casualty reserves at IBNR, well above industry standards. Maintaining this conservative position reinforces the strength of our balance sheet and provides confidence in the durability and predictability of our future results. Fronting premium declined 32% year-over-year, a function of the last quarter of impact from the termination of the Omaha National partnership. Fourth quarter results will better reflect the underlying performance in the Fronting business. We remain selective in choosing our counterparties. And while we expect to add new partners in the coming quarters, fronting is not our highest strategic priority. Our crop franchise delivered $120 million of gross written premium in the third quarter, doubling the $60 million produced in the same period last year. This strong year-over-year growth puts us well ahead of the pace to exceed our full year guidance of $200 million. Beyond the production during the quarter, we added talent focusing on the Kansas and Oklahoma markets that will help drive seasonal production in the first and fourth quarters of each year. These additions inform our revised premium expectation of $230 million for 2025. We remain confident in building the business to $500 million over the intermediate term. Additionally, the crop market conditions have been favorable so far this season with strong planting activity and growing conditions that appear to be better than historical averages. Based on what we are seeing today, we expect results to outperform the 15-year average industry loss ratio. These dynamics are an encouraging indicator for the remainder of the year. The third quarter is generally not considered a major reinsurance renewal period. However, it was active for Palomar as we placed seven treaties. Importantly, all treaties renewed on terms equal to or better than expiring. We also had successful first-time placements for our new flood and healthcare liability programs. Market conditions remain conducive to reinsurance buyers. And at this point, we are confident that we will see further decreases in property cat treaty pricing. Before I hand it over to Chris, I want to provide a little more color on Gray Surety. The $300 million acquisition is expected to close in the first quarter of 2026, and it should be accretive to earnings in its first year of incorporation into our organization. We intend to finance the transaction with a new term loan and excess cash on hand. Gray's terrific leadership team of Cullen Piske and Michael Pitre— will continue to lead Gray Surety, which we will rebrand as Palomar Surety. They will join forces with our team in New Jersey to build a top 30 national surety carrier. Adding Gray to our portfolio further diversifies our book and when combined with crop results in approximately 15% of our premium base being not subject to property and casualty market cyclicality. To conclude, I'm very proud of our third quarter results and moreover the team that delivered them. We generated strong top and bottom line growth, a top-tier return on equity and our 12th consecutive earnings beat. We are raising our 2025 adjusted net income guidance to $210 million to $215 million from $198 million to $208 million, the midpoint implying an adjusted ROE of 24%. The revised guidance implies the achievement of the Palomar 2X tenet of doubling adjusted net income in an intermediate time frame, in the case of our 2022 cohort, a 3-year time frame and our 2023 cohort 2 years. We continue to believe this is an attainable target for the foreseeable future. With that, I'll turn the call over to Chris to discuss our financial results and guidance assumptions in more detail. T. Uchida: Thank you, Mac. Please note that during my portion, referring to any per share figure, I'm referring to per diluted common share as calculated using the treasury stock method. This methodology requires us to include common share equivalents such as outstanding stock options during profitable periods and exclude them in periods when we incur a net loss. For the third quarter of 2025, our adjusted net income grew 70% to $55.2 million or $2.01 per share compared to adjusted net income of $32.4 million or $1.23 per share for the same quarter of 2024. Our third quarter adjusted underwriting income was $56.7 million compared to $31 million for the same quarter last year. Our adjusted combined ratio was 74.8% for the third quarter of 2025 as compared to 77.1% for the year ago third quarter. For the third quarter of 2025, our annualized adjusted return on equity was 25.6% compared to 21% for the same period last year. As Mac discussed, our third quarter results continue to demonstrate our ability to achieve our Palomar 2X objectives of doubling adjusted net income within an intermediate time frame of 3 to 5 years while maintaining an ROE above 20%. Gross written premiums for the third quarter were $597.2 million, an increase of 44% compared to the prior year's third quarter or 56% growth when excluding runoff business. Looking at the fourth quarter, this headwind is now fully behind us. Gross earned premiums for the third quarter were $518.8 million compared to $395.9 million in last year's third quarter and sequentially to $408.8 million in the second quarter of 2025. Year-over-year growth is driven by the overall performance of all lines of business, while sequential growth is significantly influenced by the crop earning pattern. Net earned premiums for the third quarter were $225.1 million, an increase of 66% compared to the prior year's third quarter. Our ratio of net earned premiums as a percentage of gross earned premiums was 43.4% as compared to 34.3% in the third quarter of 2024 and compared sequentially to 44% in the second quarter of 2025. With the timing of our core excess of loss reinsurance program renewal and the majority of our crop premiums written and earned during the third quarter, we continue to expect the third quarter to be a low point of our net earned premium ratio, increasing throughout the remainder of the reinsurance treaty year in a similar pattern to last year. While we expect quarterly seasonality in our net earned premium ratio, we expect net earned premium growth over a 12-month period of time. Our net earned premium ratio was 43.7% for the first 3 quarters of the year. Based on our performance through the first 9 months of the year, we expect our net earned premium ratio to be in the low to mid-40s for the full year, a slight improvement from our view after the second quarter. Losses and loss adjustment expenses for the third quarter were $72.8 million, which were predominantly attritional losses. The loss ratio for the quarter was 32.3%, comprised of an attritional loss ratio of 31.5% and a catastrophe loss ratio of 0.8%. Additionally, our third quarter results include $6.1 million of favorable prior year development, primarily from our short tail Inland Marine and Other Property business. We continue to hold conservative positions on our reserves. Favorable development is a result of our conservative approach to reserving upfront, allowing us to release reserves later. Our year-to-date loss ratio was 27.7%. With the strong results so far, we expect our loss ratio to be around 30% for the year, slightly more favorable than after the second quarter. Our acquisition expense as a percentage of gross earned premium for the third quarter was 10.8% compared to 10.5% in last year's third quarter and 12.6% in the second quarter of 2025. The percentage -- this percentage decreased sequentially from the higher gross earned premium for the quarter. Year-to-date acquisition expense was 11.8%. For the year, we expect this ratio to be around 11% to 12%, in line with previous expectations. The ratio of other underwriting expenses, including adjustments to gross earned premiums for the third quarter was 7.9% compared to 5.9% in the third quarter last year and compared to 8.7% in the second quarter of 2025. As demonstrated by our hires over the last year and in the third quarter, we remain committed to investing across our organization as we continue to grow profitably. As we have discussed on prior calls and today, we have continued to invest across our company as we work to further expand our reach and drive profitable growth given the attractive risk-adjusted returns that we continue to generate. We expect long-term scale in this ratio, although we may see periods of sequential flatness or increases due to investments in scaling the organization within our Palomar 2X framework. Year-to-date, this ratio was 8%. We continue to expect this ratio to be around 8% for the full year. Our investment income for the third quarter was $14.6 million, an increase of 55% compared to the prior year's third quarter. The year-over-year increase was primarily due to higher yields on invested assets and a higher average balance of investments held due to cash generated from operations and the August 2024 capital raise. Our yield in the third quarter was 4.7% compared to 4.6% in the third quarter last year. The average yield on investments made in the third quarter continues to be above 5%, accretive levels compared to the most maturing securities. We continue to conservatively allocate our positions to asset classes that generate attractive risk-adjusted returns. During the quarter, we repurchased approximately 308,000 shares for $37.3 million under the $150 million share repurchase authorization. At the end of the quarter, our net written premium to equity ratio was 1:1. Stockholders' equity has reached $878 million, a testament to consistent profitable growth. Our strong capital position allows us to continue to profitably invest in and grow our lines of business and to acquire Gray Surety with a combination of debt and cash. I would like to make some brief comments on our business from a modeling perspective in addition to the expectations mentioned earlier in my remarks. As we have previously indicated, the third quarter will continue to stand out from other quarters because of the crop book and its seasonal written and earning patterns in addition to the first full quarter of our excess of loss reinsurance placed June 1. Taking all of this into consideration and focusing on the dollars as we spoke about ratios earlier, we expect the third quarter of each year will have the highest gross written premium, gross earned premium, net earned premium, losses and acquisition expense. Looking to 2026, our third quarter and full year 2025 results should provide a good framework to model our business. Reflecting our strong operating results for the first 9 months of the year, we are raising our full year 2025 adjusted net income guidance range to $210 million to $215 million. Importantly, the midpoint of our full year guidance range implies adjusted net income growth of greater than 59%, a full year adjusted ROE above 20% and doubling our 2022 adjusted net income in 3 years and doubling our 2023 adjusted net income in just 2 years. Our Palomar 2X objective remains in focus, and we plan on doubling adjusted net income every 3 to 5 years. With that, I'd like to ask the operator to open the line for any questions. Operator? Operator: [Operator Instructions] And your first question comes from Paul Newsome with Piper Sandler. Jon Paul Newsome: I was hoping you could talk a little bit more about the market opportunity in Surety and maybe a little bit more specifically about exactly who you may or may not be competing with and it is an ordinarily pretty broad class of the business. D. Armstrong: Sure, Paul. Thanks for the question. We are really excited to bring Gray Surety into the organization. They are a very nice complement to what we have in New Jersey, which is Palomar Surety, the company known as First Indemnity of America. It's really writing contract Surety, kind of mid to small limit bonds. On average, you're talking about bonds that are less than $2 million. The combination of the two affords us greater regional expense. As I said in my prepared remarks, Gray Surety is very strong in kind of high-growth Sunbelt regions, Texas, Florida, California. FIA is the Northeast. Bringing them together gives us over $100 million of kind of in-force bonds and premium and writing say, nationwide presence, but really strong in like 15 markets. I think the opportunity for us is to take this from approximately a top 30 Surety on a combined basis to a top 20 in the not-so-distant future. And that's going to be driven by a few things. One, continuing to extend our reach. The Gray team has a terrific market entry model that's replicable where they understand what it takes from an underwriting investment and a system investment standpoint to enter into a market, the premium that must be generated to cover the cost and generate the requisite margin. So we will do a lot of that. I think there's an opportunity to cross-sell distribution between the two entities in FIA and Gray Surety. And then thirdly, our balance sheet will afford us more to do. Putting us together, I am going to have an entity that's approaching book value in excess of $1 billion. And moreover, our intention is to have Palomar Specialty T-listed, which will give them the ability to write larger bonds and participate in larger T-listed bonds. Right now, the combined entity can do around a $12 million T-list -- has a $12 million T-listing approximately. So I think the combination of going deeper in existing markets, expanding into new markets, writing some larger limit business and a cross-selling distribution will allow us to get to that top 20 status. But again, the footprint that we have, just once they come together, gives us a meaningful position in the market and really strong expertise helping us build a franchise that we think can be an even bigger leader. Jon Paul Newsome: And then for my second question, maybe you could talk as well about the potential future of the Crop business. Obviously, this year has the effect of the acquisition. I don't think of crop as being a growth business in general, but it's also fairly competitive. I don't know if that's a business that can grow a lot organically, prospectively and maybe it can. If you can just direct us into where that may go as well. D. Armstrong: Yes. So well, I think, first off, I want to applaud our team, Benson Latham and [ Jon Scheets, ] Jay Rushing and others for what they've done this year. This is our second full year of operation, but the first full year of where we've had that leadership team as well as AAP inside our four walls. So they are executing very well. And I think the strength of their execution has been, a, leveraging their historical experience and relationships in the market. I mean these are professionals that have been in the crop space for decades. And then secondly, there's been their ability to attract talent. I highlighted on the call some new additions that we brought in, in the Oklahoma and Kansas market that's going to extend not only our geographic reach, but also our product offering and allowing us to write more kind of off-season winter wheat-type business, stuff that's written more in the fourth and first quarters of the year. But overarchingly, Paul, we do think we're going to continue to growing crop. We've said that we plan on getting this to $0.5 billion of premium in the next several years, next couple of years. And then the ultimate goal is to get this to a $1 billion of premium. And the way we're going to do it is really on service and technology. And so we're making the investments right now to get to $0.5 billion and to get to $1 billion, and particularly on the technology side, while attracting best-in-class talent. So this is going to be a growth driver for us for the next few years, and we are very confident in our ability to execute. Operator: Your next question comes from Andrew Andersen with Jefferies. Andrew Andersen: Just on the net income guidance, I didn't hear anything about cat. Is there anything embedded within that? T. Uchida: Yes. No. So we obviously had about $1.9 million of cats in the quarter. From our viewpoint, we do include mini cats in our loss ratio expectations of -- now we've kind of updated to be a little more favorable around 30% for the year. In our view, that includes everything that we would expect to happen for the year. Knock on wood, there are no major cats at the end of the year or in this quarter. D. Armstrong: Okay, and -- sorry, go ahead. Andrew Andersen: Just on the commercial quick, yes, I think it was down 20% in 2Q in terms of rate, down 18% this quarter. Do you think we're kind of past the peak deceleration of rate where maybe it will still be soft minus 10%, minus 5%, but it's not going to get much worse from here? Or how are you kind of thinking about the next 12 months? D. Armstrong: Yes, Andrew, it's a good question. And I do think we have seen a deceleration but we are not hanging our hats on a reversal. So I would say that you're going to continue to see a softening. But what I would like to point out is if you just look at the expense of our earthquake book, residential quake now is 61% of the book at the end of the third quarter. The area where we're seeing the most pressure from a rate standpoint is about 1/4 of the book and frankly, is around 8% of our book in totality. So we think we are very well hedged against softening rate on the primary side in commercial quake by the softening P&C -- or excuse me, property cat reinsurance market plus the inherent leverage that we have in residential quake. So yes, I think, you're going to continue to see large account pressure, probably not to the degree that you saw in the second and third quarter, but we're not going to make a call that it's going to recede. But we will make the call that the health of our residential earthquake book and the softening property cat reinsurance market is going to allow us to grow book top gross written premium in '26 as well as have scale from a net earned premium perspective on the earthquake book prospectively. Operator: Your next question comes from Mark Hughes with Truist Securities. Mark Hughes: Chris, did I hear you properly the ratio of net -- yes, net to gross should continue to increase. It should step up in the fourth quarter and then step up further in the first half of next year. Is that correct? T. Uchida: Yes, that's the correct way to think about it. We think of the third quarter as our low point for the net earned premium ratio. A couple of factors now, obviously, before and currently, it still has a lot of impact from the XOL and this being the first full quarter of any new XOL placement, even though there was rate savings on that, we still buy for growth. So the dollar spend on that does increase to support that growth. And then now this year and a little bit last year, but obviously, with the growth in crop this year and still ceding 70% of that, we expect the net earned premium ratio to be at the low point in the third quarter of every year and then going up incrementally from there all the way until, call it, Q3 of next year. Mark Hughes: Yes. I appreciate that. The impact from the Omaha National in 3Q, did you give that specifically? You mentioned that 4Q should show the underlying trend in fronting. And I'm just sort of curious what that underlying trend looks like at this point? T. Uchida: Yes. No. So the third quarter, I want to say it was about $30 million last year in our written premium. And so at this stage, that, call it, headwind has been pushed aside or beaten, I guess, is the right phrase for that, yes. D. Armstrong: Yes, run its course. Mark Hughes: Yes. You pushed the headwind. Mac, you had mentioned a pipeline of quake relationships. Was that -- is there something -- some new developments there? Or is that just ongoing course of business? D. Armstrong: Yes, Mark, and I'll let, Jon Christianson, chime in, too. It's -- I would say it's ongoing course of business. We have over 20 carrier partnerships for earthquake, where we are their dedicated partner to providing earthquake, whether it's to satisfy mandatory obligations or to bundle it with other products. And sometimes they come over lumpy, sometimes they are a bit of a hunting license and they grow. And so we have seen good execution and good conversion from partnerships over the course of '25, but we also do have a pipeline. But Jon, feel free to chime in. Jon Christianson: Yes. No, I agree with all that. And I'd add that we're always searching for new strategic opportunities. And what we're finding now is that because we have been known as a strong strategic partner for earthquake, we're also taking inbounds, inquiries from others that are looking to better address the earthquake exposure that they may have or add value to their customers by adding earthquake. As Mac mentioned, some of the more higher profile household name type of partnerships that have come on over the last few years, they don't all come on at once in certain cases. And so as time has gone on and we've been working together for a longer period, we have seen increased traction with a number of large partners, and that's paid off so far this year. D. Armstrong: Yes. And so sometimes, it can be in a relationship where we are working with them in all states, but California and then California has opened up to us or it's vice versa. We're the California partner and then all of a sudden, they think about us handling Pacific Northwestern, New Madrid. So Jon and his team do an excellent job of chasing down these partnerships and then executing and implementing them. So we feel that '26 should provide one or two other new deals. Operator: [Operator Instructions] Your next question comes from Meyer Shields with KBW. Meyer Shields: Chris, I can push a little more on the guidance. I'm trying to get a sense as the expectations for the underlying loss ratio, excluding reserve development and excluding the major catastrophe losses so far this year. Is there any -- can you help us think about that? T. Uchida: Yes. So I think from our standpoint, when you look at the book of business and the maturity and the lines of business that are growing, whether it be Crop, Casualty, Inland Marine and Other Property are growing at a very strong rate, not to say that Earthquake growth is still very good, but those lines that are growing at a higher rate do have attritional losses with them. So overall, Earthquake still has a nice 0% loss ratio, but these other lines that are growing at a higher rate do have attritional losses with them. So I expect the loss ratio to continue to move up. I think the one thing that we were saying at the end of last quarter is that we expected our loss ratio to be about, call it, low 30s for the year. I think now based on some of the favorable results that we've seen so far, we expect that to kind of be around 30%. So that could be plus or minus 1 or 2 points on either side of that. But overall, we feel a little bit more favorable about where we did before. But overall, nothing has really changed that we still expect it to move up. It's still moving up in line with those attritional results. But there's been no, call it, underlying unfavorability in any of the results. It's kind of just a natural change in our book of business and portfolio and diversification that is having that loss ratio move up a little bit. But again, like I said before, it's not jumping. It didn't jump from 10 points like anyone was thinking before. But overall, we felt that it was going to just move up incrementally and it's kind of doing exactly what we expected. Meyer Shields: Okay. That is very helpful. Can you talk a little bit more about the healthcare liability, I guess, book that you're writing? The specific question is whether there's like sexual abuse and molestation exclusions, but more broadly, what you're looking for? D. Armstrong: Yes, Meyer. So we launched that [ 71. ] We hired a gentleman named Frank Castro, 30-year-plus underwriter, spent time at RLI, access -- and actually have worked as a risk manager for a large hospital system too. So great experience, launched [ 71 ] with a nice reinsurance program. It's like we've done with other casualty. It's a walk before we run. Our gross limits are about $5 million. Net limit is going to be inside of $2 million. His book, what we're targeting is about 60% hospital liability, 25% managed care E&O and then 15% kind of Allied Health. And his timing is good as it pertains to hospital liability because you are seeing the SME or sexual molestation liability exclusions more frequently or sublimited. And as I mentioned on the call, again, the timing is good in the sense that there is meaningful rate to be grabbed here. So this is another example to walk before you run, but it's led -- and it's also another example of a great underwriter overseeing a market that's a bit dislocated. Meyer Shields: Okay. Yes. The timing certainly makes a lot of sense. And one last question, if I can. How should we think about the stickiness of flood policies that you're writing while the federal program is shut down? Jon Christianson: Yes. Happy to take that, Meyer. This is Jon Christianson. So I think what we found historically, both pre-shutdown and what we're seeing now is strong stickiness of policy renewals. And I think more importantly, in the last couple of months, we've seen a greater interest in new business and greater confidence in the private market delivering relative to the uncertainty around the NFIP. So strong product, a great partner, strong distribution. And I think as every day passes, there's greater validation and credibility in how the private market can deliver a better product than what has traditionally been in the market. Operator: Your next question comes from Pablo Singzon with JPMorgan. Pablo Singzon: The question of loss ratio deterioration versus accelerating premium growth always comes up for you, right, because of your changing mix and that's before thinking about things like reinsurance retentions and ceding commissions and the like, right? But just given your Palomar 2X aspiration to double earnings in 3 to 5 years, would it be fair to simplify the discussion here and assume that you're also planning for a similar growth trajectory in your net underwriting income, right? So I don't know, something like 20% to 30% growth a year in the medium term. Is that a fair way to think about your portfolio in a very simple way? D. Armstrong: It is, Pablo. Yes, and thanks for bringing that up. I mean I think we feel that Chris has talked about it, that we have levers to pull from retentions and that's going to potentially amplify net earned premium growth over net premium growth and similarly on the investment side. But to answer your question simplistically, yes, I think that is an accurate way to categorize it. Pablo Singzon: Okay. And then second question also, I guess, on growth, Mac. So clearly, good growth you're experiencing right now. I'd be curious to hear at what point do you think you'll have to reload, whether it's with respect to new hires or even M&A as you did with Gray in order to sustain the current pace as opposed to sort of like past hires ramping up and growing in adjacent lines or sort of like low-hanging fruit that what you have now can achieve versus incremental hires or stretching for M&A. D. Armstrong: Yes. I mean I think, obviously, Gray was unique in that it was an acquisition. We've been really an organic growth story up until the last year or so. But I think Gray afforded us the ability to really kind of supercharge our entry into the Surety market and give us the scale that we wanted. We said our goal was to get to $100 million, bringing Gray in fold allows us to do it a lot quicker. But I think having Gray, and that's going to give us another organic growth vector, and that's because they can enter into new markets. And so Pablo, I think we're going to continue to grow organically by investing in talent, expanding geographic reach, entering into adjacencies. And then we'll be opportunistic if there is some inorganic growth driver that allows us to bring in an expertise or a competence that we don't think we can build in-house as effectively. So I don't want to say that we're going to -- well, I definitely want to say that we're not going to stop hiring talent that complements what we're doing or can help enhance our growth trajectory because we will continue to do that. But I do want to say that we -- all of our lines of business, earthquake included have growth vectors. Some lines of business have headwinds in them, commercial property. But if you really peel it back, commercial property is less than 9% of our book. So when you look at crop, casualty, now the Surety franchise, the builders' risk franchise, residential quake, there are growth vectors across the board. So 44% growth is very strong, and that's not going to be ad infinitum, but we remain very confident in our ability to achieve the Palomar 2X goals. And so that's going to have to come from gross written premium to some degree and then the net earned premium, which you highlighted earlier. So we just think that we are well positioned and -- to attain Palomar 2X and also just to grow organically. Operator: There are no further questions at this time. So I will turn the call over to Mac Armstrong for closing remarks. D. Armstrong: Thanks, operator, and thank you all for joining the call today. I'm very proud of our third quarter results. They demonstrate the strength of our business and the diversity of our unique specialty insurance portfolio. It's a balanced book of E&S and admitted residential, commercial property and casualty products. That's being supplemented now by the newer lines of business like crop and Surety that are uncorrelated to the P&C market cycle. So we think we are very poised to deliver consistent growth, and we're confident in our plan to do so. And the third quarter only gives us more conviction of what we have in front of us. So I'll conclude this with welcoming our new teammates at Gray Surety. And as always, I want to thank our employees for their commitment to Palomar. Thanks again. Enjoy the rest of your day. Operator: Thank you. All parties may now disconnect.
Operator: Good day, and welcome to the CarGurus earnings call. Please note that this event is being recorded. I would now like to turn the conference over to Kirndeep Singh, Vice President and Head of Investor Relations. Please go ahead. Kirndeep Singh: Thank you, operator. Good afternoon. I'm delighted to welcome you to CarGurus' Third Quarter 2025 Earnings Call. With me on the call today are Jason Trevisan, Chief Executive Officer; and Sam Zales, President and Chief Operating Officer. During the call, we will be making forward-looking statements, which are based on our current expectations and beliefs. These statements are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in such statements. Information concerning those risks and uncertainties is discussed in our SEC filings, which can be found on the SEC's website and in the Investor Relations section of our website. We undertake no obligation to update or revise forward-looking statements, except as required by law. Further, during the course of our call today, we will refer to certain non-GAAP financial measures. A reconciliation of GAAP to comparable non-GAAP measures is included in our press release issued today as well as in our updated investor presentation, which can be found on the Investor Relations section of our website. We believe that these non-GAAP financial measures and other business metrics provide useful information about our operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency as it relates to metrics used by our management in its financial and operational decision-making. With that, I'll now turn the call over to Jason. Jason Trevisan: Thank you, Kirndeep, and thanks to everyone joining us today. In the third quarter, we delivered double-digit year-over-year Marketplace revenue growth while also expanding profitability across our U.S. and international businesses. Marketplace revenue and Marketplace EBITDA both finished above the midpoint of our guidance range, reflecting focused investment to drive sustainable top line growth and disciplined execution of our strategic priorities. Marketplace revenue grew approximately 14% year-over-year or $28 million, and Marketplace adjusted EBITDA was up 18% during the same period. Growth was driven by continued expansion in [ CarSID ], led by dealer upgrades to higher tiers, broader adoption of our add-on products, like-for-like price increases and higher lead quantity and quality. We also added 1,989 net new dealers globally year-over-year, supported by stronger retention. Our international operations contributed meaningfully with revenue up 27% year-over-year, driven by momentum in both Canada and the U.K. [ CarSID ] grew 15%, and we added 807 net new dealers year-over-year. At the foundation of these results is the strength of our market-leading 2-sided Marketplace. Built on trust and transparency, CarGurus connects the largest audience of car shoppers with the broadest network of dealers, giving consumers confidence and dealers high-quality demand and intelligence, both of which bolster Marketplace liquidity through rising engagement and adoption. As our Marketplace continues to scale, it generates vast proprietary data and machine learning signals that fuel a uniquely advantaged analytics and intelligence platform for dealers. With this expanding data set and our accelerating AI capabilities, we turn data into intelligence, delivering predictive tools and insights that help dealers make faster, smarter decisions and achieve stronger outcomes. These dynamics reinforce 2 durable advantages, scale and data intelligence. Scale delivers reach and liquidity. With the broadest dealer network and deepest inventory, our marketplace offers car shoppers unmatched selection and transparency, attracting the largest consumer audience and in turn, more dealers. That flywheel has supported faster growth and share gains from our primary competitors. Data intelligence transforms that scale into smarter products. We believe our growing size generates the most comprehensive retail demand and pricing signals in the markets where we operate, which we productize into solutions that improve dealer profitability. For example, our retail demand analysis recommends vehicles aligned with local shopper interest. And when dealers follow those recommendations, we've proven their inventory turns faster. Our pricing models enable dealers to price with precision, improve margins and outperform competitors, while behavioral and intent data enriches leads to improve conversion and ROI. This creates a virtuous cycle in which scale drives richer data and intelligence derived from that data improves dealer performance and the consumer experience, which in turn, we believe drives ever-increasing adoption and engagement. Building on our position as the #1 most visited automotive marketplace, we've continued to expand our platform with software and data products that help dealers make more intelligent decisions across 4 key workflows: inventory, marketing, conversion and data. We've already introduced a variety of offerings in each of these 4 pillars. In inventory, products like Sell My Car, Acquisition Insights and Next Best Deal Rating help dealers source the right vehicles, merchandise and price each inventory unit with precision. In marketing, solutions such as our core listings packages, Highlight, RPM and New Car Exposure connect dealers with high-quality, ready-to-purchase shoppers efficiently and generate significant dealer awareness and walk-in traffic. In conversion, offerings like Lead AI, our in-person engagement team and Digital Deal help dealers convert leads into sales, driving better attribution and higher close rates. And in data, our dealer data insights suite delivers local market intelligence that powers smarter, more profitable decisions. Over the past few years, we have built a strong foundation and garnered dealer engagement across these pillars and are now advancing from add-in features in these areas to differentiated software and data products, each with a clear value proposition and measurable ROI. We believe these products will expand our addressable market from the current $3.5 billion spent by U.S. dealers on marketplaces by roughly an additional $4 billion U.S. dealers spend on software and data products in these segments. We believe that our growing product suite positions CarGurus as an intelligence-driven partner that helps dealers optimize every stage of their workflow beyond simply marketplaces. We plan to deepen monetization across these pillars through scalable software and data solutions, and we're excited to share that we've begun that this quarter with our newly launched PriceVantage, which I will cover shortly. Much like we've done for our dealer partners, we're expanding our offerings along the consumer journey, continuing to lead the market in trust and transparency while broadening our role more upstream with research and downstream to purchase. With the largest selection and a seamless online to offline experience, shoppers can research with confidence, connect with dealers and complete the transaction on our platform or at the dealership in the way that works best for them. We believe this expansion of our product suite on top of our market-leading marketplace will continue to reinforce our scale and data intelligence flywheels and result in us capturing more dealer wallet share and deepening consumer engagement to support long-term growth. With that context, I'll now walk through our progress across our 3 drivers of value creation. Driver number one, expanding our suite of data-driven solutions across dealers' workflows to help them drive more profitable businesses. Core to our mission of helping dealers make more profitable decisions, we recently launched PriceVantage, a major machine learning-based evolution of our pricing tool. It is the only used vehicle pricing solution powered by real-time consumer demand from the #1 most visited car shopping Marketplace, giving dealers an edge to predict the market rather than just react to it, enabling smarter pricing, faster turns and improved profitability. Built on the industry's largest data set of shopper behavior and market supply, PriceVantage leverages AI to deliver VIN level activity, turn time predictions, lead potential, market day supply and visibility into comparable listings, all within a single unified workflow that directly syndicates into dealers' inventory management systems. It translates live market dynamics into data-driven pricing recommendations aligned with each dealer's goals, giving dealers greater speed, control and confidence in every pricing decision. Early beta results demonstrate the power of the software. The most engaged dealers using PriceVantage saw a 5x improvement in turn time compared to their top 5 competitors on CarGurus. Taking price drop recommendations drove a 68% median increase in daily VDP views and 77% of recommendations met or exceeded predicted sales velocity outcomes. We launched a Chrome-based browser extension that embeds these insights into the platforms where dealers already operate, such as their IMS or auction sites. Dealers can access real-time price recommendations without leaving their workflow with future releases planned to extend into sourcing and merchandising. PriceVantage is the latest and most substantial addition to CarGurus' expanding suite of dealer intelligence software solutions. Other offerings continue to grow, especially our dealer data insights suite, which strengthens dealers' predictive capabilities, delivering greater efficiency and faster sales. Next Best Deal Rating is now used by nearly 20,000 dealers, growing over 70% year-over-year. Merchandising insights adoption grew to 9,791 dealers, while Max margin insights adoption rose to 5,032 dealers. In the third quarter alone, dealers made over 700,000 price changes through Next Best Deal Rating. We've seen a median 48% increase in VDP views and faster turn times for vehicles using our recommendations. Engagement remains high with Next Best Deal Rating driving nearly 50 price changes per dealer in Q3 and dealer data insights reports overall driving 75 price and inventory changes per dealer. Over 2/3 of recommendations we send to dealers are being opened and red, indicating the value of these insights. Last quarter, we also introduced New Car Exposure to give dealers more sophisticated control of their new vehicle marketing. New Car Exposure continues its rollout across markets, now reaching 94 DMAs and brand combinations. To date, it has driven 31% of new car VDP views and 13% of new car leads with participating dealers capturing a greater share of new car leads than those relying solely on organic placements. Innovations like this are deepening dealer engagement by enabling smarter decisions across inventory, marketing, conversion and data. Dealers are upgrading into premium tiers more frequently. They're adopting our products and solutions at higher rates, and they're signing long-term contracts. Together, we believe these factors support our ability to grow [ CarSID ]. [ CarSID ] growth has been manifesting in 3 trends. First, customers who remain on our platform consistently increase their spend over time. Second, new customers are joining at higher average order sizes than in prior years. Third, newer customers are ramping their spend faster than prior new customers did. On all these observable dimensions, we're seeing clear evidence that the growing quality and breadth of our products have been driving measurable [ CarSID ] growth. Driver number two, meeting the evolving needs of car shoppers by powering a more intelligent and seamless journey. As I said earlier, we're expanding the CarGurus experience across the full car buying journey from research through consideration and purchase. This quarter, we advanced 2 key innovations that bring that vision to life. First, consideration. We expanded CG Discover, our Gen AI-powered shopping assistant. Unlike others that use Gen AI to repackage traditional filters, Discover uses conversational understanding and real-time reasoning to interpret a shopper's intent and curate the best fit vehicles for millions of listings. It helps consumers refine choices and explore inventory with greater speed and clarity while giving CarGurus richer demand signals and pricing insights to strengthen the data intelligence flywheel. Early engagement has been strong, and we have since expanded Discover to our homepage and app, creating more prominent entry points that have driven higher traffic into the experience. Research shows 80% of consumers are open to using AI in their car buying journey, underscoring the scale of this opportunity. Traffic to CG Discover has nearly tripled quarter-over-quarter and leads have grown 3.3x. Discover VDP to lead conversion is 6,000 basis points higher than standard VDP to lead conversion. As Discover scales, every interaction generates signals and insights, making the platform smarter and strengthening both dealer and consumer experiences. Next, purchase. Car shoppers want confidence at every step from discovery to purchase. Research shows consumers feel the hardest part of car buying happens in the dealership when shoppers feel anxious about pricing, alternatives and making a rush decision. Our goal is to reduce that anxiety with transparent dealership ratings and reviews and by extending the CarGurus experience into the dealership where support matters most. We're excited to introduce Dealership Mode, a major innovation in the purchase step designed to deliver real-time support at the exact moment shoppers need it. When a CarGurus user visits a participating dealer lot, the app activates through geofencing and push notifications to provide VIN level pricing and ratings, reduce payment anxiety with a financing calculator, compare cars on the lot or highlight alternatives at the dealership and surface reviews to validate quality. Dealership Mode gives consumers clarity and confidence at the most stressful point in the process. For dealers, Dealership Mode strengthens attribution and ROI. While we already maintain significant attribution on closed sales data through DMS integrations and third-party data providers, Dealership Mode now enables us to close the purchase loop more fully, connecting online engagement to in-store activity, which we believe demonstrates clear ROI and higher quality leads. With millions of monthly app users making hundreds of thousands of lot visits, we believe the opportunity is significant. Based on an early analysis, 56% of consumers who see Dealership Mode in the app navigation have clicked into the experience and over half of our users have opted in for push notifications. Over time, we expect Dealership Mode will drive even greater app adoption, build consumer trust and help dealers convert more sales. By improving the consumer experience and extending our brand awareness, we are giving shoppers more reasons to start and end with CarGurus. This deeper engagement is translating into higher intent activity with CarGurus-led sales growing year-over-year in the past 2 years. Separately, as we implement changes to comply with cookie consent regulations across markets, reported uniques and sessions are expected to decline as some users do not opt into tracking. This represents a change in how traffic is measured rather than an indication of an underlying change in site traffic or in the leads and connections we believe we're delivering to our dealer partners. Driver number three, enabling dealers and consumers to complete more of the transaction online, streamlining the final steps of the deal. In the third quarter, we advanced our transaction capabilities through continued progress across Digital Deal and Sell My Car. These offerings are delivering a seamless online to off-line journey for shoppers. Digital Deal adoption surpassed 12,500 dealers this quarter with over 1 million listings digitally enabled. With more Digital Deal listings and improved user experience, we have driven 45% year-over-year growth in high-value actions such as financing applications, appointment scheduling and deposits. Users who complete these high-value actions close at up to a 3x higher rate than standard e-mail leads. In fact, our strongest close rate comes from reservations. Reservations closed at nearly 16x the rate of standard leads for out-of-market shoppers and 9x for in-market shoppers. Appointments are up approximately 20% year-over-year. Financing adoption is also strengthening, supported by direct credit applications, prequalification and SRP filters that surface vehicles consumers are already approved to finance. Digital Deal leads with a financing element have grown 77% year-over-year. We also embedded high-value actions into the core site experience. This quarter, we introduced a post-lead high-value action menu that surfaces additional steps such as scheduling an appointment or submitting a deposit immediately after a shopper submits a core lead. This creates a natural ramp for consumers and provides dealers with even stronger intent signals. Alongside a broader redesign of the Digital Deal experience, initial testing shows several hundred thousand incremental leads from the new experience. We now expect that by year-end, nearly 30% of a Digital Deal enabled dealers' e-mail leads will come through Digital Deal. These leads include verified contact information, full name, e-mail and phone number and around 45% of them historically carry at least one high-value action. Beyond enabling more of the transaction online, we're helping dealers source inventory with greater efficiency. Sell My Car adoption has continued to grow and is now live in 115 markets, reaching roughly 75% of our eligible traffic. Lead quality and conversion have continued to strengthen. A growing share of Sell My Car acquired vehicles are listed on our Marketplace soon after purchase, demonstrating that these are high-quality retail-ready leads. Collectively, these advancements are streamlining the transaction for both dealers and consumers, improving lead quality, accelerating conversions and reinforcing our ability to meet customers wherever they are in their journey. Across all of our value creation levers, I'd like to discuss the accelerating use of agentic AI. AI has been foundational to CarGurus since our inception and continues to power innovation across the platform. We're embedding agentic AI in numerous places throughout our products and systems to create smarter, faster and more intuitive experiences for both consumers and dealers. CarGurus Discover, our conversational Gen AI-powered shopping assistant uses large language models to help consumers refine choices and explore inventory with greater speed and clarity. In our mobile app, Dealership Mode activates when a shopper visits a participating dealership lot, providing AI-generated comparisons and summaries of vehicles. In our dealer dashboard, PriceVantage extends these capabilities to dealers by using predictive AI and real-time demand data to deliver VIN level pricing insights, turn time forecasts and competitive benchmarking directly into their workflows. We also continue to scale AI-driven content and quality improvements across the platform to drive consumer traffic and reduce operational overhead across internal teams. SEO content generation powered by generative AI and guided by our editorial expertise has expanded high-quality content roughly tenfold across CarGurus and our core channels, driving a 60% increase in top and mid-funnel sessions year-to-date. Pricing compliance monitoring now also uses AI to identify inconsistencies and ensure data integrity across millions of listings. Internally, AI is transforming how teams work. Over the past year, we've deployed numerous solutions that have improved speed, precision and efficiency across nearly every function. Our Gen AI sales tools have provided account summaries, tailored recommendations and predictive insights that have helped teams identify opportunities to strengthen retention and deepen dealer relationships. Nearly 80% of managed leads in October, chat and text were handled and closed by AI. This automation has enabled us to reduce the outsourced team by over 40%, driving meaningful efficiency gains and cost reduction. Engineering productivity has risen by nearly 25% in the past year through the use of AI coding tools and code review agents. Our LLM gateway democratizes LLM integration, allowing teams to embed new use cases directly into workflows and bring ideas to market faster, while our enterprise LLM-based search platform enhances knowledge retrieval and workflow automation. AI also strengthens fraud detection and prevention, enhancing data integrity and platform trust. Adoption is broad and disciplined. 91% of employees report using AI weekly, driving faster execution, sharper insights and greater collaboration across the company. Looking ahead, we believe that the combination of proprietary data, machine learning, predictive analytics and agentic AI positions CarGurus to deliver new levels of intelligence, automation and efficiency to both dealers and consumers. AI remains central to how we innovate, operate and lead in automotive technology. In Q3, we delivered strong revenue growth, healthy margins and disciplined execution. We advanced products that give dealers greater control, efficiency and intelligence while creating more confidence and clarity for consumers. These innovations are expanding our reach beyond the $3.5 billion U.S. Marketplace segment into an additional $4 billion dealer software and data products TAM, which we believe broadens our long-term growth opportunity. Innovation remains at the center of this progress. We're extending our platform across each of our 4 pillars: inventory, marketing, conversion and data with scalable software and intelligence solutions that address more of the dealer workflow and consumer journey. These advancements reinforce our leadership as a data and technology-driven company, which we believe unlocks new sources of growth and value creation. Across every initiative, our focus remains on measurable value, capturing more dealer wallet share, deepening consumer engagement and strengthening our platform's foundation. With that momentum, we believe that we're scaling solutions that reinforce our leadership, support durable growth and create long-term value for our customers and stockholders. Now let me walk through our third quarter financial results, followed by our guidance for the fourth quarter and full year 2025. Third quarter consolidated revenue was $239 million, up 3% year-over-year. Marketplace revenue was $232 million for the third quarter, up 14% year-over-year toward the high end of our guidance range. Marketplace revenue growth was driven by strength in our subscription-based listings revenue. In the third quarter, U.S. [ CarSID ] grew 8% year-over-year, and we added 1,182 paying U.S. dealers year-over-year, marking our seventh consecutive quarter with positive net dealer adds and our fourth straight quarter of accelerating year-over-year dealer count growth. We continue to expand our footprint while taking greater wallet share in our growing base, driven by upgrades, broader adoption of add-on products, like-for-like price increases and higher lead quantity and quality. Our international business had yet another strong quarter with revenue up 27% year-over-year and international [ CarSID ] up 15% year-over-year, the ninth consecutive quarter of double-digit year-over-year international [ CarSID ] growth. Wholesale revenue was approximately $2 million for the third quarter and product revenue was roughly $5 million for the third quarter as we ceased facilitating transactions in the quarter as a result of our decision in August to wind down the CarOffer transactions business. As a reminder, we expect to account for the wind down of CarOffer as a discontinued operation in the fourth quarter. As such, we do not expect there to be revenue associated with digital wholesale going forward. I'll now discuss our profitability and expenses on a non-GAAP basis. Third quarter non-GAAP gross profit was $214 million, up 11% year-over-year. Non-GAAP gross margin was 90%, up about 650 basis points year-over-year. Marketplace non-GAAP gross profit was up 13% year-over-year and non-GAAP gross margin was stable at 93%. On a consolidated basis, adjusted EBITDA was approximately $79 million, up 21% year-over-year. Adjusted EBITDA margin was 33%, up about 490 basis points year-over-year. Marketplace adjusted EBITDA grew 18% year-over-year to approximately $82 million, above the midpoint of our guidance range. As a reminder, we guided to Marketplace EBITDA only this quarter as we sunset the CarOffer transactions business. Margin rose about 120 basis points year-over-year to 36%, but declined slightly quarter-over-quarter due to investments in new product innovation and sequentially higher sales and marketing expense. Digital wholesale adjusted EBITDA loss of approximately $4 million was modestly higher quarter-over-quarter as expected. The sequentially larger loss was driven by lower volumes due to the cessation of transactions in the third quarter as a result of our decision to wind down the CarOffer transactions business. Moving to OpEx. Our third quarter consolidated non-GAAP operating expenses totaled $142 million, up 7% year-over-year and 4% quarter-over-quarter, reflecting sequentially higher sales and marketing expense and investment in new product innovation, as I mentioned earlier. During the third quarter, we incurred $3.8 million in onetime cash restructuring charges, and we expect remaining cash restructuring charges of $2 million in the fourth quarter. Accordingly, we have narrowed our previously estimated range from $5 million to $7 million to $5 million to $6 million. We still expect to substantially complete the CarOffer wind down by year-end, with total wind-down related charges expected to be in the range of $13 million to $15 million, which is lower than the original range of $14 million to $19 million. Non-GAAP diluted earnings per share attributable to common stockholders was $0.57 for the third quarter, up $0.13 or 30% year-over-year, reflecting primarily the increase in adjusted EBITDA and lower diluted share count. We continue to generate strong free cash flow, and we ended the quarter with $179 million in cash and cash equivalents, a decrease of $52 million from the end of the second quarter, primarily driven by $111 million in share repurchases in the quarter, partly offset by higher adjusted EBITDA. As of September 30, we have approximately $55 million remaining on our share repurchase authorization. I will now close my prepared remarks with our guidance and outlook for the fourth quarter and full year 2025. As a reminder, due to the wind down of CarOffer, last quarter, we stopped guiding to consolidated revenue and consolidated adjusted EBITDA and instead, we'll guide to Marketplace revenue and Marketplace adjusted EBITDA as that is representative of our go-forward operations. We expect our fourth quarter Marketplace revenue to be in the range of $236 million to $241 million, up between 12% and 15% year-over-year, respectively. And we expect full year Marketplace revenue to be in the range of $902 million to $907 million, up between 13% and 14% year-over-year, respectively. For the fourth quarter, we expect our non-GAAP Marketplace adjusted EBITDA to be in the range of $83 million to $91 million, up between 5% and 15% year-over-year, respectively. And we expect full year Marketplace adjusted EBITDA to be in the range of $313 million to $321 million, up between 18% and 21% year-over-year, respectively. We expect to meet the discontinued operations criteria in the fourth quarter. As a result, we expect our full year guidance, similar to the third and fourth quarters to reflect Marketplace absorbing approximately $1 million in ongoing quarterly CarOffer expenses as a result of the wind down. Accordingly, we've included about $2 million of first half costs that we expect to be recast to continuing operations once the criteria are met. These estimates are preliminary and subject to change. The midpoint of our Q4 guidance implies a full year Marketplace EBITDA margin of approximately 35%. We're pleased with the strength and growth of our Marketplace and excited by the early results of our various new product investments. That innovation has delivered growing adoption across more dealer pillars and deeper consumer engagement across their shopping journey. That success reinforces our confidence to continue growing our investments in new, primarily AI-centric innovation across our dealer and consumer product suites that we believe will drive long-term growth. We expect fourth quarter non-GAAP consolidated earnings per share to be in the range of $0.61 to $0.67, up between 13% and 24% year-over-year, respectively, and full year consolidated earnings per share to be in the range of $2.19 to $2.25, up between 29% and 32% year-over-year, respectively. And we expect fourth quarter and full year diluted weighted average common shares outstanding to be approximately 97 million and 101 million, respectively. With that, let's open the call for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Chris Pierce with Needham & Company. Christopher Pierce: If I'm looking at the deck on Slide 5, I think you have a stat that you shared for the first time that may or may not be right, but it says 25% of CarGurus dealers only pay for CarGurus. Is there a way to think about where that stat was a year ago, 2 years ago and some sort of upper bound as maybe you guys drive separation versus peers? Jason Trevisan: Chris, it's Jason. Thanks for the question. I don't think we've given a trend on that stat. But what we have seen is that in surveying dealers, the dealers use fewer and fewer marketplaces -- marketplace partners. In fact, over the last few years, I don't remember the exact years, but it's gone from about an average of using 3 to using under 2, around 1.8. So there's consolidation and concentration with those that typically offer the best ROI. So that's the sort of macro trend on that dynamic, but we haven't given a trend number on the 25%. Christopher Pierce: Okay. And then on the ROI that you were talking about, specifically on digital deals, are you seeing dealers more willing to engage here given there seems to be an acceptance that fully digital transactions are growing within the industry? And like I guess what will be the right time to flex pricing power here given the conversion metrics you cited and sort of -- the dealers need to do something specifically on their end to accept these leads? Or is it sort of just kind of easy housekeeping on their end and a customer can walk in, have their loan in place, take their test drive and leave the dealership within, call it, an hour, something like that? Samuel Zales: Chris, it's Sam here. Thanks so much. We have constantly spoken about the research we've done showing 80% of consumers want to do more online, but still want to touch and feel the car and come in for a test drive. So we think we've got a perfect product in that regard. You've seen that we've got 12,500 customers now on the program. It is packaged into one of our premium tiers. So the dealers who get access to Digital Deal have to pay more. I see your point that as that trend continues to move, that's an opportunity for us. But I think the thing we're most excited about is more and more of our consumers doing highly -- what we call high-value actions. So taking a process to either put -- set an appointment to put a deposit down to look at financing and try to provide some information on their credit ability. That we think is driving a higher quality lead, a further down funnel lead, and we believe that's driving further and further ROI for our dealers. So long term, it gives us the opportunity, as you said, to say, how much more will that continue to grow? That gives you an opportunity for pricing power, and we'll consider that as we go forward. Operator: Our next question comes from Marvin Fong with BTIG. Marvin Fong: I had a question just on the international [ CarSID ] and international in general is doing so well, very good growth there across the board. I just wanted your thoughts on how much faster and higher you think [ CarSID ] can grow? Obviously, we can look at in the U.K., the dominant player there and generating revenue per dealer is much higher than... Operator: Sorry to interrupt you there, Marvin. Marvin, we are unable to hear you clearly. Could you please use your handset? Marvin Fong: Is this better? Operator: Yes, please go ahead. Marvin Fong: Sorry about that. Yes, I just wanted to ask about [ CarSID ], particularly in the international segment. I believe the incumbents in the U.K. in Canada charge a lot more than you are right now, and we're seeing very nice [ CarSID ] growth in international. So just wanted your thoughts there and how quickly you can pull that lever and close that gap. Samuel Zales: Thanks, Marvin. It's Sam Zales. We're really, really proud of the international markets and what we're doing there. You'll recall that we're competing against 2 big players who had monopoly power in those markets. But I think what we're showing is 2 things. When you drive lead quality and lead quantity in an aggressive amount, it makes dealers stand up to say and you price at a lower price point, it makes dealers stand up and say the ROI is better, and we've shown you the research in the markets to show that our ROI is advantaged versus our competitors. I think though, we're still in a market zone of adoption right now. We're keeping our prices at a lower level because we are winning more and more customers. As you saw, we added 800-plus customers in the international market. So our goal there is to say, let's be smart about pricing. Let's price to the value that we're offering to our dealers. And we know we can always grow that over time, but we're looking to build more market share. So you may have read in Canada that one of the largest dealers in a press release that was out AutoCanada converted by saying, I'm no longer going to be on the auto trader program, and I want CarGurus as my preferred partner in that regard. Those are the kinds of things that will give us that opportunity to continue growing not only dealers, and that leads to other dealers picking up their heads and saying, I might do the same thing. It allows us to keep growing our customer base, but also growing [ CarSID ]. The 15% growth, we're really proud of. We'll continue to push in that direction, but we don't want to get too aggressive on that front at a time we're still signing more dealers in both Canada and the U.K. And that will replicate if we can, the market experience we had here in the U.S. We started with lower pricing. We got the largest base of dealers to our franchise and joined us, and then we raised prices over time, and we think that's a good model to try to take on in that arena. So thank you for recognizing 27% growth in international. We're really proud of it and excited to try to push forward. Jason Trevisan: And if I may, I'd just add to that and echo something that was said in the call. So international [ CarSID ] is about 1/3 of the U.S. And the levers that drive [ CarSID ] in the U.S., upsell, cross-sell, lead growth, lead quality, pricing, those are all available to us in international, and they're all much earlier and less mature. And so they all have more runway in international. But the other thing I'd point to from the script is to just call out some of the trends we're seeing in U.S. [ CarSID ], which I think we have every reason to believe will exist in international. And that's among our -- it was 3 themes from the script. Among our paying dealers, they increase their spend the longer they stay with us. The second trend is new dealers are joining at higher AOS than old dealers. And the third is that despite joining at a higher AOS, they're actually ramping their spend faster than prior cohorts ramp their own spend. And so we're seeing that in the U.S., which is a much more mature market, and we're incredibly proud of that. And international has all of those available and earlier stage. Marvin Fong: Those are terrific insights. And maybe a follow-up question, just maybe, Sam, this is up your alley. But Jason referenced that you're really attacking, I believe you said $4 billion solutions market. Is that how you're presenting it to dealers? I know that dealers like to think about things in a cost per sale. But are you actually kind of talking to them about these new analytics in the sense that now you don't have to pay for vendor A or vendor Z. Is that how dealers are thinking about it? And is it kind of clear to them that you're presenting both a listing service as well as a solution -- software solution? Samuel Zales: Marvin, I'll jump in and then let Jason add color. I think what we're doing every day is talking to customers about driving profit maximization. And that can come from our marketplace business that as we spoke about in the call, you start to build solutions like DDI that we've talked about previously, which helps dealers convert more of the leads that they're getting today, helps them increase their profitability. And then you -- from product-led growth, you're seeing customers adopt those products -- so our pricing tool led us to build this software product called PriceVantage. So what we're doing for dealers with that product is simply helping them grow their profitability by reducing their turn times and allowing them to price as most effectively to manage their inventory. So it all comes out of the Marketplace business that then leads to other products, as we said, inventory, marketing, conversion and data. They all work together with the value proposition that says, we're going to help you, Mr. or Mrs. dealer, to grow your profitability by utilizing our marketing tools, our data and now software that lets you run your business more efficiently, that leads to [ CarSID ] growth, that leads to retention of our customers long term. Jason, anything you'd add? Jason Trevisan: Just that it is -- they are all connected. The dealer historically has thought of them as steps in the workflow and as such, has allocated different wallets to those different steps. And these products are allowing us to start to tap into those new wallets. But what makes them particularly compelling is we're not selling a stand-alone product here and a stand-alone product there. When Sam talks about them being tied together for something like PriceVantage, it's saying, if you do this to a price, this is exactly -- or this is what will happen from a leads perspective, from a turn time perspective. So it's giving them recommendations and the ability to act on those with a strong forecast of the results because the results are what occur on our Marketplace. Operator: Our next question comes from John Colantuoni with Jefferies. Vincent Kardos: This is Vincent on for John. Just one with a few parts for me. So it looks like some of the investments you've talked about in recent quarters is really paying off, given both U.S. and international dealer rooftops saw accelerated growth during the quarter. At the same time, [ CarSID ] growth slowed a little bit across both geographic segments despite the traction you called out for the product suite. Maybe talk a bit about what the growth algorithm between rooftops and [ CarSID ] ought to look like going forward, touching a bit on the drivers of slightly slowed [ CarSID ] growth as well as the relative contributions of improved dealer retention versus net new adds to rooftop growth? Jason Trevisan: Sure. Vincent, it's Jason. So the relationship between -- so thank you for acknowledging the investments paying off. We are incredibly excited about a bunch of the things that we shared with you all tonight in terms of new launches. The relationship between rooftops and [ CarSID ] is math in so much as [ CarSID ] is revenue divided by the average active rooftops. And so what happens is when we grow rooftops much faster, that's a natural math-based headwind or depressant to [ CarSID ]. And so this past quarter, [ CarSID ] was up about 8% year-over-year. Rooftops were up about 5% year-over-year. And if you add those 2 together, you actually get something close to our total marketplace revenue growth for year-over-year, around 13%. And so if you look at the last several quarters, you'll see that type of relationship. It's not perfect, but I think it illustrates the math pretty well and how the math works. In terms of retention versus adding, we've talked about our retention has been improving nicely over the last set of quarters, even a couple of years. And that's a function of a number of things. We've invested in account management, as you've heard, but I would say a lot of it is through the investment in product and a lot of that product is in dealer data insights and things that we're adding to our core Marketplace and thus far haven't really been charging for a good portion of them. And so between better account management, between more feature functionality, between more insights that help them perform better on our marketplace, our in-dealer partnership team that helps them perform better. So much of what we build here is to just help them perform better on CarGurus. And when they do that, they tend to stay. So -- and some of the cohort information I just gave shows that they're, in fact, ramping even faster. And then as you heard about some of the adoption numbers from the script, we're getting really broad adoption of a lot of these things. Operator: Our next question comes from Ron Josey with Citigroup. Jamesmichael Sherman-Lewis: This is Jamesmichael Sherman-Lewis on for Ron. First here, on CG Discover, now more deeply embedded, can you help us understand how this new car buying journey and purchase funnel differs from traditional car buying? Clearly, we're seeing traffic and conversion ramp, but curious how you see user engagement in this channel's contribution evolve longer term? Jason Trevisan: Happy to. This is Jason again. So Discover is definitely a new experience and one that is getting great traction as we talked about, sort of explosive growth, granted it's early, but explosive growth. So I mean, the key thing to recognize is that it's outside of the structure of the SRP or search results page. And so think of it more as a conversation versus a filter-driven onetime query. And so you -- and I'm sure I encourage you to use it and try it if you haven't. But you can ask questions naturally. You'll get explanations and follow-ups, and you can then continue those follow-ups and ask questions that build on prior questions. And so the discovery goes beyond listings. It actually reasons with the shopper. It explains why cars are ranked the way they are. It offers side-by-side comparisons. It offers contextual intelligence, market value ownership costs, confidence scores, YouTube videos, side-by-side comparisons of different makes and models that we offer. And so -- it also offers things that would be outside of a search. So whereas a typical search might offer just sedans, this may offer based on your inputs, some small or midsized SUVs that would solve some of the things you're looking to solve that aren't a sedan. And so it's actually making recommendations outside of what you're specifically prompting. It creates a ton of opportunities for us on our platform. It also offers opportunities, though, for dealers because they're going to learn a lot more about the consumer and what they're looking for through the information that we share on the dialogue. And so it really is a 2-way conversation. What it's leading to is shoppers who use it do almost 3 follow-up prompts. And so it is a conversation. It's converting from a vehicle detail page to a lead at much, much higher rates. And then those leads are much richer to the dealer because we're passing along a lot of that information. So it really does -- it helps the consumer, it helps the dealer and it helps us. And it's built for agentic expansion. And so the architecture of it allows very easily things like personalized deal alerts, watch lists, comparison across trims and markets as new cars come out. And so it's beginning to and will easily act on behalf of the consumer for future opportunities created by what the consumer has given to the agent. So we're really excited about it. It is not, by any means, a glorified filter, which some other folks are doing. And so we think that it's going to be a really big opportunity for us that can scale nicely. Jamesmichael Sherman-Lewis: That's helpful color. Follow-up, if I may. As we look out to 2026, can you unpack the key investment areas across product, international brand or other areas? And any changes to relative investment intensity versus 2025's investment year? Jason Trevisan: I wouldn't say there's change to relative intensity. I think what we're really excited about, we had said a couple of quarters ago that we were going to increase investment. And I think this quarter in particular, is showing a lot of the benefits of that. We have shown a really quick speed to market with a lot of our introductions. We're showing much deeper engagement, PriceVantage, New Car Exposure, Dealership Mode, Discover. And so we're going to continue to invest in, as you said, product, go-to-market, international and focus on getting adoption of those across the 4 dealer pillars and across deeper consumer engagement. And so I would say, if anything, this sort of reinforces our confidence to continue growing our investments in mostly AI-centric innovation across both dealer and consumer, but we're going to be smart about it. I mean I think we've proven the ability to be really disciplined and to prove execution has to follow innovation and that we're -- we pride ourselves on being a company that balances long-term sustainable growth, high-quality revenue with margin. Operator: Our next question comes from Ryan Powell with B. Riley Securities. Ryan James Powell: It's Ryan on for Naved. I wanted to ask on Dealership Mode. Obviously, you mentioned some good metrics on initial adoption. What kind of consumer insights are you able to generate from users engaging with Dealership Mode? Does this have anything to do with improving recommendations for users? And then I have a follow-up. Jason Trevisan: Sure. So well, number one, to maybe state the obvious, it's giving us a lot of information about who actually goes to the dealership, which may seem like a basic thing. But prior to this, that was oftentimes something that we had to triangulate into. And so this gives us a lot more fidelity on that. Number two is it helps us and it helps the dealer, frankly, probably more than us, understand what other cars a consumer is interested in to compare, and it helps the dealer cross-sell. I mean a good percentage, I think a lot of times, a surprisingly high percentage of consumers who buy a car through our platform at a dealer end up buying a car that is different from the one that they submitted a lead on. And so this helps the dealer in that regard. It helps us -- and again, the dealer understand financing needs, having a calculator there looking at financing options is really valuable because the dealer wants to get them in the right loan. And it just allows them to -- we have -- that's primarily AI built tool and the consumer can engage with that. And all of the things that I just talked about with Discover are happening in Dealership Mode. And so again, it's -- we call it lead enrichment here, but it keeps enriching and enhancing our leads. And so we just capture more and more data on the consumer. So consumers often cite the in-dealership experience as a time when they're trying to comprehend a lot of data, understand a lot of different things thrown at them, and this helps them do that, but it also helps the dealers, and you need to be a paying dealer to be part of this. It helps the dealers understand their customers much, much better. Ryan James Powell: Great. That's very helpful. And then secondly, on CG Discover. So it was also live in the second quarter. What do you think led to the pretty significant increase in adoption amongst users? Jason Trevisan: I mean the biggest thing is we made it more available. It was in testing mode, an earlier form of testing mode as we gain more confidence and saw the increased engagement of consumers saw all the stats that we shared on improved conversion rate, all the rich data that we were getting, we made it more available and realized pretty quickly that it was helping both consumers and dealers. And so I would say that's the primary one. It's definitely improved. We continue to work on it. It's gotten better. But I would say the biggest thing is just exposure to our audience. Like this quarter, we released it in the app. It had not been in the app before. And app is our fastest-growing channel. And so putting it on that really accelerated things. Operator: Our next question comes from Rajat Gupta with JPMorgan. Rajat Gupta: I wanted to ask a little bit zooming out on the industry backdrop. Clearly, there have been some signs of stress on profitability at some large used car dealers, some stress at like smaller independents as well. And we're also seeing some of the -- at least the publicly listed franchise dealers seeing some profit pressure in the near term. But cyclically, it looks like inventory is going up, which should be supportive for your business. I'm just curious what are you hearing from customers in terms of budgets? In response to an earlier question from Chris, you mentioned maybe they're consolidating their vendors. I'm just curious like what's the latest that you're hearing on their planning as we head into '26? And I have a quick follow-up. Jason Trevisan: Yes, I can start, and Rajat and Sam may add to it. So we oftentimes will try to distill down macro factors into just a few key points. And we've also said that our business as a subscription business and dealers need to sell cars in good times and bad is pretty resilient to a lot of the cyclical trends that exist, even seasonal trends. And furthermore, as the largest marketplace with dealers consolidating spend, we're, I think, even more immune and sound. And then lastly, I would say used cars tend to fluctuate far, far less than new cars. And so we're in a bit of a sheltered harbor in that respect, too. So we do, though, try to acknowledge macro factors. So number one, retail sales for used cars are up mildly. Number two, days on market and -- days on market are down a little bit, but frankly, call them flat, and they're actually rising sequentially right now, but they're pretty steady year-over-year, rising a little bit right now. And pricing is up a little bit, not very much. Inventory, as you just said, is up significantly. It's up double digits. Year-over-year, it's up 10%. I think, though, the biggest thing in all of that is that consumer sentiment is down. And interest rates, I mean, granted, they dropped recently, but they still remain pretty high on a relative basis. And so consumer sentiment down, interest rates still elevated, pricing not having come down and inventory up. And you've got dealers that need to move cars and need to sell cars. And oftentimes, it's better for them to market smarter than it is for them to drop prices. And we are the largest scale and typically surveyed or frequently surveyed as the best ROI. So they may have some profit pressure. Their advertising spend has steadily climbed year-over-year based on the publics anyway. And we tend to be gaining -- we are gaining share every quarter. So we don't face a lot of pressure despite what dealers may be facing as margin pressure. Samuel Zales: Rajat, sorry, I'll just add that the other immunity to short-term pressures that Jason mentioned is the breadth of our dealer base. We appeal to the small independent to the multisized independent and franchise dealer and those national accounts you speak to. Our consumer base will buy from all of those types of dealers. And so our breadth, and we're not tied to one particular segment. We have the largest base of dealers that continues to grow. And I'd just add, again, the New Car Exposure product that we launched just in the last quarter was a relevance to dealers saying, hey, there's a high price point for new cars. Can you help us be more profitable selling those new cars? So giving them an opportunity to win their make in a local market, convert consumers who are coming in saying, I might want a used car, I might want a new car. Oh, my payments might be similar on both. I'm going to buy that new car. We're helping them create the profitability in a market trend that we saw coming very quickly and built a product to get there and make them more profitable. So I think it's that breadth of dealer base that also adds to the immunity of short-term impacts and our constant growth through those cycles in the macro environment. Rajat Gupta: Understood. That makes a lot of sense. And just one quick follow-up. I hear a reiteration of the double-digit revenue growth exit rate unless it was meant to be just a fourth quarter number when you mentioned that last call. Could you just give us an update on that? And then how should we think about as we head into '26, the trade-off between growth and margins like you had in the last 2, 3 quarters? Jason Trevisan: Rajat, can you -- I got the second part of the question, relationship growth and margins in '26. Can you repeat the first part of the question about Q4? Rajat Gupta: It was on a Q4 question. I think you mentioned on the last 2 earnings calls that you expect to exit the year at double-digit revenue growth for Marketplace. I wasn't sure if that was an implied fourth quarter number or you meant exiting the year into '26 with double-digit revenue. I did not hear an update on that today. So I'm just curious if that is still on track. Jason Trevisan: Yes. I think that -- my hunch is that the comment made was in reference to Q4 being a Q4 year-over-year revenue growth rate. And -- but then if you look at what that implies for a full year, you would -- the math would illustrate that, I think, is also a year-over-year or a full year year-over-year double-digit growth rate. So I think the Q4 guide sort of answers both of those questions. And we obviously haven't commented on '26. And so from a growth and margin standpoint, I would probably cite back to comments we've made in the past couple of quarters and this quarter around our enthusiasm around the investments, the growth they're driving, the [ CarSID ] trends we talked about and the speed with which we're introducing new products. Operator: We move to our next question from Andrew Boone with Citizens. Unknown Analyst: This is [ Briana ] on for Andrew Boone. You mentioned that 80% of managed leads in October chat and text were handled by AI and that 91% of employees are using AI internally, which has reduced reliance on outsourced teams. Where do you see still the biggest friction points either internally or across dealer workflows where AI can further improve efficiency within the business? And how should we see that coming through on the margin? Jason Trevisan: And is your question related to friction in our business or at dealers' businesses? Unknown Analyst: Within dealer businesses. Jason Trevisan: Within dealer businesses. Well, I think one of the biggest areas of opportunity in the dealers business, two dimensions. One is how all of their different steps of their workflow tie together. So -- and you've heard us talk about that, and that's what we're focused on is how can they source smarter, price smarter based on retail signals that they're seeing. Dealers have, for a long time, been making purchase and appraisal decisions on wholesale data, and that's just not as useful to them. They're more interested in retail data, what can they sell the car for, how much demand does that car have today. Same with conversion. And so how all of the steps of their workflow tie together is one area. The second area is around predictability. It's -- I can use the same example, which is not only were they using wholesale data, they were using wholesale data for appraisal that was 30 days or 60 days old. And so using AI, a lot of our insights and our PriceVantage tool and other things that we're providing them now are about predicting what the environment will be, what the implications will be 30 days from now once they have the car and once they price the car and merchandise it, et cetera. So those would be the 2 dimensions. Internally, it's about speed of development and execution and quality of product. And so I think that shows up in a lot of different ways in product and engineering, but also in other parts of our company. It shows up in how well we serve our customers with our sales team and account management teams, knowing exactly what they should be talking about with our customers. And so I don't think it's friction internally. I think it's just how quickly we can build the internal agents and the internal products to be faster. At the dealer, I think it's those 2 vectors and how quickly they can change behavior to capitalize on those vectors. And so that's what we're trying to help them do with account management. We are -- and how that translates -- you asked how that translates into the results. I mean, I think that's about growth and speed of growth for us, and that's how we're thinking about it more so than a margin enhancer in the near term. Operator: Ladies and gentlemen, that concludes our question-and-answer session for today. I would now like to hand the conference over to Jason Trevisan for closing comments. Jason Trevisan: Thanks. I would just like to thank all of our colleagues certainly here at the company, all of our customers and everyone who joined us on this call tonight. Have a great evening. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Welcome to Chesapeake Utilities Corporation's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Lucia Dempsey, Head of Investor Relations. Lucia Dempsey: Thank you, and good morning, everyone. Today's presentation can be accessed on our website under the Investors page and Events and Presentations subsection. After our prepared remarks, we will open up the call for questions. On Slide 2, we show our typical disclaimers, while I remind you that matters discussed on this conference call may include forward-looking statements that involve risks and uncertainties. Forward-looking statements and projections could differ materially from our actual results. The safe harbor for forward-looking statements section of our 2024 annual report on Form 10-K and in our third quarter Form 10-Q provide further information on the factors that could cause such statements to differ from our actual results. Additionally, the company evaluates its performance based on certain non-GAAP measures, including adjusted gross margin, adjusted net income and adjusted earnings per share, and the information presented today includes the appropriate disclosures in accordance with the SEC's Regulation G. A reconciliation of these non-GAAP measures to the related GAAP measures has been provided in the appendix of this presentation, our earnings release and our third quarter Form 10-Q. Here at Chesapeake Utilities, safety is our first priority. We start all meetings with a safety moment, and we'll do so here with a moment on kitchen and fire safety as highlighted on Slide 3. The holidays are coming up, which often means more time gathering together and cooking with friends and family. This makes it a great time to remember safe kitchen practices, particularly as Thanksgiving is the leading day for home cooking fires. Be extra vigilant and aware to keep kids, pets and flammable materials away from heat and open flames, ensure any burned food or materials are completely saturated with water before throwing away and remember to use a metal lid, sheet pan, baking soda, salt or a fire blanket to extinguish grease fires. I'll now introduce our presenters today. Jeff Householder, Chair of the Board, President and Chief Executive Officer, will provide an update on this quarter's key accomplishments and highlights, our full year guidance metrics and our capital growth program. Jim Moriarty, Executive Vice President, General Counsel, Corporate Secretary and Chief Policy and Risk Officer, will provide updates on our regulatory activity, our ongoing business transformation efforts and our stakeholder engagement. And Beth Cooper, Executive Vice President, Chief Financial Officer, Treasurer and Assistant Corporate Secretary, will discuss our financial results, financing updates and investment highlights. With that, it's my pleasure to turn the call over to Jeff. Jeffrey Householder: Thank you, Lucia, and good morning. We appreciate you joining our discussion today. The highlights on Slide 5 demonstrate how we've continued to deliver with purpose over the last few months. Our growth trajectory continues, and we've expanded our capital investment program. A number of our 2025 projects are already in service and producing significant margin. We've finalized multiple positive regulatory filings and strengthened our balance sheet in support of future growth. As shown on Slide 6, we reported adjusted earnings per share of $0.82 for the third quarter of 2025 and $4.06 year-to-date, an 8% increase over the same period last year. As you know, the third quarter always contributes the smallest percentage of our full year earnings, so my remarks will focus on our performance in the first 9 months of 2025. Year-to-date, we've achieved double-digit growth in adjusted gross margin, operating income and adjusted net income relative to the same period in 2024. That performance is a testament to our focus on driving growth, effectively working with our regulators and operating efficiently to meet our customers' needs. Our results continue to align with our expectations. So we are reaffirming our full year 2025 EPS guidance of $6.15 to $6.35 per share, as shown on Slide 7. As we've previously indicated, this EPS range does assume we reach a successful outcome for 2025 in the FCG depreciation study proceeding, which Jim will discuss further on today's call. On the capital investment side, we continue to invest capital at a run rate of over $1 million a day with $336 million already invested in the first 9 months of this year, including $123 million invested in the third quarter. Given this pace, we are again increasing our 2025 full year capital expenditure guidance to $425 million to $450 million, a $25 million increase over the top end of our prior range. I'll now shift to Slide 8 to discuss the increase in customer demand for natural gas that's driving our strategic investment in some of the fastest-growing regions of the country. Both of our core service areas generated another quarter of above-average residential customer growth, 4.3% in Delmarva, 3.9% for Florida Public Utilities and 2.1% for Florida City Gas. I'll mention just a couple of examples to illustrate the demand for natural gas across our service areas. We're in the early stages of building out natural gas distribution for an underserved area in Southern Delaware that includes 2,000 new homes in Ellendale, Delaware. We also recently became the natural gas provider for a new community development in Port St. Lucie, Florida, which has begun to construct the first of 6 phases of what will ultimately be a community with hundreds of new homes. Last month, we also expanded propane distribution to a fleet of Greensboro school district buses, which confirms our broader propane growth strategy in North Carolina. We also see additional growth opportunities in Ohio, which has become fifth in the nation for data center potential as ranked by Ohio's Economic Development Corporation. The Ohio opportunity is supported by significant natural gas production in the state and constructive governmental and regulatory frameworks. The opportunities we have to serve increasing customer demand, improve system reliability and operate efficiently are the basis for our overall growth strategy, which in turn drives sustainable earnings. We remain committed to increasing shareholder value by focusing on the 3 pillars of our growth strategy, as shown on Slide 9, prudently deploying capital, proactively managing our regulatory agenda and continually transforming our business operations to enhance safety and customer service and support future growth. Successful execution of these 3 pillars will enable us to maintain top quartile growth and total shareholder return. Slide 10 provides some highlights of our 2025 capital program. Construction projects overall remain on track and on budget and more than 400 gas distribution projects have been placed in service through the first 9 months of this year. Most importantly, this capital investment is generating significant gross margin, $14 million in the third quarter, nearly $34 million in the first 9 months of this year and $50 million expected for full year 2025. Given our pace of investment thus far and our additional opportunities ahead, we are again increasing our full year 2025 capital expenditure guidance, adding $25 million to the top end of our prior range for an updated range of $425 million to $450 million. Approximately $15 million of the increase is related to initial spending on our multiyear enterprise resource planning process and about $10 million is related to recently approved Eastern Shore natural gas system improvements. This updated range reflects capital investment of approximately $800 million between last year and this year, a significant increase that reflects the many growth opportunities across all our businesses. I'll now provide an update on WRU, our LNG storage facility in Bishopville, Maryland, as shown on Slide 11. Construction is well underway. Tanks are in place. We've been pouring a lot of concrete. The system control building has been erected and the majority of the equipment needed to complete the facility is now on site. Last month, we also successfully completed our first PHMSA inspection. This project remains the lowest cost infrastructure option to deliver affordable energy and protect against weather-related disruptions in the southernmost portion of our Delmarva service area. We continue to target bringing the project online in mid-2026, dependent on construction completion and final FERC approval. As shown in detail on Slide 12, all of our major transmission capital projects are advancing as expected with more than half now in service. We forecast these projects to contribute approximately $23 million of gross margin in 2025 and double that amount or $46 million in 2026. Shifting to Slide 13. The capital projects included on this slide support our 5-year capital investment plan of $1.5 billion to $1.8 billion through 2028. At this point, we've identified at least $1.4 billion of the capital plan with a number of projects already in service or under construction. Most importantly, approximately 70% of that investment requires no additional regulatory approval or support. Not yet included in this forecast is the investment in our full ERP project as well as a number of projects that are still under exploration and development, as shown on Slide 14. We continue to explore a number of additional potential expansion opportunities, including serving the space industries in Virginia and Florida, expanding our systems in the southern part of Delmarva and Florida and meeting incremental demand for our Marlin virtual pipeline services to transport RNG, CNG and LNG. In just the last 2 weeks, I met with Florida Governor DeSantis and members of our leadership and external affairs teams have met with the Maryland and Delaware governors and their teams. We continue to partner with local state and federal electric representatives to advance the design and construction of much needed energy infrastructure in those states. Maintaining strong relationships with all stakeholders and actively participating in energy coalitions advocating for a resilient and affordable energy future is key to driving these expansion projects forward to meet growing energy demand for years to come. With that, I'll turn to Jim to discuss our regulatory strategy and business transformation initiatives. James Moriarty: Thank you, Jeff, and good to be with you all this morning. I'll start with Slide 15 as I provide some updates on our regulatory activity. After a great deal of effort, we now have permanent rates in effect for our Delaware, Maryland and Florida electric jurisdictions following successful conclusion of the 3 rate cases that we filed last year. Last month, we also reached settlement on the rate design and tariff-related elements of the Delaware rate case. And on October 15, the Delaware Commission approved that settlement. Altogether, updated rates are driving $13.1 million of margin this year and $18.2 million of margin in 2026, a testament to our proactive strategy, constructive relationships with regulators and our highly diligent and dedicated internal regulatory team. Slide 16 provides an update on the one remaining regulatory filing still outstanding, our traditional depreciation study filing for Florida City Gas. Following unexpected regulatory delays, we agreed to amend the filing from a proposed agency action or PAA proceeding to a standard hearing process. This transition provides for a more structured and traditional process for consideration of the filing and an updated schedule. Under the new schedule, the company submitted testimony in early October, restating our request for a 2-year amortization of the excess depreciation reserve retroactive to January 1, 2025. Per the filing we made earlier this week alongside updated testimony, the excess reserve is now $19 million, primarily reflecting updates to expected useful lives for certain asset classes. On Wednesday, the State of Florida Office of Public Counsel filed testimony objecting to the company's proposal and recommending that the existing depreciation rates remain in effect until the company files a new depreciation study as part of a rate case at a future date. The company will be filing rebuttal testimony later this month to address these arguments. Staff testimony will follow next week, and the hearing is scheduled for December 11. The process is expected to conclude no later than February 2026, but could be completed earlier if all parties are able to reach a settlement. We are focused on securing successful recovery of the excess depreciation to support our 2025 full year results and will provide future updates as available. I'll now turn to Slide 17 to provide an update on our business transformation efforts, which is the third pillar in our growth strategy for a reason. Transformation is the engine that enables technology, systems and processes to evolve in order to maintain our track record of growth as we become a much larger organization. In the last few months, we've continued to make strides with upskilling our team, including attracting additional talent in finance, strategic planning, information technology, change management and human resources. We are completing the final preparation stages of our enterprise resource critical project that will have significant transformational impacts across the organization as we implement improvements in asset management, supply chain, human resources, accounting and finance. We expect to invest approximately $15 million in this project this year, and we'll provide total capital spend for this multiyear project on our next call. Slide 18 provides a couple of updates on our engagement with stakeholders. In September, we were pleased to welcome Lisa Eden as our newest member of the Board of Directors. Lisa brings extensive experience in finance, strategic planning, talent management and information technology, having recently retired as Senior Vice President and Chief Financial Officer at TXNM Energy, Inc. We look forward to Lisa's valuable insights and contributions in the years to come. We were also honored to receive several recognitions in the last few months. First, our Delmarva natural gas distribution business and our Sharp Energy propane distribution business were recognized as Stars of Delaware as voted by the Delaware Daily State News readers. Second, Chesapeake Utilities was also named a 2025 Champion of Board Diversity for the third consecutive year by the Forum of Executive Women. And finally, we were named Employer Champion of the Year for Kent County by the Delaware Department of Labor State Rehabilitation Council. These awards reflect our unbroken commitment to excellence and inclusion of all members of our communities as we provide reliable and affordable energy solutions that enable families, businesses and the communities we serve the opportunity to flourish. Our colleagues also continue to support the communities in which they live and work through the contribution of their time and resources. Through September, our teammates have volunteered over 1,500 hours and have contributed over $488,000 in charitable donations and corporate sponsorships, supporting organizations that align with our 4 focus areas of giving: safety and health, community development, education and environmental stewardship. With that, I will turn the call to Beth for a more detailed discussion of our financial results. Beth Cooper: Thanks, Jim, and good morning, everyone. As shown on Slide 19, our financial results for the third quarter of 2025 continue to demonstrate steady growth that supports our full year growth targets. Adjusted gross margin was approximately $137 million, up 12% and adjusted net income was approximately $20 million, up 8% from the third quarter of 2024. We also sustained growth in adjusted earnings per share of $0.82, a 3% increase over the third quarter of last year, which includes an increase of 1 million more shares outstanding compared with a year ago. I'll now provide some additional detail on the key drivers of our third quarter performance as shown on the adjusted EPS bridge on Slide 20. Continued demand for natural gas drove $0.22 of incremental adjusted EPS, including $0.17 related to transmission capital projects and $0.05 of distribution growth across our service areas. Margin from our infrastructure program investments contributed an additional $0.12 per share this quarter and permanent rates from our 3 rate cases added $0.11 in third quarter 2025 adjusted EPS. Our unregulated businesses generated net incremental earnings of $0.09 per share, largely driven by continued growth in our Marlin Virtual Pipeline transportation business. These gains were partially offset by a few factors, including $0.14 per share of increased depreciation and amortization expense, driven by growth in total assets as we actively deploy capital and $0.10 again from the absence of an RSAM benefit recorded in the third quarter of 2024. We also incurred additional operating expenses of $0.12 per share this quarter, driven by incremental facilities, maintenance, insurance and employee-related expenses. However, we continue to drive operational efficiencies, leading to operational expenses at only 34% of adjusted gross margin in the third quarter of 2025 relative to 37% in the same period last year. Our results were also impacted by 15% fewer cooling degree days this quarter relative to the third quarter a year ago, which drove slightly lower consumption in our Florida electric business. Financing activity, including our debt and equity issuances over the last 12 months, reduced adjusted EPS by $0.07 per share. And finally, some changes in our billing accruals also impacted the third quarter of this year from a timing perspective, but will not impact full year results. Shifting to Slide 21. Adjusted gross margin for our Regulated segment was approximately $115 million this quarter, up 12% from the third quarter of last year. This growth continues to be driven by strength in our core business operations, organic natural gas transmission expansions, which are a direct result of distribution growth as well as increased rates following the conclusion of our 3 rate cases. Our focus on cost management enabled similar growth in our regulated operating income, up 11% to approximately $49 million in the third quarter of 2025. Our unregulated Energy segment also demonstrated strong growth relative to the third quarter of last year, as shown on Slide 22, with adjusted gross margin up 13% to approximately $22.5 million. Our Marlin Gas Services business continues to meet the rapid growth in demand for virtual pipeline transportation, driving $3.1 million of additional gross margin when combined with the incremental contribution from Full Circle Dairy in the third quarter of this year. This growth was supported by increased performance from Aspire Energy, but tempered by changes in margins and service fees within our propane operations for the third quarter, leading to an overall gross margin increase of $2.6 million. While higher than the same period a year ago, margins did not fully cover the normal operating costs in the quarter as is typical during the least weather-sensitive quarter of the year. I'll now move to Slide 23 to review our capital structure and financing activities. At September 30, our equity capitalization was 49% with $83.1 million of equity issued through the first 9 months of the year. In the third quarter alone, we issued approximately 126,000 shares with an additional 105,000 shares issued in October 2025. We also completed the previously announced $200 million issuance of new long-term unsecured senior notes in the private placement debt market with $150 million funded in August and $50 million funded in September of this year at a blended 5.04% coupon. These capital raises support our overall financing strategy, which ensures we are committed to superior balance sheet strength. We also continue to maintain strong liquidity and sufficient capacity to support growth with availability of 87% of our total capacity of $755 million between our revolving credit facility and private placement shelf facilities at the end of September 2025. Moving to Slide 24. Alongside our equity and debt plans, our dividend policy continues to be a key component of our capital allocation strategy as we fund growth capital investment to drive earnings growth and overall total shareholder return. Our Board has approved a dividend payout target range of 45% to 50%, allowing us to retain 50% to 55% of earnings, which has been a meaningful part of our financing plan. We also remain committed to consistent dividend growth. Our annualized dividend per share of $2.74 reflects a 7% annual increase from 2024 and supports a long-term dividend CAGR of 9% while still facilitating significant earnings reinvestment. We will continue to support long-term dividend growth while reinvesting significant earnings back into the company, enabling our investors to benefit from both long-term top quartile earnings and strong dividend growth. As we've discussed many times, we are committed to a long-term earnings per share compounded annual growth rate of 8% through 2028 to drive top quartile shareholder returns, as shown on Slide 25. Our third quarter results align with our full year 2025 adjusted EPS guidance range of $6.15 to $6.35 per share, inclusive of a successful outcome on the Florida City Gas depreciation study as both Jeff and Jim have previously discussed. This range represents an EPS growth rate of 14% to 16% over 2024 or on average, approximately 8% to 10% annually over the last 2 years. Before we shift to Q&A, let's review the unique differentiators as shown on Slide 26, that enable us to drive significant shareholder value in 2025 and for years to come. We remain committed to delivering on our promises. We recognize that our consistent track record has driven expectations for continued strong growth, both in terms of performance and valuation. We will continue to execute on our 3 pillars of growth, enabled by continued infrastructure reliability improvements and growing demand for natural gas throughout our service areas and supported by our increased 2025 capital guidance range of $425 million to $450 million. Our disciplined approach to financing, including ensuring balance sheet strength, upholding investment-grade credit metrics and sustaining our target capital structure keep us well positioned to address market volatility as we fund our growth plan. All of these elements drive our ability to reach new heights, both in 2025 and beyond. We look forward to delivering with purpose and driving long-term value for all stakeholders. We sincerely appreciate your continued interest, support and investment in the company. Thank you for joining our call today. With that, we'll take your questions. Operator? Operator: [Operator Instructions] We'll take our first question from Barclays. Nicholas Campanella: This is Nick Campanella. So I wanted to ask on the depreciation study. Just you kind of show in slides that the decision could be anywhere from December to February. I think you're very clear that this is included in guidance. Just ability to kind of overcome that if you do get a decision, let's say, in January or February? Are you still able to kind of hit the range? Or is it fully predicated on that outcome? And then how would you kind of quantify what's in fiscal '25? Beth Cooper: So we have -- Nick, as we've talked about previously, achieving the guidance range would assume that we do get a successful outcome from that rate -- from that proceeding. And where we actually fall within the range will ultimately be based on where that outcome is, meaning when you look at -- we have filed for a 2-year amortization period. The standard is 5 years. So that will come into play. But as long as there is an outcome from the proceeding from the hearing in December, and we get a final order in time to be able to record it for 2025, that will determine ultimately the timing of the period as well as the amount that would enable us to achieve the guidance range. Nicholas Campanella: And if it doesn't, is it just that you're at the lower end? Or I was just trying to parse through what you were saying there. And just to be completely clear, it's the $19 million that's kind of shown in slides, and I would just take half of that. Beth Cooper: Yes, that is correct. And so achievement of that would enable us to be within the range and enable -- so there's some other factors certainly that we have to -- the reason why we're not saying exactly where it will depend on, again, the period of time, the ultimate conclusion of what gets approved in terms of amount. And then certainly, there's other factors that could impact our results, but that is the clear differentiator to us being within the range or not being within the range. And I would add if for some reason, right, it's much lower than expected, we would anticipate that we're going to be filing a rate case next year anyway. So we see dollars there that need to be part of the final outcome. We're very confident in the numbers that we've filed as being the excess reserve. And so we believe we're well positioned, whether it's through a depreciation study or ultimately, if we have to come back in some form of rate proceeding as well next year. Nicholas Campanella: That's great. Really appreciate that clarity. And then I know Jim just kind of talked about the process overall in the prepared remarks and just brought up the prospects of settlement. But just as you've seen kind of testimonies roll in, just how would you kind of frame the prospects to -- for parties to kind of come to a settlement before December? And are you really trying to achieve an all-party settlement? Or could this be more partial? Beth Cooper: Yes, Jim, please go ahead. James Moriarty: Nick, this is Jim. As you know, it's very difficult to predict the process trying to land a case like this or if the parties will even entertain a potential settlement. We're working very hard if there were to be one. Our preference, of course, would be that it'd be unanimous. So I really can't say more than that, Nick, other than our historical approach would be try and resolve something, if at all possible. Operator: Our next question comes from Tate Sullivan with Maxim Group. Tate Sullivan: First to follow up on a comment from earlier in the call. Jeff, did you say that you had 400 new distribution projects in service in the last 9 months? Or did I mishear that? And if I did not, what does that -- what qualifies as an individual project, please? Jeffrey Householder: Yes, that's sure. Those are of a variety of different sizes. It is 400, just to give you some idea of the significant number of projects that we are moving forward on. Those range from distribution level subdivision projects up into some of the transmission work that we do. So it really is just a compilation of the construction activity that's going on throughout the company. And it's a substantial increase over what we would typically see. And so some of that's reflective of the fact that we now have Florida City Gas in the fold and are doing construction activity on that system. And some of it continues to reflect the very substantial growth, especially in residential projects that we see both in Delmarva and in Florida. So yes, I didn't mean to -- that's not all $1 billion transmission projects, but it's a lot of things that add up to a significant amount of work and a substantial amount of customer growth. Tate Sullivan: Yes. I mean the scale of organizing all that. I mean, the previous year's period of 9 months, I mean, I imagine what, roughly 200 to 300 projects. Would that be fair? I mean just... Jeffrey Householder: Yes, maybe even less. Yes, it's a significant amount of work, and our guys have done a really great job. We've spent a fair amount of time over the last couple of years in that particular area, trying to consolidate our construction teams, trying to make sure that we had different tools and systems that would allow us to track those projects in a better way, improving some of the supply chain issues. I mean all of that has kind of come together intentionally to allow us to be able to actually move through that level of project. Tate Sullivan: And separately, you called out the Ohio data center growth in one of the slides. And just to refresh on the business, your Ohio business is an unregulated business -- energy segment, I believe. And -- can you talk about the type of infrastructure? Is it pipelines to backup generators, pipelines to isolated power plants? Or can you talk about that opportunity? Jeffrey Householder: On the data center side? Tate Sullivan: Yes. Jeffrey Householder: Yes. What we actually have one announced project with AEP in Ohio right now to build a pipeline to serve a data center that AEP is building the project itself. We have a number of other possibilities out there that we're looking at. And I mean, we're in the same boat, I think, with a lot of people across the country. As you well know, there are a lot of data center possibilities out there. Everybody is trying to understand where these things might actually land. We've seen, as we mentioned in the remarks, significant activity in Ohio. It seems to be one of those places where folks like the political regulatory climate. They like the fact that there are in-state gas supplies that are possible and there are transmission opportunities there that can bring that gas to the projects as well as some large electric utilities that seem to be eager to pursue them. So we hope to continue to do business in Ohio with the possibility of adding additional transmission assets there. Tate Sullivan: And that's all of Ohio has been unregulated. Is that correct? Jeffrey Householder: That's correct. I guess we have -- I should probably clarify that -- we have a small transmission pipeline that's sort of quasi-regulated in Ohio. But we don't have regulated distribution assets there in the sense that we do on Delmarva, Florida. Tate Sullivan: Okay. I asked this question because I saw an acquisition in Ohio territory as well recently in the industry and thank you for all the comments. Operator: Our next question comes from Paul Fremont with Ladenburg. Paul Fremont: I guess my first question, Beth, just to clarify, is the cutoff date for a Retroactive treatment of the amortization of the depreciation reserve, is that December 31? Or is that -- is it a different date? Beth Cooper: So basically, Paul, as long as we would have an order that would be in the first week or 2 in February, we would be able -- because it would be a subsequent event and the magnitude of that subsequent event, it could be factored into our 2025 earnings. Paul Fremont: Great. So it could be as late as the second week of February? Beth Cooper: It could be as late as that. When it gets beyond that, it would be very challenging for us at that point. So yes, as long as an order is received, we can go back and we have worked through and evaluated that on the accounting side. Mike Galtman and his team have researched that. We've talked to experts around that. And so yes, it could go back and be included because of the magnitude of that event. Paul Fremont: Great. And then my second question is, can you help us split between the 22 that you had initially filed for and the 19 amended request? Beth Cooper: Yes. So the process, Paul, as we started, and it actually -- it happens for all the parties. When you file that -- when you're filing that initial filing, you are certainly filing that with the thought that it is comprehensive. But as you continue to go through and look at the data, and we're scrubbing the data as we're moving through the process, ultimately, there are positive adjustments or things that you may find and sometimes there are updates that can be downward. And in this particular case, the net effect of the adjustments that we found among the various different asset categories or classes ultimately resulted in a decline. We have had our work papers reviewed by some of the experts that we utilize -- but it happens. And so as we continue to scrub the data within our systems, we feel very good about that $19 million. But it is us just constantly going through and validating the data. Operator: [Operator Instructions] We'll go next to Alex Kania with BTIG. Alexis Kania: Maybe just a question just thinking about the -- maybe the year-end earnings call. Has there been just any kind of change in thinking about what the roll forward, what updates you may end up giving on the CapEx plan? I know there's some discussion just about rolling in some of the projects that were talked a little bit about earlier on the call as well as the, I guess, the ERP or business transformation investments. But do you still consider planning on just keeping kind of the '28 long-term target? Or is there a sense maybe you want to do a more kind of full roll forward? Beth Cooper: Thank you. Great question, Alex. So number one, I think right now, we happen to be in the process where we're working on and finalizing our 2026 budget. And that certainly, that is inclusive of our capital projects. And as we start the year, we have a really good sense and even years prior to that as we're moving through looking at the 5 years, it's a constant updating of CapEx guidance as we're looking at it. So as I think about February, what you will definitely see is you will see us come out with our projection of our capital spend for the year that will be reflective of an updated estimate for our ERP process and plan. And so I think that will be something new that we will include. Our expectation right now is that we will continue to hold to the $1.5 billion to $1.8 billion through 2028. And there is some likelihood in February of 2027 that we will revisit that and decide whether there's just an update or whether there's an extension of guidance from there. But most likely, we don't think it will be next year, but it will likely be the following year. Alexis Kania: Great. And then just a follow-up on kind of the underlying growth of the businesses. It's just very notable that the Delmarva growth is even trending ahead of Florida. year-to-date. Do you -- what's kind of the view about how long that maybe could persist? I mean it's obviously a good thing to see. I'm just kind of curious about what the kind of current views are just in terms of trajectory of, let's say, in the Mid-Atlantic versus the Florida franchises. Beth Cooper: Well, thank you. Great question. I happen to be -- and I'm certainly not saying this statistic is in true. I can't confirm it or deny it, but I happened to be in an event not long ago where the speaker at this particular setting was talking about Sussex County, which is really the county in Delaware where we're seeing the most growth because it's at our resort and beach areas. And they were talking about some of the statistics they had seen, right, show that, that county is one of the fastest-growing counties in the entire country. And I think we're continuing to see that. That's reflected in our numbers. There's a substantial build-out that's occurring that for right now, we continue to see occurring into the foreseeable future. You had Jeff talk about on the call today, actually what I would call more of a bedroom community to the beach areas. We're seeing growth actually start up in some of these small communities that I, as a lifetime resident of the state would not have expected some of these areas to be kind of natural extensions necessarily of the beach area, but the quality of life in the area that's around here, I think, is continuing to bring more people in. So I think for right now, Alex, we're continuing to expect strong growth in that area. I don't think that takes away at all from the strong growth, though that we're also seeing in Florida. And one of the things that you saw us do in this particular release, and we're trying to make sure it stands out is that the areas that our Florida legacy business actually serves have tremendous growth that's also significantly above the industry average. And we're seeing growth with even in Florida City Gas also pick up as well. So we're excited about the growth prospects and continue to be. And hopefully, those, as always, will continue to also result in some additional pipeline -- upstream pipeline capacity needs as well. Operator: This does conclude today's question-and-answer session. I would now like to turn the program back over to Jeff Householder for any additional or closing remarks. Jeffrey Householder: Well, thank you for joining our call this morning. We, as always, appreciate your continued interest in Chesapeake Utilities. I have to say that I like where we are this year, less than 2 years from the transformational FCG acquisition, double-digit growth in earnings. We've more than doubled our pre-FCG capital investment, positive results in 3 rate cases, significant progress in our modernization business transformation efforts and really excellent outlooks for 2026. So we look forward to seeing many of you at the EEI Financial Forum in Florida in a couple of days and safe travels if you're headed to Florida. Goodbye. Operator: Thank you. This concludes Chesapeake Utilities Corporation's Third Quarter 2025 Earnings Conference Call. Please disconnect your line at this time, and have a wonderful day.
Operator: Good day, and welcome to the Prospect Capital First Fiscal Quarter 2026 Earnings Release and Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to John Barry, Chairman and CEO. Please go ahead. John Barry: Thank you, Danielle. Joining me on the call this morning are Grier Eliasek, our President and Chief Operating Officer; and Kristin Van Dask, our Chief Financial Officer. Kristin? Kristin Van Dask: Thanks, John. This call contains forward-looking statements that are intended to be subject to safe harbor protection. Future results are highly likely to vary materially. We do not undertake to update our forward-looking statements. For additional disclosure, see our earnings press release and 10-Q filed previously and available on our website, prospectstreet.com. Now I'll turn the call back over to John. John Barry: Thank you, Kristin. In the September quarter, our net investment income or NII, was $79.4 million or $0.17 per common share. Our net asset value was $3 billion or $6.45 per common share. At September 30, our net debt to total assets ratio was 28.2%. Unsecured debt plus unsecured perpetual preferred was 80.8% of total debt plus preferred. We are announcing monthly common shareholder distributions of $0.045 per share for each of November, December and January. Since our IPO 20 years ago through our January 2026 declared distribution, we will have distributed over $4.6 billion or $21.79 per share. Our preferred shareholder cash distributions continue at their contracted rates. We continue to make progress repositioning our business, including rotation of assets into an increased focus on our core business of first-lien senior secured middle market loans with our first lien mix increasing 701 basis points to 71.1% from June 2024. We are focusing on new investments in companies with less than $50 million of EBITDA, including companies with smaller funded private equity sponsors, independent sponsors and no third-party financial sponsors where we see less competition, better returns and more protection. Reduction in our second lien senior secured middle market loans with our second lien mix decreasing 292 basis points to 13.5% from June 2024. Exit of our subordinated structured notes with our subordinated structured notes mix decreasing 808 basis points to 0.3% from June 2024. Exit of targeted equity-linked securities, including real estate with 3 additional properties sold since July 1, 2025, and certain corporate investments, including the sale of significant assets within Echelon Transportation in July 2025. And with remaining assets expected to be sold in the December 2025 quarter with other exits targeted. Enhancement of portfolio company operations and greater utilization of our cost-efficient floating rate revolver, which largely matches our floating rate assets. Thank you. I will now turn the call over to Grier. Michael Eliasek: Thank you, John. Over the past 2 decades, Prospect Capital Corporation has invested approximately $13 billion in nearly 400 exited investments out of over $22 billion in nearly 500 total investments that have earned a 12% unlevered investment level gross cash internal rate of return or IRR to Prospect Capital Corporation. This multi-decade time period includes the GFC and has been dominated in general by low prevailing market interest rates. As of September 2025, we held 92 portfolio companies across 32 different industries with an aggregate fair value of $6.5 billion. We primarily focus on senior and secured debt which was 85% of our portfolio at cost as of September. Our middle market lending strategy is the primary focus of our company. With such strategy as of September 2025, representing 85% of our investments at cost, an increase of 864 basis points from June of 2024. In our middle market lending strategy, we've continued our focus on first lien senior secured loans during the quarter, with such investments totaling 81% of originations during the quarter. Investments during the quarter included a new investments in the Ridge, also known as Healthcare Venture Partners, a provider of health care services and other follow-on investments in existing portfolio companies to support acquisitions, working capital needs, organic growth initiatives and other objectives. We've substantially completed the exit of our subordinated structured notes portfolio as of September 2025. With such portfolio representing only 0.3% of our investment portfolio at cost, which represents a reduction of 808 basis points from 8.4% as of June 2024. In our real estate property portfolio at National Property REIT Corp, or NPRC, which represented 14% of our investments at cost as of September 2025 and which is focused on developed and occupied cash-flowing multifamily investments. Since the inception of this strategy in 2012 and through October 31, 2025. We have now exited 55 property investments that have earned an unlevered investment level, gross cash IRR of 24% and cash-on-cash multiple of 2.4x. We exited three property investments since June 2025, for approximately $59 million of net proceeds to Prospect Capital Corp. and then earned an unlevered investment level gross cash IRR of 23% and cash-on-cash multiple of 2.3x. The remaining real estate property portfolio includes 55 properties, and paid us an income yield of 5.1% for the September quarter. Prospect's aggregate investments in NPRC included a $320 million unrealized gain as of September. We expect to continue to redeploy future asset sale proceeds primarily into more first lien senior secured loans with selected equity-linked investments. Prospect's approach is one that generates attractive risk-adjusted yields and our performing interest-bearing investments, we're generating an annualized yield of 11.8% for the quarter ended September. Our interest income in the September quarter was 97% of total investment income, reflecting a strong and high-quality recurring revenue profile for our business. Payment in kind income for the quarter ended September 2025 was reduced by over 50% from the quarter ended September 2024. Non-accruals as a percentage of total assets as of September stood at approximately 0.7% based on fair market value. Investment originations in the September quarter aggregated $92 million and were comprised of 72% middle market investments with a significant majority of first lien senior secured loans. We also experienced $235 million of repayments and exits as a validation of our capital preservation objective, resulting in net repayments of $143 million. Thank you. And I'll now turn the call over to Kristin. Kristin? Kristin Van Dask: Thanks, Grier. We believe our prudent leverage, diversified access to matched book funding, substantial majority of unencumbered assets, weighting toward unsecured fixed rate debt and avoidance of unfunded asset commitments all demonstrate balance sheet strength as well as substantial liquidity to capitalize on attractive opportunities. Our company has locked in a ladder of liabilities extending 26 years into future. On October 30, 2025, we successfully completed the institutional issuance of approximately $168 million in aggregate principal amount of senior unsecured 5.5% Notes due 2030, which mature on December 31, 2030. We expect to use the net proceeds of the offering, primarily for the refinancing of existing indebtedness. Our unfunded eligible commitments to portfolio companies totaled approximately $36 million, of which $15 million are considered at our sole discretion, representing approximately 0.5% and 0.2% of our total assets as of September, respectively. Our combined balance sheet cash and undrawn revolving credit facility commitments stood at $1.5 billion as of September, and we held $4.2 billion of our assets as unencumbered assets, representing approximately 63% of our portfolio. The remaining assets are pledged to Prospect Capital Funding, a nonrecourse SPV. We currently have $2.12 billion of commitments from 48 banks, demonstrating strong support of our company from the lender community with the diversity unmatched by any other company in our industry. The facility does not mature until June 2029. And and revolves until June 2028. Our drawn pricing continues to be SOFR plus 2.05%. Outside of our revolver, we have access to diversified funding sources across multiple investor types and have successfully issued securities in an array of markets. Prospect has issued multiple types of unsecured debt institutional nonconvertible bonds, institutional convertible bonds, retail baby bonds and retail program notes. All of these types of unsecured debt have no financial covenants, no asset restrictions and no cross-defaults with our revolver. We have tapped the unsecured term debt market on multiple occasions to ladder our maturities and to extend our liability duration out 26 years with our debt maturities extending through 2052. With so many banks and debt investors across so many unsecured and nonrecourse debt tranches, we have substantially reduced our counterparty risk. At September 30, 2025, our weighted average cost of unsecured debt financing was 4.54%. Now I'll turn the call back over to John. John Barry: Thank you, Kristin. We can take calls now, questions now. Operator: [Operator Instructions] The first question comes from Finian O'Shea from Wells Fargo. Finian O'Shea: I want to ask about the equity linked rotation. You've made some good progress there as you sort of embark on that. But seeing if you can give us color on how far it goes and what are maybe the sacred cows within a lot of that's in the control book, particularly one area, consumer finance, you're still putting money in. Those companies are doing well. But are there -- is that sort of what's supposed to remain? And/or how much or how much of the rest is sort of a candidate to move versus what you view as a strategic holding? Michael Eliasek: Sure. I'll take that. Go ahead, John. John Barry: No, no, please take it Grier. Michael Eliasek: Okay. So Finian, yes, we do like to make first lien and senior and secured loans to companies. And we do really increasing percentage of time like to have some portion of our paper as equity linked. Ideally without a trade-off involved, the best type, of course, is penny warrants, the free type. And then the next best is convertible debt that is still senior and secured, has the cash pay coupon pledgeable to our facility, but then has ups as well and then various types of convertible preferred that have coupons and liquidation preferences on top of third-party capital all the way to a some heads up capital. So our strategy is one of evaluating each investment in the book and looking at it on a foregone yield and foregone IRR. Including giving effect to accretion through our roughly S200 secured credit facility for those foregone returns at a price that we think is actionable with a third-party purchaser in the market that's the guidepost we use to make decisions to optimize the portfolio. And what that leads us to is to look to divest over time generally when you've had appreciated equity-linked assets and we're looking forward and maybe there's upside in the future, but not quite as much as we're not foregoing as much. And we're also paying careful attention to foregone yield as well, wanting to rotate and drive and optimize increase revenue, increase income for our business. The best candidate for that in our portfolio is real estate. I mentioned we've sold 55 properties. We have another 50 or so to go. Returns on recent exits sort of backward looking are fairly similar to the overall returns we've generated on the other 50 or so exits with IRRs in the low 20s and a multiple of invested capital generally above 2x cash on cash. But the extant book after giving effect within real estate to appreciation of value is generating about a 5% income yield. That, of course, is much lower than what we can achieve in the market for new originations. We are focused on smaller companies increasingly sub-$50 million EBITDA and really sub-$25 million to $35 million because there's so much competition in the upper middle market that is bid away spreads, that is bid away floors, that is bid away covenants, that is bid away earnings quality, that is bid away on strong documents, so many problems there that we intensely dislike. And so we're focused on the harder to originate but well worth it when you do smaller end. Our last dozen or so deals closed have had an average spread in the 700s compared to the upper middle market, which is decided with a 4 handle by comparison. We're getting much higher floors, generally above 300 basis points on those deals and look at what's happening with short-term rates were down to about 375 and folks are cutting distributions out there experiencing lower yields. What went up can and almost certainly will go down again from a floating rate perspective. So we can put money out at, call it, 10% to 12% unlevered in the lower middle market then we lever that in our S200 facility at a 50%, 60% advance rate. And we're talking about a 15% plus income yield return before giving effect to any equity-linked benefit. That 15% of course, is vastly superior on an income yield perspective, to the 5% I was quoting on real estate. So we view that as an earnings powerhouse that we're unleashing through that rotation that we're pursuing that doesn't mean we're going to dispose of the real estate portfolio liquidity split. We're doing so on a thoughtful, value maximizing basis on a bottoms-up look at different geographies, different properties, we concluded you maximize value by selling individual assets or smaller groups of assets as opposed to the whole. There's just a lot more buyers who can transact with individual assets as opposed to cut a multibillion dollar check. Usually, those guys look for significant bargains that were not too interested in parting with. So that's what's going on with real estate. We're seeing solid NOI growth. We've had about 7% NOI growth. And we're seeing tailwinds there as supply has diminished and look for us to continue to monetize assets in coming quarters. Then you have other assets on the corporate side, I'll divide that into non-financials and financials that you mentioned. We have a number of very successful nonfinancial deals where you have some equity-linked positions that have appreciated significantly. And again, when you look at on a foregone yield and IRR basis, we say, okay, we think it could make sense at the right price, the deal business is dynamic, and you never know exactly what the outcome will be. But at the right price, there's a potential transaction there. So we've got various processes that are ongoing there and we'll disclose that at the appropriate point should we find interesting exit points. And again, an unleashing of earnings power by rotating those appreciated assets into more in a diversified way of income-producing properties. In the financial book that you talked about, those are really, for the most part, long-term holds for multiple reasons. I mean, that doesn't mean we would say no. if some huge outlier bid came along. But we have substantial tax advantages that aren't enjoyed by other public companies because we're a BDC, we're a RIC, we pay no corporate taxes as long as, of course, we meet the regulatory requirements, which we have for our 20-plus year history and intend on continuing to do and we hold these financials as tax partnerships. So there's no taxes at the underlying portfolio company level. If these companies say, First Tower, for example, were to become its own public company, and it's large enough business that perhaps it could or could some day, it would need to be a corporate taxpayer under the regs, and that would be an erosion of value in any potential buyer would keep that in mind for their eventual exit. So we enjoy a very low cost of capital as the natural resting ground for financials. And just more important than that, we've had terrific success focusing on areas that are highly recurring and recession resilience. And I'm talking about installment lending, which is what First Tower and Credit Central and our latest deal, which is QCHI, all transacting. We do have a small auto book very small. That's been a tougher business. That's a scale business. It's less of a customer loyalty recurring cash flow business because in automobile purchase is episodic. But for these installment lenders, they're doing 50% to 75% plus of their business with current customers, and there's a substantial loyalty element that grounds the business and really creates low volatility. And as short-term rates are starting now to subside, that's a further tailwind for those businesses that utilize third-party ABL that's floating rate in nature. I think with Tower something like every 100 basis point reduction in SOFR increases pretax net income by somewhere in the range of $5 million to $10 million. And then, of course, there's a valuation benefit from that as well. So that's what we're after. We've made a lot of progress in the last year, Finian, exiting our structured credit book was a big part of that process. That book could become low yielding on a GAAP basis as well. And we're rotating and having great success with deals like the Ridge, deals like Verify Diagnostics, deals like Druid City, a Discovery Point, Taos and QC as equity link deals have had substantial write-ups year-to-date since we closed each of them. So the strategy is working well, and we're going to continue to execute on that game plan. Finian O'Shea: No, I appreciate that. A lot of color there. And just as a follow-up, progress as well on the liability front, can you talk about the Israeli bond, if that is that sort of a one-off or a new channel? And if you anticipate or are planning more meaningful movement on the unsecured front? Michael Eliasek: Sure. It's a new channel. It's not a one-off. It's something we've evaluated for a very long time. And we thought the timing made sense for us. We've been utilizing our revolver to retire liabilities. We utilized our 48 bank strong $2.1 billion revolver a few months ago to take out our first half of 2026, original issue $400 million bond and could utilize that as well for our next maturity, which isn't until the tail end of 2026. But I thought this was an interesting and strategic place to issue. We have strong relationships there. We've had institutional support from that market on other types of issuance and Prospect. And so it just made a lot of sense and something like 40-plus institutional investors come into that bond and that's a decent-sized market. And I think you'll see us on a thoughtful basis, continue to expand our presence there. And -- but that doesn't mean that's going to be our only source of financing. We're big, big believers in diversified financing. The fact that we have almost 50 banks in our facility shows we're not taking substantial counterparty risk, which can be problematic, especially in downturns. We saw that happen in the GFC with folks. While that's a big reason why we're able to buy Patriot Capital for example, and what happened to that business when we did the first BDC acquisition history. But prospect, of course, created the bond market for BDCs. We're the first issue convertible bonds going back to 2010 and then straight institutional bonds in 2012 and first and only to issue medium-term notes. So we've been doing this for a very long time and are big believers in diversified access to funding and we think that creates a strong credit profile for all, including, of course, equity investors that benefit from that diversified funding. Finian O'Shea: Awesome. Thank you, everybody. Congrats on the quarter. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to John Barry for closing remarks. John Barry: Okay. Thank you, everyone. Have a wonderful day. Bye now. Michael Eliasek: Thanks all. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, and welcome to the TDS and Array Third Quarter 2025 Operating Results Conference Call. [Operator Instructions] I would now like to turn the call over to John Toomey. Please go ahead. John Toomey: Good morning, and thank you for joining us today. I'm pleased to be here in my new role as Treasurer and Vice President of Corporate Relations. I've been with TDS for 25 years, serving as Treasurer since 2018, and I look forward to meeting and talking with you as part of my expanded role. We want to make you aware of the presentation that has been prepared to accompany our comments this morning, which you can find on the Investor Relations sections of the TDS and Array websites. With me today and offering prepared comments are from TDS, Walter Carlson, President and CEO; Vicki Villacrez, Executive Vice President and Chief Financial Officer; from TDS Telecom, Ken Dixon, President and CEO; Kris Bothfeld, Vice President of Finance; and from Array Digital Infrastructure, Doug Chambers, Interim President and CEO. This call is being simultaneously webcast on the TDS and Array Investor Relations websites. Please see the websites for the slides referred to on this call, including non-GAAP reconciliations. TDS and Array filed their SEC Forms 8-K, including the press releases and our 10-Qs earlier this morning. Finally, as shown on Slide 2, the information set forth in the presentation and discussed during this call contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. Please review the safe harbor paragraphs in our press releases and the extended version included in our SEC filings. I will now turn over the call to Walter Carlson. Walter C.D. Carlson: Thanks, John, and good morning, everyone. We are pleased to report to you on our third quarter performance and the progress we have made on our priorities for 2025. Our priorities for 2025 are set forth on Slide 3. As we reported to you in August, the T-Mobile transaction closed on August 1. The close of that transaction and the subsequent transition activities have gone well. And the successful close has enabled us to continue our progress on all our other priorities. Array Digital Infrastructure has seamlessly transitioned into an independent tower company and has hit the ground running, already showing nice growth, as Doug Chambers will highlight shortly. Doug has done an excellent job leading Array during this transition. With Array established as a stand-alone tower company, we are pleased to name Anthony Carlson as the President and CEO to lead the Array team into the future. Anthony has an outstanding business background and has led significant teams at both UScellular and TDS Telecom for the past 6 years. We are confident that he will be an excellent leader for Array. Turning to TDS Telecom. The third quarter was Ken Dixon's first full quarter as its CEO. TDS Telecom continues to be laser-focused on its fiber transformation. In the quarter, the company achieved an important milestone of 1 million fiber addresses. You'll hear more from Ken and Kris Bothfeld on this achievement and TDS Telecom's other accomplishments later in the presentation. TDS has also strengthened its capital structure, having received a $1.6 billion special dividend from Array in August, and we expect to receive additional proceeds after the close of the pending spectrum transactions. The proceeds received to date have enabled the substantial paydown of debt and will support the existing fiber expansion program at TDS Telecom. As we receive the proceeds from the additional spectrum sales, we expect to further expand our fiber program and to use a significant portion to support the new $500 million share repurchase program that the company announced this morning. Vicki Villacrez will provide additional details on our capital allocation program during her remarks. And lastly, we are keenly focused on our culture. Transformational changes are never easy, but TDS has a strong culture and our associates are effectively executing against our objectives through their continued hard work, collaboration and professionalism. I want to personally thank all of the teams whose efforts have put the enterprise in this strong position heading into 2026. I will now turn the call over to Vicki. Vicki Villacrez: Thank you, Walter, and good morning, everyone. At TDS, we are focusing heavily on capital allocation decisions in light of the UScellular transaction to T-Mobile, the debt reduction at TDS and Array and the anticipated closing of Array spectrum sales to AT&T and Verizon within the next year. At Array, we anticipate, as we have disclosed previously, that cash received upon closing of the AT&T and Verizon transactions will be used subject to the determination of the Array Board, primarily to fund ongoing business operations and special dividends. We anticipate the pending AT&T transaction of $1 billion to close either in the fourth quarter of 2025 or the first half of 2026, depending on government approval. While any decision on dividends will be made by the Array Board, we anticipate that following the closing of the AT&T transaction, the Array Board would declare a special dividend in the amount of approximately $10 per share. At TDS, our capital allocation plan has 3 priorities. The first is to invest in our fiber business. As Walter highlighted, we continue to believe that our fiber business has numerous opportunities for investments with attractive return profiles. We will use a portion of the anticipated special dividend proceeds to fund both our current fiber program and additional fiber builds that are incremental to our current goals. These additional opportunities are mostly edge-out communities adjacent to our markets and could be at least several hundred thousand service addresses or more. We believe there's an immediate window of opportunity to plant our flag and pursue investments in communities without a fiber provider. We are currently working through the business cases and we'll update you in February. Our second priority is to achieve inorganic growth through M&A. We intend to be opportunistic and disciplined only considering those opportunities that are accretive and meet our return objectives. To that end, we would specifically be interested in smaller, highly synergistic accretive M&A fiber opportunities, particularly adjacent to our existing markets. As we have demonstrated in the past, TDS will remain financially disciplined and business case-driven and any M&A pursuits. Clustering to achieve synergies will continue to be an important strategy at TDS Telecom. The company has recently divested ILEC markets that were not a strategic fit to its fiber objectives. Our third priority is to return capital directly to shareholders. In September, TDS began repurchasing its stock and bought back a little over 1 million shares during the third quarter under its existing stock repurchase authorization. In addition, TDS's Board authorized a $500 million increase to our existing share repurchase program, leaving the remaining authorization intact. This authorization reflects the Board's confidence in the company's long-term strategy and the belief that repurchasing TDS shares at present valuation is an attractive use of the company's capital. The timing and manner will be determined at the company's discretion and will be dependent on closings of the announced spectrum transactions as well as general business and market conditions. We believe share repurchase is tax efficient for our shareholders while also providing flexibility for the company. To be clear, TDS also expects to retain its current regular quarterly dividend. All decisions regarding dividends in future quarters, of course, are subject to the determination of our Board. I think these balanced capital allocation priorities will make TDS stronger, both operationally as we make investments in our fiber business and by returning capital to our shareholders in a measured way. Thank you. And I now will turn the call over to Ken Dixon to discuss his vision for TDS's fiber business. Ken? Kenneth Dixon: Thank you, Vicki. Good morning, everyone. My first quarter at TDS Telecom has been fantastic. One highlight, of course, was achieving 1 million fiber passings. It was a significant milestone for the business and years in the making. I have also enjoyed traveling to our markets and listening to our TDS frontline associates who are executing every day on our fiber build plans and growth strategy. Before we get into the slides, I'd like to take a moment to reaffirm our strategic priorities. These include executing on our build plan, accelerating fiber penetration, advancing our business transformation program and delivering an excellent customer experience. These pillars are central to our long-term growth strategy and will continue to shape our path forward. Turning to Slide 6. We delivered 42,000 fiber addresses in the quarter, which puts us just over halfway to our goal of 150,000 service addresses for the full year. Consistent with historical trends, we expect to have our strongest address delivery here in the fourth quarter. We generated 11,200 residential fiber net adds in the quarter, contributing to a 19% growth in residential fiber connections since last year. Fiber net adds have improved sequentially every quarter this year. On the sales and build front, we recognize that performance isn't where we want it to be. We are taking actions to change this trajectory. Since the end of the second quarter, we have nearly doubled the number of construction crews we have across our markets and are continuing to increase crew counts through the end of the year. We are focused on executing our build plan, so we have a large funnel of addresses to sell into and increasing penetration rates in our existing launched fiber areas. And lastly, our enhanced A-CAM or E-ACAM builds are very well underway, which will help bring fiber to the most rural markets in our footprint over the next several years. On the next slide, I want to share a little bit more about E-ACAM, which will be absolutely a transformative program to our network, our business and our customers. First, this program enables us to replace a substantial portion of legacy copper infrastructure. This will add approximately 300,000 new fiber addresses, which includes E-ACAM addresses as well as addresses that will be picked up along the route. This directly supports our long-term goal of reducing copper to less than 5% of our total network footprint. This will greatly improve network reliability and the customer experience. As construction activity ramps up, we expect to see strong copper-to-fiber conversions as well as new customer growth throughout our rural footprint. Second, the program delivers over $1.2 billion in regulatory revenue support over a 15-year period, providing a funding stream that supports this continued investment in fiber. Third, these markets are uniquely positioned for success. With no gig capable competitors, we anticipate penetration rates between 65% and 75%, which translates into very attractive returns. In short, E-ACAM is an outstanding program strategically, operationally and financially. It allows us to bring world-class fiber services to communities that were previously cost prohibitive, while delivering meaningful value to both our customers and to our business. Before turning over the call, I want to say how much I've enjoyed my first quarter here. We have a lot of work to do, but I'm excited about the direction we're heading and the opportunities ahead as we transform TDS Telecom into a fiber-centric company. I'll now let Kris Bothfeld take us through the quarter results. Kris? Kristina Bothfeld: Thanks, Ken. Turning to Slide 8. You can see our progress towards the long-term fiber goals we shared earlier this year. We are targeting 1.8 million marketable fiber service addresses, and we crossed the 1 million fiber address mark this quarter. Across our entire footprint, our goal is to have 80% of total addresses served by fiber compared to 55% today. We expect this percentage to grow as our E-ACAM deployments ramp. And finally, we expect to offer speeds of 1 gig or higher to at least 95% of our footprint. We finished the quarter with 76% of our footprint at gig speeds. As a reminder, we will use a combination of fiber and coax technologies to reach this target. Turning to Slide 9. The graph on the left shows the most recent 5 quarters of fiber service address delivery. Address delivery typically increases throughout the year given seasonality impacts. As Ken said, we are behind schedule for the year, and we are working to get our build plan back on track and are expecting the fourth quarter to be the strongest of the year. The graph on the right shows the significant growth in our fiber footprint, nearly doubling over the last 3 years. Turning to Slide 10. The graph on the left shows the last 5 quarters of residential fiber net additions. We delivered 11,200 this quarter, up 8% year-over-year. We have seen year-over-year and sequential improvement in residential fiber net adds this quarter, and we expect to see improvement in fiber net adds in the fourth quarter. The graph on the right highlights our residential fiber connection growth. Connections have nearly doubled over the last 3 years, driven by our expansion efforts and copper to fiber conversions. As we continue to invest in fiber, we expect broadband connection growth to continue. Broadband penetration remains a key metric for our fiber program with our expansion markets hitting 20% to 25% penetration on average within the first 12 months of launch and approximately 40% in steady state by year 4 to 5. On Slide 11, average residential revenue per connection was up slightly year-over-year. Consistent with industry trends, fewer broadband customers are bundling with our video product, which dilutes this metric. As we shared earlier this year, we anticipate more modest growth in residential revenue per connection as we focus on driving penetration. The chart on the right shows our revenue comparison year-over-year. As a reminder, divested markets accounted for a $6 million decrease in revenues compared to the prior year. Now let's talk about revenues on Slide 12. Total operating revenues were down 3% in the quarter compared to prior year. Excluding the impact of divestitures, revenues were down 1%, driven by continued declines in our legacy cable and copper markets, partially offset by growth from our fiber investments. Adjusted EBITDA is down 3% year-over-year, which is pressured by the divestitures and legacy revenue stream declines, offset in part by disciplined cost control. A key priority for the company is to drive business transformation, and we are starting to see benefits from these efforts to improve our cost structure. Capital expenditures are up compared to the same period last year due to spending on the E-ACAM program as well as higher expansion address delivery. We expect both CapEx and service address delivery to continue to increase in the fourth quarter as we accelerate construction to meet our full year address target. Over 80% of our 2025 capital expenditures will be focused on fiber. Slide 13 shows our 2025 guidance, which remains unchanged from last quarter. In closing, Ken and I want to thank the entire TDS Telecom team. We have significant opportunities and transformation ahead of us, and it would not be possible without the hard work and dedication of our associates. I will now turn the call over to Doug. Douglas Chambers: Thanks, Kris. Good morning. The third quarter was momentous as we closed the sale of our wireless operations and returned significant value to shareholders in the form of a special dividend. We also launched our operations as an independent tower company, and the team has done an outstanding job of executing a seamless transition and delivering strong results, which were bolstered by the new T-Mobile MLA that commenced on August 1. In addition, we continue to make progress on our process to opportunistically monetize our spectrum as we entered into additional agreements to sell spectrum. As a reminder, Array's business has 3 significant value drivers: retained wireless spectrum, tower operations and noncontrolling investment interest. Further, our strategic imperatives included on Slide 17 continue to be focused on fully optimizing our tower operations and monetizing our spectrum. I will discuss these value drivers and progress on our strategic imperatives as I walk through our third quarter results. From a financial reporting standpoint, given the divestiture of our wireless business in the third quarter, results from wireless operations, including the book loss on sale of such operations are presented as discontinued operations in our financial statements. This discussion is solely focused on our continuing operations and therefore, excludes wireless operations results and the related book loss on sale. Further, now that we are an independent tower company, we have adjusted our reporting to include relevant tower company financial measures, including adjusted free cash flow, which is similar to the adjusted funds from operations or AFFO measure reported by other tower companies and also includes the cash flows from our noncontrolling investment interest, which are a significant portion of Array's total cash flows. Starting with an update on our spectrum monetization process. As shown on Slide 18, we have made substantial progress and to date have reached agreements to monetize 70% of our spectrum holdings. In conjunction with the sale of our wireless operations on August 1, we conveyed 30% of our spectrum to T-Mobile. In addition, as previously announced, we signed agreements to sell spectrum to Verizon and AT&T in separate transactions in exchange for $1 billion on each transaction. In August and October of 2025, we signed additional agreements with T-Mobile to sell spectrum for total gross proceeds of $178 million. This primarily includes the sale of 700 megahertz A-Block and the exercise of approximately 80% of T-Mobile's call option on the 600 megahertz spectrum. The pending spectrum transactions are subject to regulatory approval and closing conditions. As it relates to expected close dates on the pending spectrum transactions, we expect the timing of regulatory approval to be impacted by the ongoing federal government shutdown. Given this, as mentioned by Vicki, we expect the pending AT&T transaction to close in either the fourth quarter of 2025 or the first half of 2026 and the remaining transactions to close in 2026. Our remaining spectrum principally consists of C-band spectrum, and we continue to believe that this is attractive beachfront spectrum for 5G, and there is an existing ecosystem so carriers are easily able to put this spectrum to use. And although there are build-out requirements for this spectrum, the first one does not apply until 2029, so there's plenty of time to monetize the spectrum. Turning to Slide 21. The T-Mobile MLA significantly increases our revenue, and we are focused on partnering with T-Mobile to ensure the integration process is well executed. Growing colocation revenue outside of the T-Mobile MLA also remains a priority and both revenue growth and new colocation application volume remains strong. Overall, site rental revenue, excluding noncash amortization components, grew 68% on a year-over-year basis in the third quarter of 2025 and excluding the impact of T-Mobile revenue on interim sites grew 46%. This reflects both the significant impact of the MLA with T-Mobile as well as strong revenue growth from other tenants. Further, our decision to in-source our sales and intake operations at the beginning of 2025 has helped enhance our sales results as new colocation applications, excluding T-Mobile applications, which are subject to the MLA, have increased 125% on a year-to-date basis through September 30, 2025, relative to 2024. Related to site rental revenues, we received a letter dated September 2025 from DISH Wireless, whereby DISH asserts its master lease agreement with Array has been impacted by unforeseeable actions by the FCC, and therefore, DISH believes it is relieved of its obligations under the MLA. And despite this, DISH plans to continue to operate certain sites for a period of time. Array believes DISH's assertions are completely without merit and DISH's obligations under the MLA remain intact. Array plans to enforce DISH's performance and payment obligations under the MLA. Array expects to recognize approximately $7 million of site rental revenue from the DISH MLA in 2025 and DISH's obligations at similar levels from 2026 through 2031 with a declining revenue commitment in 2032 through 2035. Slide 22 summarizes Array's financial results. In the third quarter of 2025, we estimate approximately 40% of selling, general and administrative or SG&A expenses include costs to support the following activities: wireless operations prior to divestiture that are not reflected as discontinued operations, wireless operations wind-down costs incurred after the August 1 close date, administrative expenses associated with managing spectrum assets and expenses associated with the ongoing strategic alternatives review. We expect legacy wireless operations wind-down expenses to persist into the first half of 2026 at levels similar to the third quarter of 2025. And while some wind-down expenses will remain after that time, we expect such expenses to begin declining in the second half of 2026. Turning to Slide 24. T-Mobile has until January 2028 to finalize the selection of 2,015 committed sites under the new MLA. Based on these final selections, Array expects to have between 800 to 1,800 tenantless or naked towers. We are aggressively continuing our efforts to lease these naked towers, and we'll also plan on working with our ground lessors to rationalize ground rents based on the economics associated with naked towers. Over time, based on the results of these efforts and the projected future lease potential of each tower, we will assess the economics of each naked tower and evaluate alternatives, including potential decommissioning. Slide 25 summarizes the result of noncontrolling investment interest. As noted, historically, greater than 80% of our investment income and related distributions are attributable to 4 wireless operating entities operated and managed by Verizon and AT&T. Investment income and distributions for the 9 months ended September 30, 2025, were impacted by several events, including the following 2 items: First, we own noncontrolling interest in 3 additional entities that had wireless operations and have tower operations in the state of Iowa. These 3 entities sold their wireless operations to T-Mobile in 3 separate transactions on August 1, 2025, the same date that Array sold its wireless operations to T-Mobile. As a result of these 3 separate transactions, Array recognized $34 million of equity income and received $42 million of distributions in the third quarter of 2025. Second, in the first half of 2025, Array received distributions from Verizon managed entities of $25 million related to proceeds from Verizon's prepaid tower lease transaction with Vertical Bridge. I want to thank the entire Array and TDS teams who have worked tirelessly to close the sale of our wireless operations and stand up an independent tower company. It has been a transformational and highly successful quarter. I also want to thank the Array Board for their trust in me to lead Array for the past several months. It has been an absolute pleasure to lead our outstanding Array team. Lastly, I am pleased to turn the reins over to Anthony. I had the pleasure of working alongside Anthony, while we are both members of the UScellular leadership team and have great confidence in Anthony as both an outstanding strategic thinker and leader. And combined with the existing Array team, I am confident that Array has a very bright future. I will now turn the call back to Walter. Walter C.D. Carlson: Thank you, Doug. As you can see, TDS is in a vital period of transformative change. The successful close of the T-Mobile transaction has unlocked tremendous value, enabling us to expand and deepen our fiber program, stand up a strong and growing tower business and strengthen our capital structure. We are making good progress, but there is much more to do. Let me again thank all of the outstanding associates across the TDS enterprise for the fine work you do every day to serve our customers and advance our business. Operator, please now open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Rick Prentiss with Raymond James & Associates. Ric Prentiss: A lot of moving pieces, but a lot of interesting things going on here. First, Doug, I have enjoyed working with you. Good luck in the future. And I appreciate the adjusted free cash flow similar to AFFO calculation that we've been asking for. So thanks for that, Doug, and thanks for working with you. Douglas Chambers: Thanks, Rick. I appreciate it. Ric Prentiss: Yes. Vicki, I think one of the more interesting things is, obviously, we're looking for an update in February on the fiber plan. You mentioned several hundred thousand or more might be added. So that helps us frame it a little bit. One of the other things we're interested in is, can you give us some cohort analysis or something to take a look at how the older markets of fiber, say, 1, 2, 3, 4 years ago are doing because it's kind of blurred, right? You guys are spending CapEx, you're spending OpEx and trying to understand the progress towards those penetration rates. So any thoughts on -- when you give that update in February, can we start getting some -- maybe some cohort analysis or some thoughts on how the prior markets are doing? Vicki Villacrez: Yes. Thank you, Rick. Two piece parts to your question. Let me take the first one and then address the several hundred thousand fiber opportunity. First of all, we are a fiber-centric company, and we love the markets that we're operating in. And so we see a lot of opportunity, and I'm going to have Ken talk about some of that opportunity he sees as he's joined the company. We are currently right now in the process of evaluating our business cases and our engineering designs as we evaluate those opportunities. And we do see several hundred thousand or more, and we'll come back and update investors in February on that -- on what that looks like from a capital allocation perspective. Second, on the cohort penetration. We've heard you loud and clear for sure. And to be honest, we did go back and we looked at what the industry is reporting, and we didn't find a lot. There seems to be little reporting out there. And quite frankly, it wasn't enough information really to set a clear industry standard for us. With that said, with Ken just coming on board, we are internally aligning as a team as we're ramping up our fiber builds in a number of markets, evaluating our edge-out opportunities. And so we're aligning on what the appropriate success measures are going to look like. Kenneth Dixon: Right. As Vicki said, I'm very bullish on the markets that we selected. I think they're fantastic. The E-ACAM program, along with our expansion program gives us tremendous fiber opportunities going forward, especially to convert our copper to fiber transition. So great programs all along. But as Vicki said, when we look at these expansion markets as we've been first to fiber and have planted our flag, we look around and we see adjacent neighborhoods, adjacent communities that candidly do not have a fiber provider, and we can continue to be first to fiber. And so we're evaluating all those markets now, and -- but we do see several hundred thousand as an opportunity. Ric Prentiss: Okay. I think one of the other interesting and exciting things actually, Vicki, was the stock buyback program. Historically, TDS, USM, now AD have not done a lot of buybacks except for really kind of handling stock comp kind of creep. So it sounds like this is something a big change for you guys that you are seeing -- you did something in September, you're seeing value in the stock. How should we think about that sizing of the $500 million, the execution of that? And am I right to interpret that this is actually a pretty big change for TDS? Vicki Villacrez: Yes. Well, thanks, Rick. First off, I think that this move and the authorization, the recent authorization by the Board really demonstrates the Board's confidence in the company's long-term strategy and belief that repurchasing its shares is an attractive use of capital. I see it as a really important part of our capital allocation plan, and we are going to balance that with investment back into the business. So first -- first and foremost is investing into the business. We see a lot of fiber opportunity. We're in the process of evaluating and quantifying that. But I think this is a real balance. And it's going to be something that's balanced with timing and the opportunity and the timing of our builds over time. Execution of it, I would say, certainly to the management's discretion, but the timing and matter, first and foremost, is dependent on the successful closing of our spectrum transactions. And that is a priority. It's a top focus for the leadership team. And then, of course, we'll execute in a disciplined, opportunistic manner as we evaluate the current business environment and the market environment. Ric Prentiss: Great. Okay. And last one for me, a more mundane question, back to Doug. Obviously, calling out the SG&A at Array, 40% kind of not your tower operating kind of numbers. Can you help us understand how much was that wind-down component so we can understand a little more what run rate going forward might be for the next couple of quarters? And I got to admit, I'm just wanting to understand a little bit more about spectrum management. What is that? How long will that go on as you kind of wind down your spectrum position? Because I think there was some spectrum management up in cost of service as well. Douglas Chambers: Yes. Thanks, Rick. So with respect to the 40%, we're not going to break down those 4 components individually. What I would say about that, though, if you're trying to triangulate to a run rate is there's that 40%. But in addition, there's structural costs that we have being a large wireless company that we also have to work on within the SG&A infrastructure. So it's not just that 40%. It goes beyond that. Think about IT platforms that we use to support wireless and the related IT support we have for that. That's an example of additional opportunity that is beyond the 40%. So just keep that in mind as you're thinking about a run rate for SG&A. There's still quite a bit of work for us to do on SG&A. We completely expected the SG&A cost to be high in Q3. We expect them to be high through the first half of next year as we indicated. Spectrum management costs, I mean, we still hold spectrum, as you know. And so we incur costs. So we're still fulfilling coverage requirements for certain spectrum. incurring some cell site rental costs on that. We have legal costs. We have personnel that manage the spectrum. All that is components of costs we're incurring that will ultimately be temporary as we're, of course, in our process of opportunistically monetizing the spectrum. So with time, those will eventually go away. Operator: Your next question comes from the line of Eric Luebchow with Wells Fargo. [Operator Instructions]. We will move on to our next question from Vikash Harlalka with New Street Research. Vikash Harlalka: I have a couple of questions on the Array side and then some on the TDS Telecom side. On the Array side, what is the naked tower strategy from a go-to-market standpoint, but also from a sale or decommissioning standpoint? How long is too long to wait? And do you have exit rights on the land leases? And then I'll ask the TDS questions after this. Douglas Chambers: So with respect to the naked towers, in the slide that we included, it at a high level, articulates the strategy, which obviously, we're working hard to lease up all our towers. That continues, and we hope over time, that minimizes the naked towers. The other thing we're doing is an initiative going to our ground lessors, and we obviously can't rationalize the rents we're paying on a lot of our naked towers, and we're going to seek to reduce those rents over time. We also have fairly robust analysis, and we're continuing to refine it on future leasability of the towers. So where competitor towers are using crowdsourced traffic, understanding our view of what the leasability is. And then after going through all those steps, and this will be a multiyear process, and it will be on a tower-by-tower basis, we will make decisions as to what to do with each tower, hold some other strategic option and then potentially decommission some as well. And then Vikash, sorry, you asked the question, what was your second question? Vikash Harlalka: My question was, do you have exit rights on the land leases? Douglas Chambers: Exit price, I'm sorry, what? Walter C.D. Carlson: Exit right. Vikash Harlalka: Exit rights on the land leases, right. Douglas Chambers: The land commitments, by and large, we have some that are extended, but they're fairly minimal. A large portion of our ground leases, we're able to terminate upon very short notice. So those are not significant commitments overall in our portfolio. There's some, but they're minor. Vikash Harlalka: Got it. And then I have one sort of financial question on the TDS side and then one strategic question on the -- on your leverage target of 1.5x for TDS Telecom, it's probably the lowest that I've heard from any of the wireline operators. One, does it include the impact from the several hundred thousand fiber passings that you're going to announce next year in February? And then two, just help us understand like how did you land on this target? And I mean, why not just lever up more and return more capital to shareholders? Vicki Villacrez: Okay. Thank you. Yes, let me -- this is Vicki. Let me address the leverage target question. First off, let me just say, we're really pleased with where our current leverage is and our balance sheet strength with our preferreds. We think it maximizes our future flexibility, and we feel comfortable with where our leverage is at currently. When you think about our leverage at TDS, currently, as of the end of the quarter, on a gross basis, we're at 1.4x. And we intend to stay under that leverage ratio. Now we've got cash on the balance sheet as we're anticipating funding the fiber builds through the rest of the fourth quarter and into 2026 and through 2026. And at the same time, we also have tax obligations that are -- that will come due with the closing and the sale of the transaction to T-Mobile. So our leverage targets are intended to -- with the principle that we're going to put our cash to use over time. And therefore, that plays into our philosophy on our capital allocation strategy. Kristina Bothfeld: And Vikash, you did ask about, does this include the updated fiber goals? What we publicly stated so far is that we plan to double our fiber addresses from where we ended 2024 from around 900,000 to 1.8 million, and we said we will do that over roughly a 5-year period. What that doesn't include are the additional edge-out opportunities that we've been discussing that we believe are several hundred thousand or more. And in February, we will come back and update everyone on our new goals. Vikash Harlalka: Got it. That's super helpful. And my last question, sort of a strategic question. So you obviously gave us some color on potential fiber targets. That's helpful. Just flipping that a little bit, would you be open to getting acquired by someone like a Verizon or AT&T? Walter C.D. Carlson: Vikash, this is Walter, and thank you for the question. TDS has been in business for a long time. Our objective is to remain in business and be very successful for all of our shareholders for a long time going forward. Operator: Your next question will come from the line of Eric Luebchow with Wells Fargo. Eric Luebchow: Just a couple of questions for Doug on the tower side. Doug, I know you've talked about getting to a 45% to 50% margin longer term. Maybe you could just talk about some of the moving parts there between the decommissioning of the towers, the expense rationalization, your ability to bring down ground rents. Like how should we think about the pacing of that over the next couple of years as we kind of think about the growth, not just at the top line, but at the bottom line as well? Douglas Chambers: Yes. Thanks, Eric. You hit on a lot of them in your question. So when we think about increasing margins over time, obviously, growing our colo revenue is a priority and that we're very focused on. I talked about the SG&A expenses. We expected them to be high in Q3. We expect them to be high through the first half of next year. But also, over time, need those to go down, obviously, as wind down and other costs subside as well as what I talked about in response to Rick's question, making structural changes as well to some of our SG&A infrastructure. So focused on that. Ground rents, there's really 2 components of that. One is I talked about rent rationalization with our ground lessors and that initiative. So we're focused on that. And then at the end of the day, if towers are uneconomical, making the decision as to potentially decommissioning them to, again, rationalize ground rents. Offsetting that somewhat, I mean, recognize -- I think we recognize that the interim revenues on the T-Mobile sites are going to go away over time. T-Mobile has the ability to cancel those on fairly short notice in a 3-month period. But certainly, margins, we're looking to increase over time, and we expected as we launched Array because of all the reasons I just went through that margins were going to be lower and will increase over time. Eric Luebchow: Great. I appreciate that. And maybe just one follow-up. I know you're looking at potential spectrum monetization and you still have some extended build-out time frames for the C-band kind of the bulk of your remaining spectrum assets. I guess given there's an auction plan in the upper C-band in a couple of years, how does that kind of influence the timing of when you may look to monetize that just in terms of the supply of spectrum coming to market? Douglas Chambers: Eric, all along, our objective has been to get the best price. I mean, certainly, injections of supply may impact that. But the reality is mobile traffic is still increasing at a rate of 30% per year. Our spectrum is available now and can be deployed immediately and the carriers have the ecosystem from an equipment standpoint to do that. So we still think our spectrum has a lot of value, notwithstanding the fact that supply has been dynamic with that and EchoStar sales and so forth. Operator: [Operator Instructions] Our next question comes from the line of Sergey Dluzhevskiy with GAMCO Investors. Sergey Dluzhevskiy: First of all, Doug, it has been a pleasure working with you over the years, and good luck with everything going forward. Douglas Chambers: Yes, likewise, Sergey. Thank you. Sergey Dluzhevskiy: Great. And maybe my first question is for you. So you talked a lot about the kind of organic opportunity for the tower business. I guess my question is, what role do you expect M&A to play in the tower business strategy? What types of assets could potentially amplify or accelerate your strategy? And also on the flip side, are there disposal opportunities? Obviously, you're going to look at naked towers, but just looking maybe at clusters of towers. I mean, you have some towers in California, Oregon, Washington that appear to be not as clusters maybe as others. So I was wondering if there is monetization opportunity there. Douglas Chambers: Yes, Sergey, thanks for the question. So -- with respect to inorganic acquisition and/or disposals, that's not a strategic focus right now. We have so much on our plate operationally and really great things on our plate with integrating the T-Mobile MLA. I mentioned how you saw our tenant growth on a cash basis -- cash revenue basis for the quarter grew 8% this quarter, and our apps are up year-to-date, 125%. So operationally, things are going so well, and we have so much to execute on. That is our sole focus. Longer term, after a few years, whether we start focusing on inorganic M&A or disposing of towers, that's always something that will be looked at over time. But right now, that's not our strategic focus. Sergey Dluzhevskiy: Got it. Great. And my next question is for Walter or for Ken, kind of also on the M&A side, but also related to edge-out opportunities that you're considering at TDS Telecom. So you mentioned that you see a number of edge-outs where you have the ability to be first to fiber. But you're not the only one looking obviously at those spaces and a number of larger companies are looking at remaining white space as well. So maybe I understand that you're going to provide more guidance in February, but maybe if you could provide more color on how you think about those opportunities in terms of edge-outs, what is realistic for the company, the size of TDS Telecom? And in regards to M&A, what would be the primary determining factors for you to -- in choosing to buy something versus doing an organic fiber build? Kenneth Dixon: Right. From an Edge-Out perspective, the areas that we're really looking at are the areas that are adjacent to current operations. So think of these as Tier 2, Tier 3 markets, what we would refer to as not urban areas, but rural markets where we already operate, already have facilities, already have garages and candidly, already have a brand and customers. And we see the opportunity to edge out into additional communities because we've already been first to plant a fiber flag in these rural markets. It's just extending our plant to these additional communities. And the advantage that we have is because we were first to fiber, these are opportunities we already have the transport. We already have our operations there. So it's just a natural extension. So those are -- when we talk about edge-out opportunities, it's expanding and flexing from where we're today already operating in the Tier 3 -- Tier 2 and Tier 3 markets, okay? Sergey Dluzhevskiy: Got it. And in terms of kind of buying something versus building organically? What are the primary determining reasons for you? Walter C.D. Carlson: So Sergey, this is Walter. I think your question is, in addition to the potential edge-out opportunities, what sort of possible M&A opportunities might be looking at. And without getting into specifics, as Vicki described, we are very much focused on those types of ILECs or other owners who are proximate to our existing footprint, where we believe in a disciplined way, we could expand our footprint in a clustered basis. We don't know whether that's going to be successful, but there are opportunities there, and they are being very closely looked at. Vicki Villacrez: Yes. And Sergey, I would just follow up and say again, with respect to M&A, we're going to be highly disciplined. It will be accretive to our business. And it fits in with the organic cluster strategy that Ken was describing. We've embarked on this fiber strategy out of footprint and our selection of our markets were very centered around where we saw clusters of growth. And so whether it's organic or we see a synergistic M&A opportunity, that's how the whole picture will fit together. So it's really executing on that strategy going forward. Sergey Dluzhevskiy: Great. And my last question is for Ken. So I think earlier this year, TDS Telecom has been making investments in sales and marketing, including door-to-door sales force. I guess with you coming in, what are your thoughts on kind of the level of success and improvement in gross additions that you could attribute to some of those efforts? And what other initiatives as part of your go-to-market strategy, do you expect to improve and contribute to kind of improving your conversion rate of fiber passings into paying customers? Kenneth Dixon: Yes. Thank you. One of the things that I've noticed is that a lot of our sales activity is based on address delivery. So if we have a quarter where we don't deliver the addresses, we see sales suffer. So mission #1 is to get our build plan to execute and to deliver service address delivery in the markets that we're building. And I will tell you that we have doubled our crew counts in our expansion markets here in the third quarter. So we have a record amount of crew counts for 2025, and we actually increased our crew counts here in October of '25, and that's key in delivering on our targets in the fourth quarter. So we will execute on that new open for sale when it comes in. We also are looking at additional vendors that we've brought on to canvass our different communities and help us with presale and also with our door-to-door efforts. And I think that variable cost model will help us with penetration. And we're also -- as part of our transformation efforts, we are putting a lot of time, effort and energy into our dot-com business. As you know, website is open 24 hours a day, 7 days a week, and we think that's a big opportunity for us as well to penetrate some of these new cohorts. But also, we recognize that we have a lot of ILEC fiber that we can still sell into. So a tremendous amount of initiatives in place. I believe we have some nice momentum, but that is a key focus is go-to-market strategy, executing on the fundamentals and delivering sales and penetration goals. Operator: There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Greetings. Welcome to Doman Building Materials Group Limited Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. At this time, I'll turn the conference over to Ali Mahdavi. Please go ahead, Ali. Ali Mahdavi: [Operator Instructions] joining us this morning for Doman Building Materials Third Quarter 2025 Financial Results Conference Call. Joining us today on today's call are the company's Chairman and Chief Executive Officer, Amar Doman; and Chief Financial Officer, James Code. If you have not seen the news release, which was issued after the close of markets yesterday, it is available on the company's website as well as on SEDAR along with our MD&A and financial statements. I would also like to remind you that a replay of this call will be accessible until midnight, November 21. Following the presentation of the third quarter results, we will conduct a Q&A session for analysts only. Instructions will be provided at that time for you to join the queue for questions. Before we begin, we are required to provide the following statements regarding forward-looking information, which is made on behalf of Doman Building Materials Group Limited and all of its representatives on this call. Remarks and answers to your questions today may contain forward-looking information about future events or the company's future performance. This information is subject to risks and uncertainties that may cause actual events or results to differ materially. Any information regarding forward-looking statements is made as of the date of this call, and the company does not undertake to update any forward-looking statements. Please read the forward-looking statements and risk factors in the MD&A as these outline the material factors, which could cause or would cause actual results to differ. The company will not provide guidance regarding future earnings during today's call, and management does not anticipate providing guidance in future quarterly or interim communications. I'll now turn the call over to Amar. Amardeip Doman: Thanks, Ali, and good morning, everybody. Thank you for joining us. On the back of a very strong first half of the year, the third quarter was similar in terms of our focus on optimizing operational and financial performance on both sides of the border while navigating through continued macroeconomic headwinds stemming primarily from rising interest rates, inflationary pressures, affordability and concerns around the risks of things slowing down. Throughout the third quarter, we worked through the impact of what I would qualify as a very challenging pricing environment. While volumes and general demand have been steadier than the pricing side, we are seeing choppy demand in certain areas of the business due to some of the macro pressures I just mentioned. These trends continue to exist in our day-to-day activities. Overall, the North American market has been shaped by a mix of cooling demand on housing, high mortgage rates and tariff uncertainty, all of which have tempered buying activity. While price volatility remains, we expect modest gains during the remainder of the year if housing activity rebounds and policy conditions, including tariffs and trade measures, stabilize. Despite these external pressures impacting our numbers, our focus remains on what we can control to ensure we maximize margins and free cash flow generation. While we see a cautious tone and sentiment from our customers and how they are managing through some of the same macro headwinds, demand remained steady across all key end markets during the quarter, with volumes in various categories remaining range bound. However, given the lower pricing for construction materials, revenues and margins experienced some pressure in the third quarter when compared to the first and second quarters of the current year. Despite the pricing pressures caused by the various factors I mentioned, I remain pleased and encouraged by the strength of our business model and our ability to perform while ensuring that our first-class level of service remains on point. As a result of our collective efforts, the revenues amounted to $795 million, gross margin remained strong at 15.5% or $123.1 million, EBITDA of $62 million. Net earnings came in at $18.1 million. And lastly, we paid another quarterly dividend totaling $0.14 per share, representing our 62nd consecutive quarter of paying a dividend. I'm also very pleased with our ongoing focus on balance sheet management and optimization. To this point, after 9 years of ownership and planting approximately 10 million new seedlings, we sold the remaining portion of our timberlands during the third quarter, with net proceeds of the sale further strengthening our balance sheet, which Jay will comment on a little bit later. Looking ahead, we remain excited as we work through the macro and pricing-related dynamics while we continue to manage our costs and always look for growth opportunities. As always, we remain confident in our ability to work through volatile markets diligently while serving our customer needs with the highest level of service. We remain excited about our growth profile and the overall prospects of the business. And with that, I'd like Jay Code, our CFO, to take over and provide a review of the company's third quarter 2025 financial results in greater detail, and then we'll open the call up for questions. Jay? James Code: Thank you, Amar. Good morning, everyone. Sales for the 3 months ended September 30, 2025, were $795 million versus $663.1 million in Q3 '24, representing an increase of $132 million or 19.9%. The increase in sales was primarily driven by contributions from Doman Tucker Lumber, which was acquired October 1, 2024, and therefore, did not factor into our results for the comparative third quarter of '24. Our sales this quarter were made up of 79% construction materials, with the remaining balance resulting from specialty and allied products of 17% and other sources of 4%. Gross margin for the quarter was $123.1 million versus $103 million last year, an increase of $20.1 million, again, benefiting from the results achieved by the Doman Tucker Lumber acquisition as well as ongoing focus on the company's margin enhancement and stabilization strategies. This quarter's overall gross margin percentage was 15.5%, which was consistent with the percentage achieved last year. Expenses for the third quarter were $86.1 million compared to $73.5 million, an increase of $12.6 million or 17.1%. And as a percentage of sales, this quarter's expenses were 10.8% compared to 11.1% last year. Distribution, selling and administration expenses increased by $5.5 million or 9.9% to $61 million this quarter from $55.5 million in '24, mainly driven by the addition of expenses related to Doman Tucker Lumber. As a percentage of sales, DS&A was 7.7% this quarter compared to 8.4% last year. And this quarter's EBITDA was $62 million compared to $46.3 million in 2024, an increase of $15.7 million or 34%. Finance costs in Q3 were $18.1 million compared to $11.8 million in Q3 '24, an increase of $6.3 million, largely driven by additional interest costs related to last year's debt financing of the Doman Tucker Lumber acquisition. Doman's net earnings for the quarter were $18.1 million compared to $14.6 million in '24, an increase of $3.5 million. And turning now to the statement of cash flows. Operating activities before noncash working capital changes generated $131.6 million in cash in the first 9 months of 2025 compared to $108.9 million for the same year-to-date period in '24. Operating cash flows during the period were positively impacted by this year's inclusion of the results of Doman Tucker Lumber. Seasonal changes in noncash working capital generated $15.4 million this period compared to $12.2 million in the first 9 months of last year. Overall, financing activities reflected significant reductions in debt during the first 9 months of this year. 2025 year-to-date net repayments of our revolving loan facility totaled $150 million, driven by strong operating cash flow as well as the proceeds from the sale of the company's timberlands, to be discussed further later. This reduction in debt provides the company with available liquidity of $397 million at September 30, 2025, compared to $163 million at December 31, 2024. We also note that in the comparative period in '24, the company completed the issuance of our 2029 unsecured notes. resulting in gross receipts of $265 million, with partial proceeds used to repurchase a portion of the company's 2026 unsecured notes in the amount of $52.3 million, with the balance allocated to reduce the company's revolving loan balance last year. Dividends this year returned $36.7 million to shareholders, largely in line with 2024 dividend amounts and payment of lease liabilities, including interest, consumed $24.1 million of cash compared to $21.3 million in '24. The company's lease obligations are -- generally require monthly installments, and these payments are entirely current. We also note the company was not in breach of any of its lending covenants during the 9 months ended September 30, 2025. Overall, investing activities generated $59.9 million of cash in the first 9 months of '25 compared to consuming $71.4 million in '24. Investing activities this year include the sale of the company's Southeast BC timberlands for cash proceeds of $75.2 million as well as an investment in a small electrical distributor in Southern California in September 2025. The first 9 months of 2024 included the Southeast lumber acquisition for total cash consideration of $62.3 million. Additionally, the company invested $14.7 million in new property, plant and equipment this year compared to $9.5 million in 2024. This concludes our formal commentary, and we're now happy to respond to any questions that you may have. Thank you. Operator? Operator: [Operator Instructions] And the first question is from the line of Kasia Kopytek with TD Cowen. Kasia Trzaski Kopytek: Amar, I think, buyers like Home Depot and Lowe's comfortable holding less inventory now than they would be in prior cycles, in your opinion? Amardeip Doman: Yes, definitely. I wouldn't say it's just lumber. I would say across all categories. This started probably a year ago where a lot of the big-box stores and other retailers are very much a little bit compressing their working capital down and trying to push their inventory turns up. We obviously play a part in that. It's keeping us closer to the markets, though, and turning our inventories faster as well. So all the way down the pipe, I don't think it's a big impact on our final sales numbers. Kasia Trzaski Kopytek: Okay. And we've seen lumber prices move a bit here in the recent months or so. How much of that do you think is a reflection of the industry realizing that sawmill cash burn has gotten extreme here and that there will have to be cuts? West Fraser just announced last night. And how much of that is just the supply chain trying to get ahead of any more supply cuts that may be coming down the line? Amardeip Doman: Yes. I don't think there's any panic, to be honest with you. There's two things going on in the market. One, what you read in random lengths is one thing, what's happening is another. So the cash markets are very soft, very weak. The mills have a lot of inventory, both sides of the border, it's not good. So this little uptick is kind of just coming off the bottom. I wouldn't say there's any deliberate attempt for anyone to start piling down lumber, but the activity and the takeaway just isn't strong. So it's just not a good period. So it is nice to see it stabilize with some of the curtailments and see a little bit of uptick, but I wouldn't [ write ] home about it just yet. Kasia Trzaski Kopytek: Yes, that's probably fair. And just back to the 2-tiered market that you referenced, we know what the price for U.S.-bound lumber is. How much of a discount are you seeing right now versus the random length print for Canadian-bound lumber? Amardeip Doman: Yes, it's all over the map, Kasia. I couldn't tell you exact numbers. But if you're a buyer, you still got the leverage today on lumber. And if you're showing up ready to buy carloads or truckloads in any sort of volume, you're just going to make your price today. It's -- we need more curtailments to adjust to the slow takeaway that's happening. And we hope that things get better next year with more interest rate cuts, and we start to see more takeaway. But right now, it's sort of make your bid and set your price. Kasia Trzaski Kopytek: Right. And Amar, I think the general consensus is that something north of 1 billion board feet of lumber capacity has to come out. When would the distribution channel kind of start to get a little bit more incentivized to start positioning themselves if we get kind of 500 cumulative? Like what's the number you think? Amardeip Doman: I would say, over the next few months, if we see some more curtailments happen and again, get closer to the takeaway numbers that are out there that are still stubbornly weak, it's just sort of a flat market. So I couldn't tell you exactly when, but I can tell you that we're moving in the right direction for pricing upswing. I just don't see it tomorrow morning. But directionally, we are starting to see lumber come off, like you mentioned the West Fraser curtailments. And there'll be some others, I think, happening and some smaller sawmills just can't make it probably through this. And if they've got a bad balance sheet, it's going to be difficult, so they're going to have to shut down. So I think directionally, we've bottomed, but I just don't see a big torque tomorrow morning. Kasia Trzaski Kopytek: Yes, that's fair. And then stepping back a bit, I imagine now is the time when you're starting to have discussions about new programs for 2026. Any early indications about the tone of those discussions? Amardeip Doman: We have started some of that. I think the business will be steady through 2026, which we're happy with. We're very happy with how this fall shaped up. September and October were good for volumes. Obviously, pricing has been in the tank. But for our volumes, things have been decent. So wood is moving on our end, which is good. Repair and remodel has not died. It's doing fine. So it's nice to see that for our end takeaways. And I think rolling into '26, if we can have volumes that were the same as '25, Doman will make a lot of money, and we will, I think, continue to just work on our balance sheet and get our debt down even further than we just did. So I think we'll be in good shape in '26. Operator: The next questions are from the line of Frederic Tremblay with Desjardins Capital Markets. Frederic Tremblay: You spoke about the leverage a little bit there. I wanted to maybe tie that into potential M&A activity. Just wondering if you had any comments on the pipeline of opportunities that you're seeing and if you'd be comfortable transacting in the near term if the right opportunity was available, considering the positive evolution of your leverage position lately. Amardeip Doman: Thanks, Frederic. I'll answer the latter part of the question, and I'll let Jay discuss where our liquidity is today and the debt reduction that's moving in the right direction. The M&A activity, we've got certainly our eyes open and in discussions all the time with certain companies that we'd like to acquire that fit our strategy. The balance sheet is now back to more than ready to move on some things if we feel like the valuation is right. So certainly, we're not hamstrung by any means, and the liquidity opening up here has been excellent. So we can think very clearly and be disciplined as we always have on our acquisitions. And hopefully, in '26, we'll see 1 or 2 come down the pipe. So maybe, Jay, you can answer on the leverage. James Code: Yes. Sure. Thanks, Amar. Frederic, yes, as you pointed out, the leverage has come down, sitting at about 3.8x at the end of September. down significantly from recent peaks for financing the Tucker acquisition in Q4 of '24. So we'll expect that to continue to drop through to the end of '26 at least, given market conditions, we expect to generate -- continue to generate significant debt reductions going forward. Frederic Tremblay: Great. That's helpful. And maybe switching just to margins, some nice margin protection in Q3, despite the lumber price headwinds in the U.S. Should we think about Q4 margins in a similar fashion, i.e., not at the very top of the 14% to 16% gross margin range, but somewhere in there? Amardeip Doman: Yes, Frederic, I would say so. I think that the bottoming of lumber has happened. So we're starting to see, as we just talked about in the last couple of questions there, we're seeing stable to a little bit of an uptick. It's still soft in the cash markets. But certainly, I think the margin stabilization should start to trend a little bit better as we go into the fourth and first quarter and the lumber slide has finished going down. So hopefully, that will perk us up a little bit on margin and hopefully, the volumes will continue. And just to finalize on the liquidity, I believe now with our revolver and combined full liquidity, we've got over $400 million of liquidity right now. So we're in very good shape to take care of some M&A. Operator: The next question is from the line of Zachary Evershed with National Bank Capital Markets. Zachary Evershed: Congrats on the quarter. With the larger acquisitions now playing on your team for some time now, do you think you've reached a level where your distribution S&A in dollar terms should remain roughly flat or in line with inflation? Amardeip Doman: Yes, I would say so. I think inflation or wage inflation, obviously, we take care of our team members, and there's always that push up on wages, et cetera. But yes, I think we'd be in line there. And also, we're consolidating and -- we don't have huge numbers to report or anything, but we're consolidating a lot of our SG&A in the U.S. into Plano, Texas into our office there. So that's going to bring some operating leverage to the system as we continue to lever up and organize all of our computer systems in the states, and that's going to drive some good synergies and cost savings as well. Zachary Evershed: Got you. And then the latest acquisition does look pretty small, but maybe you could tell us a bit more about it. Any expected synergies and what you like about it? Amardeip Doman: Yes. It's a strategic acquisition that came through one of our business leaders, and it's very small, but putting our toe in the water in Southern California to assist our Alpha electrical division that's out in Hawaii. This will help some buying synergies. It will also put us on the map on the mainland and electrical, and we'll continue to grow. It's a smaller business for us, but certainly very strategic. And we're excited about Temecula Electric being in our fold now. Zachary Evershed: Excellent. With your customer concentration up since the acquisition of Tucker, how are you feeling about it? Do you view it as a risk? Amardeip Doman: Sorry, Zach, could you say that again? Zachary Evershed: How are you feeling about your customer concentration these days? Do you view it as risk? Amardeip Doman: No, certainly not. We're very close to our large customers. And of course, we work hard every day to maintain those relationships. It's our business to lose. So we got to work on that every day. And our team members do that. So I think our customer relationships are in very, very good shape. We work hard at it. I think we're one of the best as far as having relationships with the folks that issue us purchase orders, which we thank them for every day. But I think our customer concentration is not any issue, as far as the Tucker acquisition went. It's helped broaden our base with one of our largest strategic customers, and we continue to grow with all of our customers. So things are in good shape there. Operator: The next question is from the line of Nikolai Goroupitch with CIBC Capital. Nikolai Goroupitch: Considering the shopping demand you're seeing, could you maybe highlight some pockets of strength and weakness in the business? Amardeip Doman: Yes. The R&R business, repair and remodel, has been surprisingly steady to up in the fall after a soft summer of takeaway. So we're pleasantly surprised to see that consumers are still spending despite, I think if we read the headlines, we all want to kill ourselves and it feels like the world is coming to an end, it's not. Things are going on. And frankly, consumers have money. We're not seeing mass, mass layoffs in the U.S. Consumer is good there. And in Canada, we're having a nice fall on all building materials. So we've had a nice pickup in our distribution system in Canada, starting kind of late August, early September, and it continues into October here and into November. So a nice pickup later in the year. So we're surprised at these trends. A lot of it is R&R. Obviously, new homes, construction is flat to soft. So the R&R business has been good. Nikolai Goroupitch: I see. And then maybe looking into next year, respective of commodity prices, what sort of main projects or initiatives are you looking at that could potentially provide some gross margin uplift? Amardeip Doman: Yes. We're going to -- well, we are, I should say, we're upgrading our Gilmer, Texas production line and fencing. We produce a lot of fencing in the states, and we're going to continue to invest in our mills and upgrade them, reduce labor and modernize and optimize. So we're working on that. If that works, we'll roll it across all of our sawmills, and we're looking at planting a flag in the East Coast as well as far as producing fencing on the East Coast. There's a lot of tariffs and things that are happening with South America, which is squeezing production coming north. And we want to take advantage of that opportunity, not for the short term, but for the long term and establish ourselves as a large fencing player on the East Coast of the United States as well. So you're going to see some pretty good exciting things come from us on the sawmill side in specialty. Operator: We have a question from the line of Amit Prasad with RBC. Amit Prasad: It's Amit on for Matt. Just a quick follow-up on the last one. You called out some benefits to the Canadian distribution side. Just wondering if you've seen any changes to the competitive environment on the U.S. side. Amardeip Doman: Yes. Yes, the strength in Canada has been nice. It's not robust or crazy, but it's certainly picked up from where it was, where it was looking very dire most of the year. And we've caught up to our budgets, and it's nice to see that. The team has worked hard at that for sure. As far as the U.S. goes on the competitive landscape, I haven't seen or saw, I should say, in our kind of runway or our space too much activity as far as M&A goes. We've seen it kind of in the pro dealer with Lowe's and Home Depot doing a lot of acquisitions like FBM, [ Accestra ], and SRS. Those acquisitions are large, but they're not really in our space. Those are different product lines that Doman doesn't participate in. So really kind of a nothing burger as far as what's going on with kind of LBM and what we're up to. Operator: At this time, I'd like to turn the floor back to management for closing comments. Ali Mahdavi: Once again, thank you, everyone, for joining us this morning for the quarterly call. If you have any follow-up questions, by all means, please feel free to reach out to myself. We look forward to speaking with you again on our next earnings call, which will be in the new year. That concludes today's call. Wishing you all a great weekend. Operator: Ladies and gentlemen, thank you for your participation. Please disconnect your lines, and have a wonderful day.
Operator: Welcome to the Crinetics Pharmaceuticals Third Quarter 2025 Financial Results Conference Call. I would now like to turn the call over to Gayathri Diwakar, Head of Investor Relations. Please go ahead. Gayathri Diwakar: Thank you, operator. Good afternoon, everyone, and thank you for joining us to discuss the third quarter 2025 results. Today on the call, we have Dr. Scott Struthers, Founder and Chief Executive Officer; Isabel Kalofonos, Chief Commercial Officer; and Toby Schilke, Chief Financial Officer. Also joining for the Q&A portion will be Dr. Steve Betz, Founder and Chief Scientific Officer; Dr. Dana Pizzuti, Chief Medical and Development Officer; and Dr. Alan Krasner, Chief Endocrinologist. Please note there's a slide deck for today's presentation, which is in the Events and Presentations section of the Investors page on the Crinetics website. In addition, a press release was issued earlier today and is also available on the corporate website. Slide 2. As a reminder, we'll be making forward-looking statements, and I invite you to learn more about the risks and uncertainties associated with these statements as disclosed in our SEC filings. Such forward-looking statements are not a guarantee of performance, and the company's actual results could differ materially from those stated or implied in such statements due to risks and uncertainties associated with the company's business. In particular, today, we will be reviewing launch progress to date, our commercialization plans as well as estimates relating to market size, future performance and other data about the acromegaly market, which are all necessarily subject to a high degree of uncertainty and risk. These forward-looking statements are qualified in their entirety by the cautionary statements contained in today's news release, the company's other news releases and Crinetics’ SEC filings, including its annual report on Form 10-K and quarterly reports on Form 10-Q. I would also like to specify that the content of this conference call contains time-sensitive information that is accurate only as of this live broadcast. Crinetics takes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call. With that, I'll hand the call over to Scott. R. Struthers: Thank you, Gayathri, and thank you to everyone joining us on today's call. This is a landmark year for Crinetics. It's a rare privilege to be part of a team that has taken a molecule conceived in our own labs, developed with our own global clinical trials and is now bringing it to patients as a commercial stage biotech. With PALSONIFY, we are now redefining efficacy in acromegaly as both biochemical and symptom control. When you think about it, the last time you know of someone who made an appointment with their HCP to complain about their lab results. On Slide 5 are pictures of people we've gotten to know, people who have acromegaly, carcinoid syndrome, CAH and have helped guide the vision for PALSONIFY and Atumelnant. We've worked with the acromegaly community for over a decade. We've listened to their stories and hopes, stories from Ellen about the frustration of symptoms that injections don't fully control or from Wendy about the simple desire to feel like yourself again. We recently observed acromegaly awareness Day and utilized this important moment in time to both drive broader consumer awareness of the disease and advance our patient engagement strategy. Our own Chief Endocrinologist, Dr. Alan Krasner, and acromegaly patient Tony, were featured in numerous broadcast media interviews across key PALSONIFY markets. These broadcasts will continue throughout the month of November, pointing viewers and listeners to acromegalyreality.com. I am proud we can help them and many, many others struggling with acromegaly enter a new era of therapy with PALSONIFY. My hope is that PALSONIFY brings them freedom, freedom from the symptoms and freedom from the burdens of managing their disease. I hope they can focus on their lives while PALSONIFY fades into the background as just another pill that they take in the morning. PALSONIFY is just the beginning. We've proven that we can discover important new drugs, proven that we can conduct high-quality global clinical development and are now in the early stages of proving that we can bring them to people struggling with acromegaly as a commercial company. We plan to apply that same focus intensity to carcinoid syndrome and CAH and the other serious endocrine diseases in our pipeline. We're just getting started. With Slide 6, I'm excited to share that the launch of PALSONIFY is going very well. Isabel will share more details. Our goal is to make PALSONIFY the first-line treatment of choice for acromegaly. In the initial 31-week days since approval, we've already made significant progress, and the team is executing seamlessly. The first patients received their bottles of PALSONIFY only 11 days after the PDUFA date. All U.S. patients in our open-label extension studies are in the process of transitioning to commercial supplies. As expected, the bulk of our initial patients are those switching to PALSONIFY from other therapies. However, we're also pleased to see a number of patients who are newly diagnosed starting with PALSONIFY as their first medical therapy. We are making headway activating the pituitary centers and have had very good reception from community endocrinologists, some of whom are proactively calling their patients to have them come in to talk about PALSONIFY. I've spent a lot of time in the past few weeks with our field force and their enthusiasm and knowledge of the practitioners and offices in their territories is impressive, but we aren't relying on just the sales force. It's our entire field team, MSLs, field reimbursement specialists, nurse educators, our clinical development team and executives. We're all out there trying to help improve the care of people with acromegaly. I'm also pleased that our early experience indicates that payers also recognize the value of PALSONIFY. Prior authorizations have been mostly straightforward and in some cases, reimbursement has been approved for up to 12-month supplies even before we've secured formulary coverage. Because of our proactive work with payers, we're seeing meaningful numbers of patients starting on reimbursed PALSONIFY. I look forward to January when we'll have a full quarter's worth of launch metrics to share with you. At that time, we will update on revenue, new patient starts, number of unique prescribers and further characterize what we're seeing on the payer reimbursement side of the business. We are currently in the earliest days of Phase 1 of our 3-phase strategy illustrated on Slide 7 to help more people with acromegaly get the care they need. The focus of Phase 1 is to concentrate on switching patients already on injectable SRL depots and other therapies to PALSONIFY. This is a readily identifiable population regularly visiting their HCP offices. In this phase, we also think that PALSONIFY's rapid onset of action will make it the medical therapy of choice to treat newly diagnosed patients. Looking ahead to next year, while we continue to serve both switching and naive patients, we will also begin additional efforts towards returning previously diagnosed patients back to care. There are multiple reasons why these 1,700 patients have discontinued medical therapy recently. We hope that PALSONIFY will provide a path for them to return to the care they need. From there, we will extend our efforts to reach the approximately 7,500 patients who have unfortunately been lost to follow-up after diagnosis and returning them to medical care. There can be multiple reasons why these patients have discontinued medical therapy. It won't be easy and it will take time, but we believe that PALSONIFY will offer these patients a path back to care as well. The third and final phase will be to improve the time to diagnosis of acromegaly. Diagnosing acromegaly is easy once you suspect it, but suspecting it can be challenging even for experienced providers. We anticipate launching specific initiatives later next year and our general efforts to improve acromegaly awareness and its treatment options should start making a difference sooner. The story of Crinetics is not just the acromegaly launch, it's about our execution across the entire pipeline shown on Slide 8. I want to emphasize the strength and depth of what we've built through our internal discovery and development efforts. On the discovery front, we remain committed to holding our clinical candidates to the highest possible standards. Unfortunately, during IND-enabling tox studies, we identified weaknesses in our lead TSH candidate for Graves' disease. Therefore, we're delaying the IND time lines as we prioritize and activate the best of the backup molecules. We're also delaying the time lines for our SST3 agonist program for ADPKD as we conduct follow-ups to the core IND-enabling studies. Given the launch of PALSONIFY and acromegaly and the multiple late-stage programs in development, we will no longer provide regular updates on the timing of preclinical programs until those programs dose their first patient in a Phase 1 study, but rest assured, we are committed to not only advancing the late-stage pipeline, but also to expanding the clinical pipeline and our discovery activities continue unabated. We expect the clinical pipeline to continue to expand in 2026 and the years to come. Moving to the top of the pipeline. carcinoid syndrome is the second indication in development for paltusotine. People with carcinoid syndrome struggle with debilitating and frequent flushing and bowel movement episodes. Like in acromegaly, standard of care for these patients is painful monthly depot injectable SRLs. Based on our Phase 2 data, we believe paltusotine could offer consistent daily control of these in an oral formulation. Our Phase 3 study shown here on Slide 9 is designed to evaluate its efficacy and safety in both naive and switch patients and the OLE study will also evaluate control of the underlying neuroendocrine tumors. More than 20 clinical sites have been activated and are currently screening patients for this study. Complementing paltusotine is CRN09682, the first candidate from the non-peptide drug conjugate program. 9682 is comprised of a novel ligand targeting SST2 to drive internalization into tumor cells, a novel linker that is cleaved only in the tumor cell and a payload to be delivered, in this case, MMAE. We believe 9682 will be differentiated from other current modalities, and as shown on Slide 10, we are studying it in the BRAVESST2 Phase 1/2 basket study in patients with SST2-expressing tumors. This includes neuroendocrine tumors as well as other types of tumors that overexpress SST2. The first 6 sites in this study have been activated and are actively screening patients. The enthusiasm for this study from both investigators and potential participants has been high. This is an important study for Crinetics. It's designed to provide the first human proof of concept for our entire NDC platform, and we're thrilled for it to be underway. Moving on to Atumelnant on Slide 11. In the first 3 cohorts of our Phase 2 ICANS trial for congenital adrenal hyperplasia, or CAH, Atumelnant showed a remarkable ability to highly suppress adrenal androgens in these patients. As you know, we added a fourth cohort to look at morning dosing instead of evening dosing as well as the ability to lower adrenal androgens while simultaneously reducing glucocorticoid therapy towards physiologic levels. Patients in this fourth cohort have recently completed their 12-week treatment period, and we continue to see favorable benefit risk profile. I look forward to sharing the data from Cohort 4 in January once our analysis is completed, along with initial data from a handful of patients from prior cohorts who have now reached the 13-week assessment in the open-label extension study. Now moving on to the design of our global Phase 3 CALM-CAH trial of Atumelnant in adults with CAH. The study shown on Slide 12 builds on the strong top line results from the first 3 cohorts of our Phase 2 study. It's designed to provide a novel therapeutic paradigm for CAH, where atumelnant is used to treat the disease itself and glucocorticoids are only needed for physiologic replacement. People with CAH deserve physiologic levels of both, and that is why we are utilizing a novel uncompromising primary endpoint that combines both goals. This is a very high bar, but appropriate for the level of efficacy we expect from Atamelin. I'm pleased to report that the first sites for the CALM-CAH trial have been activated. Screening is underway, and we expect the first patients to be randomized before the end of the year. Moving on to Slide 13, which shows our BALANCE-CAH study for pediatric patients in more detail. We believe it is crucial to address both high androgen and glucocorticoid levels in pediatric patients because each can cause significant clinical sequelae, and we designed our clinical program with that goal in mind. This study is operationally seamless Phase 2/3 design with a Phase 2 dose selection during which glucocorticoids remain stable, followed by a Phase 3 portion in which new patients will be randomized and have the opportunity to taper glucocorticoids. Eligible patients from both phases will have the opportunity to enroll in an open-label extension. We look forward to enrolling the first patient before the end of the year. With that, let me turn the call over to Isabel to provide additional color on the launch of PALSONIFY for acromegaly. Isabel? Isabel Kalofonos: Thank you, Scott. Turning to Slide 16. Based on our strong label, our strategy is to establish PALSONIFY as the foundational care for acromegaly. To that end, I'm pleased to share the launch is off to a very good start. Since the approval, our team has been engaging with stakeholders and executing across all aspects of the launch. Our field team is reaching patients, physicians in the community and in academic setting and payers, and we are hearing encouraging feedback. Starting with the patient on Slide 16. Our strategy is to activate both switch and naive patients by reinforcing PALSONIFY's consistent IGF-1 and symptom control in a once-daily order. It has been exciting to see that our omnichannel marketing and messages are resonating, and we are beginning to see enrollment forms that from patients who requested PALSONIFY specifically. We're also encouraged by the fact that all of the 22 U.S. patients in the OLE are in the process of transitioning on to commercial product. As expected this early in the launch, 95% of our filled prescriptions are from switch patients, reflecting the demographic to the acromegaly population. However, it is encouraging that we are already starting to see enrollments from treatment-naive patients. This supports our thesis about the significant unmet need in both of these patient segments and represents a good start to Phase 1 of our overall strategy. Moving into to healthcare providers on Slide 17. Even 1 month prior to approval, PALSONIFY had high levels of awareness among academic and community physicians. Building on this foundation, our field teams had called on more than 95% of our highest priority prescriber targets, most of whom are in academic centers. We are leveraging PALSONIFY's unique label, which includes symptom control to engage with healthcare professionals. We believe our efficacy-first messaging is resonating with providers because they prioritize both symptom and IGF-1 control alongside ease of administration. Our sales force is using these messages in the priority PTC centers and high-volume community practices, while targeted marketing extends our reach to the broader community. At this point, we are seeing about 70% of prescribers coming from the community setting and 30% of prescribers coming from PTCs. This is encouraging because it demonstrates that PALSONIFY is also attractive to community-based prescribing physicians. In the PTC setting, our broader field-facing team is working through the typical administrative processes to support uptake. This includes taking a comprehensive approach by engaging both endocrinologists and nurses as well as pharmacists and support staff. Finally, turning to payers on Slide 18. Our payer simple launch engagement work has positioned us well to understand the payers' coverage landscape. So far, we have had follow-up meetings with plans covering majority of lives and the feedback in our broad label and overall value proposition remains consistently favorable. We are pleased to see coverage approvals coming across commercial, Medicare and Medicaid plans. For those that are approved, prior authorization decisions are taking only a few days, and we are encouraged to see some approvals for up to 12 months even in the early days of the launch. Medicare patient support program and field teams are helping patients navigate their treatment journey. We are seeing a balanced mix of reimbursed patients and those on our Quick Start program. Our team is actively working with plans to transition quickest start patients on to reimbursed product. As expected, we anticipate the full formulary process will still take the standard 6 to 9 months. Overall, our commercial team is doing an excellent job executing against our plan. We look forward to providing launch metrics in the first quarter once we have had a full quarter of experience behind us. As Scott mentioned it, in addition to revenue, we will provide the number of new patient starts, the number of [GE] prescribing physicians and updates on our progress with payers. Our goal remains to make PALSONIFY the first treatment of choice for all acromegaly patients, and we are perfectly on pace relatively to our expectations. With that, I will hand the call to Toby for our financial update. Tobin Schilke: Thank you, Isabel. Turning to Slide 20. Our financial results for the third quarter of 2025 reflect our continued disciplined execution and strategic investment in advancing our pipeline and commercialization of PALSONIFY. In the third quarter, we recognized $0.1 million in revenue from our licensing agreement with our Japanese partner, SKK. As expected, we did not recognize any revenue related to the launch of PALSONIFY in the third quarter due to the timing of approval, which was close to the end of the quarter. Under GAAP, we recognize PALSONIFY revenue upon delivery of product to our specialty distributor and specialty pharmacies. Product was shipped in the first few days of the fourth quarter, as Isabella stated, so we have recognized revenue in the fourth quarter. Our research and development expenses for the third quarter were $90.5 million compared to $80.3 million in the second quarter. This increase reflects our continued investment in our clinical programs, including start-up costs for our late-stage clinical trials and ongoing advancement of CRN09682, the first candidate from our novel non-peptide drug conjugate or NDC platform in early-stage clinical studies. Selling, general and administrative expenses were $52.3 million for the third quarter compared to $49.8 million in the second quarter. This increase reflects our investments to drive the successful execution of PALSONIFY's launch, including onboarding and deploying our field force, strategic marketing initiatives and the growth of corporate functions to support our commercial team. We used $110.7 million of cash in operations during the quarter, reflecting continued clinical development and launch preparation activities. Cash used in operations was slightly higher than anticipated this quarter, primarily due to timing of payables. We ended the quarter with $1.1 billion in cash, cash equivalents and investments. As of October 28, 2025, we had approximately 94.9 million shares of common stock outstanding. On a fully diluted basis, we had 111.9 million shares outstanding. This includes our outstanding options, unvested restricted stock units and shares expected to be purchased under our employee stock purchase plan. Moving to Slide 21. We are maintaining our guidance for net cash used in operations in 2025 and continue to expect that we use between $340 million and $370 million. Based on our current operating plans and cash position, we maintain our guidance that existing cash and investments will be sufficient to fund our operations into 2029. This provides us with significant runway to execute on multiple value-creating milestones, including the U.S. commercialization of PALSONIFY and the advancement of the rest of our pipeline. I will now turn the call back to Scott for some closing remarks. R. Struthers: Thank you, Toby. Slide 23 lays out the major commercial and clinical catalysts that we expect to drive significant value starting early next year and continuing over the next 18 to 24 months. Commercially, our entire focus is on executing a strong U.S. launch trajectory for PALSONIFY. We're already seeing the validation of our strategy with prescriptions coming from both community endocrinologists and the major pituitary centers. Initial feedback from patients, physicians and payers is positive. As I mentioned, we'll provide detailed launch metrics from the full Q4 results in January. We also have a great deal of momentum in the clinical pipeline. We have a key near-term data readout for the T2CANS study, which will include data from Cohort 4 and the initial open-label extension patients from prior cohorts. Beyond that, we have a robust set of late-stage programs advancing. We expect them to produce key data readouts, including from our CALM-CAH adult Phase 3 trial, the BALANCE-CAH Phase 2 pediatric study and our CAREFNDR Phase 3 trial in carcinoid syndrome. At the same time, our BRAVESST2 study for CRN-9682 is underway, and we anticipate initial data from dose escalation and expansion cohorts from this. Our Phase 2/III program for Cushing's disease is also kicking off soon. Behind all this, our discovery engine remains our foundation. We expect new internally discovered candidates to enter the clinic and provide their first early readouts during this period. In summary, we have a deep pipeline, a strong balance sheet and a clear path to continued value creation. We are executing on all fronts and look forward to updating you as we achieve these important milestones. Thank you for joining us today. We're now happy to take your questions. Operator? Operator: [Operator Instructions] First question comes from Catherine Novack with JonesTrading. Catherine Novack: I just want to ask a little bit maybe about some of the data that you showed at NANETS last week. I'm very interesting to see the PFS data in the NET patients with paltusotine that is. Can you tell us what the evidence is for somatostatin receptor ligands in this setting? Will you ever want to conduct survival studies with paltusotine alone? R. Struthers: Thanks, Catherine. Somatostatin receptor ligands are known to be slowing of the growth of neuroendocrine tumors, and that was proven in the CLARINET study with lanreotide. Mechanistically, we expect the same thing out of paltusotine, which is why we're monitoring this in the open-label extensions of the carcinoid Phase 2 and then soon the carcinoid Phase 3, but maybe, Alan, do you want to comment a little bit more on that to clarify what we see and what we're hoping to see. Alan Krasner: Sure. Yes, Catherine, so as Scott said, the SRLs have a known cytostatic kind of effect, improving progression-free survival in neuroendocrine tumors in general. We recently presented at NANETS, our exploratory data from our Phase 2 trial open-label extension patients, a small cohort of patients. In general, the PFS in that cohort looks comparable to what you would expect in a long-term trial in neuroendocrine tumors. Neuroendocrine tumors are very, very slow growing and advancing. In general, the time it would take to do objective response kind of trial, survival kind of trials is sort of out of bounds. It would be very, very long. PFS is usually used as the surrogate of those kinds of outcomes in this tumor type. In general, we're seeing an uncontrolled data, what we would expect to see, and we'll have a lot more data coming from the long-term Phase 3 cohorts as well. Catherine Novack: Then just it's disappointing to hear about the Graves' disease candidate, but glad that you were able to catch it early. Any clarity on what model you saw the tox signals? Was it an on-target toxicity? Or do you find that you're hitting a receptor that was unexpected? Any information? R. Struthers: No. It's idiosyncratic finding that really was driving the decision, nothing related to on-target activity. I think we have a very good understanding of the mechanistic biology of the TSH receptor, so that's never something we've worried about. Operator: We now turn to Cory Jubinville with LifeSci Capital. Cory Jubinville: You mentioned that the sales force has called on greater than 95% of top priority prescribers. Can you just remind us, one, how many prescribers that specifically includes? Two, the concentration of the immediately addressable, call it, 10,000 acromegaly patients that are at those top priority prescriber centers? Three, can you speak directly -- as you speak directly with these centers, what was the initial perception from those docs on PALSONIFY? How many of them have converted to actual prescribers or are actively working to make it part of their practice in the long term? R. Struthers: Yes. Thanks, Cory. Maybe before I hand it to Isabel to answer in a little more detail, just a reminder that we're deeply part of the pituitary community and the endocrinology community more broadly. It's great that our field force has been out there talking now at that level, but they've been out there with warm introductions from those of us who know these people for these prescribers for a long time. I'm really glad to see the response from the community, which has been quite favorable by all comments from all across our field force and directly that I've been hearing from them. We're still working our way through some of the administrative aspects of the pituitary centers, but I think that's well underway. Maybe you want to answer in more detail, Isabel, some of the more specifics that Cory was asking about. Isabel Kalofonos: Yes, absolutely. Thank you. First of all, I want to start with your second question. We are delighted that the treatment is very well received by the healthcare professionals, the patients and the payers. With healthcare professionals, they are responding really well to our very simple powerful message on first line of treatment, fast onset of action, fewer symptoms in finally on a pill. It's a very simple message, but it resonates because it really encompasses everything that they were looking for in a better treatment in a new standard of care. The response has been positive, and that has led to initial prescriptions from both, as Scott alluded to, PTC centers, but also community, where we see 70% of the prescriptions coming from community prescribers and 30% from PTC centers. We're encouraged by the community because many times, community tends to follow PTCs. The fact that both segments are adopting is a really good signal for us on the launch trajectory. When you look at our prescriber base, we have approximately 110 total prescribers, and the 95% doesn't refer to all of those 110 prescribers, but that the initial prescriptions, many of them are coming from members of that list. Cory Jubinville: I mean, it's interesting, building off that point, it's interesting to see that 70% of scripts are coming from community docs. Can you just help us better understand that dynamic a little bit more? I guess, why are some of these PTC centers, for lack of a better term, lagging behind? Is it just small sample size because we're early in the launch? Or are these community practices just a bit more nimble and you're dealing with some of the bureaucracy at these centers? Or yes, just curious to hear more about your strategy of how to activate centers. R. Struthers: Well, I think that we've seen in some of the other launches that have happened this year and recently, how important it is to think about the community upfront. That's how Isabel designed the whole field force as we were going into it. We deployed out to the community and to the centers in parallel. I think the thing that we've seen with the community, which is I don't know, very rewarding is that they are a little bit more nimble and more willing to reach out directly to patients and call them in and not just wait for the next appointment. If we think about the centers, I think they are more waiting for the patients to come in for their next appointment. The other thing that we're working with, with the centers, which is pretty much taken care of now, but it takes a little while to get the electronic medical systems so that they have one push button prescribing. It took a little bit to get the pharmacies activated at many of the centers. These are kind of normal administrative things that we've worked through. In no way do we see the centers as being slow. We just are pleasantly surprised at how nicely the communities responded. Operator: We now turn to Yasmeen Rahimi with Piper Sandler. Yasmeen Rahimi: Congrats to a great start, and thank you for sharing all the color. Maybe one question for the commercially related. I appreciate if you could kind of tell us about how you're thinking about providing free drug while getting reimbursement and how do you make those decisions? Then very excited to look forward to the CAH open-label data early 2026. Help us understand sort of in early 2026, whether you would be able to get to all 10 patients and what you hope to show in that data set? Then I'll jump back in the queue. R. Struthers: Yes. Let me take the second part first, and then Isabel, maybe you can take the first part about -- on the acromegaly side of things. Look, in addition to Cohort 4, patients have been rolling on to the open-label extension. That one has a relatively infrequent sampling, and so the first sampling there is 13 weeks. By the time we get to the early part of the year, we'll then have data from the Cohort 4 patients, plus a handful of patients who've gotten to 13 weeks from Cohorts 1 to 3 in the open-label extension. Now it's still a relatively small sample size, but we'll start to give a sense of what -- how this is behaving in a real -- more real-world setting where physicians can both reduce glucocorticoids and see what's happening with adrenal androgens. Isabel, sorry, I wanted to take care of that part. Maybe you want to talk about the question she had on acromegaly. Isabel Kalofonos: Yes, of course. Our market access team is executing with excellence. Our goal is to partner with our specialty pharmacies. When we get an enrollment form, our specialty pharmacies file the prior authorization to ensure that the claim is reimbursed. That's our first step. That's why we are very pleased that 50% of the claims has been reimbursed. Then if there is a challenge to the prior authorization, we send the Quick Start program because we want to make sure that while we do benefit verification and we complement any gaps that they have had, either adding some of the clinical records or putting the correct IGF-1 test in the file that we are able to process that in the background while the patients are on drug. We are ready to go with the Quick Start program as soon as possible, but we first give the opportunity to our specialty pharmacies to process the claims. Operator: We now turn to Douglas Tsao with H.C. Wainwright. Douglas Tsao: Again on all the progress. I guess maybe just feeding off the question in terms of where you're initially seeing demand in the community versus the centers of excellence. I'm just curious to the extent that you get a sense that this is -- there's awareness within the acromegaly community, who I know has a very active patient group and how much is sort of coming from the ground up versus prescription written by clinicians who as they see their patients are sort of recommending a switch or offering that choice to patients. R. Struthers: Yes. Thanks, Doug. I think it's still very early days, so it's very anecdotal, but we're hearing both, right? We're hearing physicians who talk to patients and tell them about something they hadn't heard of and are ending up switching to PALSONIFY. We're hearing about patients going in asking their doc for PALSONIFY. That's kind of cool, actually. I think it's a mix of both, but it's too early to start putting any sort of numbers to that. Isabel Kalofonos: I was just going to say that we have a very experienced dedicated team that had also connections in the community, which is also really helpful, right? They wanted to make sure that across the board, we are nimble, we're executing, and we make sure that -- those physicians that are ready to prescribe has the opportunity to do so. As Scott said, we are seeing prescriptions that are primarily coming from the prescribers, but we also see prescriptions that are coming from awareness that we have built through our marketing team and advocacy from the patients. Regardless, whichever prescription is done is because both of them agree that it's the best choice for the patients, so both the patient and the physician have to be informed. We are working across the board with those 2 audiences. Douglas Tsao: I'm just curious, and I know it's anecdotal, but I'm just curious in terms of prescribers as well as patients, what is interesting them? Is it the convenience of an oral therapy? Or is it really just the standout efficacy that were shown in PATHFNDR-1 and PATHFNDR-2 as a better treatment option for patients? R. Struthers: Go ahead, Isabel. Isabel Kalofonos: We have a mix actually. It's very interesting. Some of the doctors are very intrigued by the fast onset of action of the treatment and the fact that it's a reliable disease control. They see that also as the first treatment choice for some of the switching patients, but also naive patients. For example, we have a naive patient that has surgery but had a residual tumor. The patient now has reached 3 weeks on treatment. The physician did a second IGF-1 test, and he was really pleased to see that the patient was controlled, less than upper limit of normal in the IGF-1 test, but also saw an improvement on symptoms like swelling. That kind of experience is going to motivate that physician to put more patients on treatment as well as that patient is going to also share that experience later on with patients. We are very encouraged by that. We also see some patients that want to travel. We have -- or that their job description requires that they are free from the burden of the injections. That is also resonating, for instance, we have a firefighter that, of course, didn't want to come every month to the appointment. In addition to having -- not wanted to have the painful injection, had lots of breakthrough symptoms. Both the efficacy and the ease of use were important to him and the physician, so that's the kind of experience we're hearing from the field. R. Struthers: Yes. The other one that I was told about is an ER doc, Doug, who got just burned out on the injection, so reached out to his doc to switch. Again, these are just -- these are anecdotes, but they're very heartwarming, honestly. Douglas Tsao: That's really helpful to hear, and it's good to hear that feedback around the sort of broader value proposition of the product. Operator: We now turn to Maxwell Skor with Morgan Stanley. Selena Zhang: This is Selena on for Max. Has the timing of benefit verification for the Quick Start program met your expectations? When do you expect to have clear visibility into the breadth and depth of prescribing trends? R. Struthers: Well, I think the prescribing trends will update you further in the -- as we finish out the quarter, and we'll see and gain experience with that over time. Isabel, maybe you want to talk about the Quick Start program. Isabel Kalofonos: Yes. Of course, at the moment that we send the Quick Start program, benefit verification is happening in the background. Some of them are issues that are easy to resolve, like there was missing IGF-1 test or is missing clinical data. Other plans are requiring a little bit more. On average, in rare diseases, it takes around 57 days to be on Quick Start program, and we are trying to be below that number. R. Struthers: Yes. That's -- and then to kind of add to that, that's why we were pleased that we're already seeing patients getting on reimbursed PALSONIFY before we even have to give them the quick start program. That's been good to see. Not all of them, but some. Isabel Kalofonos: Yes, 50-50, which is really good results early in the launch. Because what we're seeing actually that is really encouraging is that payers are reimbursing to label as we had anticipated. We are also seeing that once it's approved, those approvals are coming for 6 to 12 months. The patient will continue on drug before any additional documentation is required. Operator: We now turn to Richard Law with Goldman Sachs. Jin Law: Congrats on the results so far. Based on your launch experience with PALSONIFY so far, what has been going well for you? Where can you see improvements? It would be great if you can talk about it in context of like commercial, Medicare and Medicaid segments. I don't know if it's too early because I assume most of these patients are coming from commercial. Yes, it would be great to hear how you things going well across these segments and where you can do better. I have a couple of follow-ups. R. Struthers: Yes. I mean, broadly, I'm super pleased with the way the team is out there performing and the response to the community. Any improvements are really incremental, but maybe you want to comment on some of your favorite pieces, Isabel? Isabel Kalofonos: Yes. Well, I was very pleased we have Dragon channel very early in the process. I believe that the team is executing with excellence across the board. Our sales team, our marketing team, our market access team and also commercial operations having the right tool. We know who to target and where the physicians are and where the patients are. So going very well, our CRM activation, our omnichannel strategy to create awareness, both with physicians and patients, our sales team executing and having great success in getting access with both community and PTC centers. and really delivering very powerful and simple messages. That is going really well and is resonating very well. We also had a successful initial advisory boards, and we're continuously getting feedback from the doctors as to what resonates with them and what else they would like to see in the future. That's also shaping our communication plan for [indiscernible] next year. We want to continue to create urgency. Some of those physicians are following the appointment cycles, waiting for the patient to come. A lot of what we want to continue to do is to create that sense of urgency. Those early positive experiences that we are seeing, that the physicians are seeing and the patients are seeing are very important for us, and we'll continue to translate them as testimonials in the future to continue to drive the uptake of the drug to our final goal, which is making PALSONIFY the new standard of care and continue to expand the acromegaly market. Jin Law: Then what about the insight to the segments? Are these mostly commercial so far? Then maybe comment on Medicare and Medicaid segments. Isabel Kalofonos: Interesting. There is a mix. We have commercial patients, Medicare patients and Medicaid patients, and we had claims approved for all 3 segments. One last point. is following the market trend, basically, the majority of them are commercial claims, but basically very similar to the actual payer mix. Jin Law: Then what is the turnaround time and that range of that for payers to approve PALSONIFY, assuming that patients already met the prior authorization requirements, including step edits. What's that turnaround time for payers to approve? R. Struthers: Let's get a little larger sample size before we start doing calculations like that, right? Still a little too small to -- a little early in the launch to do that. Jin Law: Then just one more. In terms of the payer rebate, I know you guys are not doing payer rebate for commercial. Is that still the case? R. Struthers: That's correct. Isabel Kalofonos: That's correct. We are not planning to do that. R. Struthers: Reminder folks, let's try and keep to one part question. We got a bunch more people waiting in line. Operator: We now turn to Tyler Van Buren with TD Cowen. Nick Lorusso: This is Nick on for Tyler. Congrats on the progress so far in this launch. My question is you reported that 95% of filled prescriptions today are from switch patients, which we've talked about a little bit now. What's the plan to reach additional treatment-naive patients? Which do you expect will be the largest drivers of long-term growth? R. Struthers: Yes. I think if you look at the -- what we've said in the past, there's roughly 500 patients a year coming on to medical therapy. It's kind of a trickle of those new patients. The fact that we're starting to pick those up, I think, goes very much to the profile of the drug, like this one patient that's already controlled 3 weeks in. I mean that's awesome. I think the bigger challenge then is, as we talked about this phase -- 3-phase strategy is getting to those patients who, for whatever reason, are not on medical therapy, but should be. There's roughly 4,500 treatment naive. Some of these are patients who probably are not at the level of control that they should be, and so we're digging into that. I think like many rare disease therapies, once you start getting the word out there that there's a new therapy that's not the burden that you have with the depots that we'll start to get people back. Those are the ones -- those first ones in Phase 1 are just the tip of the iceberg because the next part are these patients who've discontinued therapy and/or have been lost to follow-up and bringing those back in is another very significant group. Then, of course, the big aim is to really start to improve awareness and find better ways of getting people to suspect acromegaly so that you can do an IGF-1 test and diagnose it. there's 17,000 people out there that the best we can tell that have yet to be diagnosed, but they're getting damaged to their joints, their heart every day. We'll be launching a variety of different efforts to do that more specifically next year. I think even these awareness things that we're doing like Alan's interviews with Tony, I think that's going to start helping sooner rather than later. Isabel Kalofonos: I have been in the field together with our sales team, and I was having a conversation with one of our key prescribers in a key center. He answered the way I think about this, who is not the right patient for PALSONIFY. Early on, of course, we're going for the switch and naive patients. but we believe that this treatment will help us expand the market over time. Operator: We now turn to Andy Chen with Wolfe Research. Brandon Frith: This is Brendan on for Andy. In the opening remarks, you mentioned aiming to position PALSONIFY as a first-line therapy. We're curious to know how you expect to do that with generics currently on the market. R. Struthers: Well, that's an easy one. I mean, if you look at the label, it's indicated for the treatment of acromegaly in-patients who have not had adequate response to surgery or for whose surgery isn't indicated or appropriate. The biggest reason why you want to go on to PALSONIFY in that situation for the new patients is like that one I mentioned, they're controlled in 3 weeks. We got great data from PATHFNDR-2 showing 2 to 4 weeks to get people controlled, whereas in the depots, your first dose adjustment isn't for 3 months. You don't even know if that first dose works after 3 months, and then you go to the second dose, so you wait until 6 months. Then you may need the highest dose until you're 9 months out before you know whether it works. That's not the right medicine, so PALSONIFY is really the best option for somebody newly diagnosed. I don't see an argument that whether it's generic or not matters. Isabel Kalofonos: Yes, we are not seeing that kind of pushback from payers also. We see that the value proposition is resonating really well with them, and they understand the value of the treatment. The reduction of waste applies whether it's generic or not generic. The fact that patients continue to have -- is irrelevant to whether it's generic or not. Also, as you know, generics don't have the support services that we are able to offer like a Quick Start program, the co-pay for the patients, 0 co-pay for commercial patients and all the support that they will get. Operator: We now turn to John Wolleben with Citizens. Jonathan Wolleben: Congrats on the progress. Scott, you kind of discussed the 3 phases of PALSONIFY 's launch. I was hoping you could talk a little bit about the timing of the sequence and how you think about moving from one phase to the next, if there's benchmarks you want to hit in each one or if it's going to be more of a continuum. Just wondering how to think about you guys tackling these different buckets of patients. R. Struthers: Yes. I don't mean to imply it's a sequence, but it's a sequence of enhanced efforts. I really want the group out there in the field focusing on those patients in the first phase and getting the word out so that we have broad prescriber base. I think you're seeing that already with the response of the community. Then, in addition, because it will take some time to work our way through all those Phase 1 patients. Before we're done with that, then we also would start getting more active in finding ways to bring patients back to care. That may be -- that may take a variety of different forms. It's really just about how we layer on our efforts rather than go from one phase to the next, if that makes sense. Jonathan Wolleben: Do you think the current sales force is rightsized to handle that expansion over time? R. Struthers: Yes, absolutely. I think we're doing very good in the coverage. It's a fairly concentrated prescriber base. We were planning for the community from the start. I think it's more about the types of activities that we do to try and help find these patients who need to come back to care, improve diagnosis rather than just switching efforts from one thing to another. Operator: We now turn to Jessica Fye with JPMorgan. Jessica Fye: I wanted to follow-up on one of the earlier questions. What should we be most focused on when we take a look at the Cohort 4 data for Atumelnant? What are you going to be watching for similarly in that Phase 2 OLE data? I guess, stepping back, how much of a read is Cohort 4 or these initial OLE patients going to give us into the potential steroid reductions that we could expect in Phase 3? R. Struthers: Yes. Well, a couple of things. One, I'll just put some caveats. It's still relatively small numbers of patients. It allows the chance for physicians to begin to do steroid reductions in the actual treatment period of 12 weeks, that's pretty fast, right? I think that, together with the open-label extension data where there's a little more time. Generally, I think it will give the directionality, but I wouldn't start doing power calculations or things based on it. That makes sense. I think there's been a lot of interest in this Cohort 4 data, and it's interesting, but again, it's relatively small numbers. Jessica Fye: When should we expect the preliminary Phase 2 data for Atumelnant in peds? R. Struthers: I don't have exact timing on that, but that will come out in some phases because we're starting with older adolescents and then working our way down the age groups, right? We'll start expanding those populations into the Phase 3 portion as the age groups get the dose validation that we need. Operator: We now turn to Alex Thompson with Stifel. Patrick Ho: This is Patrick Ho on for Alex. I guess on the naive patients, are you guys seeing different dynamics here from payers? Or is it similar to the switch patients? Isabel Kalofonos: Similar dynamics. We had some reimbursed claims and some that we are processing through the Quick Start, so similar in both cases. R. Struthers: Again, early days. Operator: We now turn to Joe Schwartz with Leerink Partners. Joseph Schwartz: How does the traction you're getting at this early Phase 1n the PALSONIFY launch compared to the market research you've done in terms of willingness to prescribe or any other factors you consider important? R. Struthers: Thanks, Joe. I think we have not had any real pushback from prescribers about use of PALSONIFY, as was mentioned earlier by Isabel, who shouldn't get PALSONIFY. I think it's just the normal -- we're observing the things that are basically in line with our expectations. We're building momentum and working through a little bit of inertia in the system, but the patients are starting to come in. As they come in, I think they'll be best served with PALSONIFY. There's really not much pushback. Joseph Schwartz: How much of a continuum is there in terms of running from inertia to excitement given providers are encountering a new treatment option, but they've been quite used to using legacy treatments for quite some time? R. Struthers: Maybe you want to take that, Isabel. I don't think it's the legacy of use that is anything that's really in the way. I think they see the benefits of PALSONIFY. Go ahead, Isabel. Isabel Kalofonos: Yes. We see a lot of excitement in the prescriber community. When they look at the data, they really understand the value proposition with the efficacy, the fast and of action finally on a -- the inertia that Scott was referring to is more the normal cycle that takes place in rare diseases where appointments take place every 6 months to a year and physicians are not necessarily always having the support system to start calling the patients, but they will go with the flow of the appointments and wait to offer this new option to patients when the patients have their next appointment. We see that narrowing down the story to a particular patient for that physician where urgency is higher is helping, but we know that there will be a cycle similar to all rare disease launches. Operator: We now turn to Dennis Ding with Jefferies. Anthea Li: This is Anthea on for Dennis. Just 2 quick ones. On PALSONIFY, could you elaborate on just how many patients in the open label are now transitioning to commercial supply and the time lines there? Just curious if we would see all of that contribution in Q4 or later in 2026. Then on the pipeline, any updates on the progress for the GLP programs? I think there was previous talk of candidate selection in '25, so just curious on progress there. R. Struthers: Yes. Just on the open-label extension patients, all 22 are in various stages of enrollment. They've all enrolled for commercial supplies, but they have to wait until their final follow-up visit as part of the open-label extension so that we can finish all the monitoring as part of that. I think most of those are through -- are completed by the end of the year, but I don't know the exact numbers at this point. Then the GLP-1s, obviously and other obesity things we're working on, obviously, a very interesting space, especially today. I think we're going to stop talking as much about our early-stage programs now that we're really concentrated on the launch and our late-stage clinical development. I think it's just more appropriate that we -- when we're in the clinic, we'll let you guys know, but we're thinking hard about it, working hard on it, and you're going to see a lot of new things come out of the Discovery Group and not just soon, but for years to come. Operator: Ladies and gentlemen, we have no further questions. This concludes our Q&A and today's conference call. We'd like to thank you for your participation. You may now disconnect your lines.
Operator: The contents of today's call are protected by copyright and may not be reproduced without the prior written consent of Pason Systems Inc. Certain information about the company that is discussed on today's call may constitute forward-looking information. Additional information about Pason Systems, including the risk factors relevant to the company can be found in its annual information form. Good morning. My name is Andrew, and I will be your conference operator today. At this time, I would like to welcome everyone to the Pason Systems Inc.'s Third Quarter 2025 Earnings Call. [Operator Instructions] Celine Boston, CFO. You may begin your conference. Celine Boston: Thanks, Andrew. Good morning, everyone, and thank you for attending Pason's 2025 Third Quarter Conference Call. I'm joined on today's call by Jon Faber, our President and CEO. I'll start today's call with an overview of our financial performance in the third quarter. Jon will then provide a brief perspective on the outlook for the industry and for Pason, and we'll then take questions. Pason's results in the third quarter of 2025 continues to demonstrate the resilience in our business model through very challenging industry conditions. Pason generated consolidated revenue of $101 million and adjusted EBITDA of $38.5 million or 38.1% of revenue in the third quarter of 2025. In our North American drilling segment, Canadian drilling activity increased through the third quarter as is seasonally expected after spring breakup. However, at a more moderate pace than the increases seen in the third quarter of 2024, resulting in a 15% decline in Canadian industry drilling activity year-over-year. U.S. drilling activity fell slightly through the third quarter, resulting in a 9% decline in overall North American industry drilling activity in Q3 2025 versus the prior year comparative period. Despite this decline, revenue in the segment only decreased by 7% year-over-year. In this challenging environment, Pason grew revenue per industry day by 1% to a new quarterly record level of $1,071 as the company continues to make progress with growing product adoption across its technology offering. Within the North American drilling segment, Pason generates a higher revenue per industry day with Canadian activity as compared to U.S. activity. In the third quarter of 2025, Canadian activity represented a lower percentage of total when compared to Q3 of 2024, and this muted the growth seen in consolidated revenue per industry day year-over-year. The segment's operating expenses remained mostly fixed in nature and fell by 6% year-over-year as the company focuses on disciplined cost management in the context of more challenging industry conditions and has seen lower levels of repair expenses, which can fluctuate with revenue levels. Resulting segment gross profit of $42.2 million was consistent as a percentage of revenue at 61% when compared to Q3 of 2024 despite the more challenging industry conditions. Continuing from earlier this year, our International Drilling segment faced headwinds in the third quarter with a larger customer in Argentina reducing activity levels through a pending shift in operational focus away from conventional wealth towards more unconventional drilling. The segment generated $12.5 million in quarterly revenue and $5.2 million in segment gross profit in the third quarter. Operating expenses for the segment are mostly fixed and came down by 11% year-over-year as the segment remains focused on disciplined cost management during a period of lower activity levels. Even more pronounced in our drilling segments, industry conditions for completions were very challenging through the third quarter of 2025 with several of IWS' existing customers beginning to slow their number of active frac spreads. In the third quarter of 2025, IWS had 30 active jobs, up from 28 in the prior year comparative period despite a 27% decline in active frac fleets in the U.S. Revenue per IWS Day also grew year-over-year by 11%. Revenue per IWS Day will fluctuate depending on the mix of technology adopted amongst new and existing customers going forward. Reported revenue for the segment was $14.6 million, up from $12.5 million in the third quarter of 2024 which represents a 17% increase against industry activity that fell by 27% during that time. Gross loss of $1.2 million for the segment represents operating expense investments made for the segment's current stage of growth, along with $7.6 million in depreciation and amortization expense associated with the property and equipment and intangible assets acquired on and since January 1, 2024. Our solar and energy storage segment generated $5.1 million in quarterly revenue, an increase of 30% from the 2024 comparative period with the timing on deliveries of control system sales driving the difference year-over-year. As we've noted in previous calls, the segment's revenue will continue to fluctuate with timing of these deliveries going forward. Sequentially, Pason's results were mostly impacted by the seasonal increase in Canadian drilling activity partially offset by further reductions in U.S. drilling and completions, resulting in a 5% increase in revenue quarter-over-quarter. Demonstrating the company's mostly fixed cost base and resulting operating leverage, revenue grew by $4.5 million quarter-over-quarter and adjusted EBITDA grew by $7 million at that time. Net income attributable to Pason for the third quarter of 2025 was $12.5 million or $0.16 per share, down from $24.2 million and $0.30 per share in the third quarter of 2024 reflecting lower levels of industry activity year-over-year and higher levels of depreciation and stock-based compensation expense. We continue to maintain a prudent balance sheet ending the quarter with total cash, including short-term investments of $75.6 million and no interest-bearing debt. In the third quarter of 2025, net capital expenditures were $10.7 million, which includes investments in building out our valve management and automation technology offering within Completions and the ongoing investments in our drilling-related technology platform. Free cash flow in the third quarter of 2025 was $18.7 million compared to $16.7 million in the third quarter of 2024 reflecting lower levels of capital expenditures and working capital investments year-over-year. With this free cash flow, we returned $13.1 million to shareholders, $10.1 million through our quarterly dividend and $3 million through our share repurchase program. Year-to-date, we've returned $49.6 million to shareholders through our quarterly dividend totaling $30.6 million and $19 million in share repurchases. In summary, we remain very well positioned in the face of challenging industry conditions. I will now turn the call over to Jon for his comments on our outlook. Jon Faber: Thank you, Celine. Our third quarter financial and operating results again demonstrated the continued strength of Pason's competitive position even in challenging industry conditions. Revenue from our North American Drilling segment decreased by 7% year-over-year despite a 9% decrease in North American land drilling activity over the same period. International drilling saw an 18% decline in revenue resulting from an operational shift of a large customer in Argentina away from conventional assets. Our Completions segment grew revenue 17% year-over-year from the third quarter of 2024 despite a 27% decrease in industry activity. Solar and Energy Storage segment revenue increased 30% year-over-year in the quarter on the strength of increased control system project deliveries. Adjusted EBITDA margins compressed slightly from 2024 levels as a result of the reduction in consolidated revenue and a higher contribution of revenue from the Completions and Solar and Energy storage segments where segment margins are lower given their current stage of development. We expect margins in these segments to expand over time as revenues increase. The third quarter of 2025 marked more than 20 consecutive quarters across a wide range of industry conditions in which the change in Pason's consolidated revenue outpaced the change in North American land rig counts. This track record speaks to the progress that we have made in reducing the correlation between our financial performance and underlying industry activity. The compound effect of outperformance over time has been significant. In the 6-year time period between the third quarter of 2019 and the third quarter of 2025, Pason's consolidated revenue has increased by 40% while North American land rig counts have decreased by 32%, representing a spread of more than 70%. Over that same 6-year time period, we have reduced our share count by 8.5%, completed the acquisition of Intelligent Wellhead Systems with no dilution to shareholders and paid over $200 million in dividends to shareholders through free cash flow generated within the business. When we completed the acquisition of the remainder of Intelligent Wellhead Systems at the start of 2024, we believe we have the opportunity to double Pason's revenue from 2023 levels. We continue to believe this opportunity exists over the next 5 to 7 years, even if industry activity remains near current levels. To do so, we are focused on executing against a number of priorities. We will build on our competitive position in the North American land drilling market. Our focus is on delivering on innovative products, best-in-class service and exceptional customer support in order to earn the ongoing trust and confidence of our customers. We also look to offer expanded features and enhanced functionality in our existing products and to develop new products that provide additional benefits for customers. We are expanding our presence in the Completions market with our valve management and automation technologies, and we are working to develop compelling data management products for completions that leverage Pason's decades of experience in the drilling industry. We look to grow our international revenue, particularly as unconventional drilling becomes a focus in international markets, we anticipate opportunities to achieve greater adoption of our more advanced technologies, including those for the completions market. The path to our medium- to longer-term growth aspirations is unlikely to be linear. In the near term, we expect ongoing economic uncertainty and concerns about the potential for oversupplied oil markets to result in the challenging industry conditions. Increasing adoption of existing products and rolling out new products are both significantly more difficult in the current environment. The near-term trajectory of our completions revenue is more closely tied to the activity levels of particular customers rather than the overall market. Newer products and services will likely benefit over time from revenue acceleration that comes from a growing market presence and awareness. We see several supportive industry trends that should provide tailwinds to our efforts over the medium to longer term. Pason stands to benefit from the growing proliferation of artificial intelligence. Our position as the leading provider of drilling data and our efforts to expand our data management capabilities to the completions market serve us well as AI technologies drive increased demand for data as inputs to the models being deployed. The anticipated growth in demand for natural gas as a source of baseload power for data centers is expected to result in increases in natural gas-directed drilling activity. Artificial intelligence tools also play a role in our product development efforts and in improving the efficiency of our own business operations. Technology has played an essential role in driving efficiency improvements in Drilling and Completions operations and we expect customers to look for further efficiency gains, driving greater demand for data and technology. Pason also benefits from the additional data and technology requirements associated with the increasing complexity of Drilling and Completions operations. Over time, we anticipate overall decline rates for global oil and gas production to increase, driving higher levels of drilling and completions activity as a result of more natural gas-directed drilling, more offshore development and more unconventional drilling, which have higher decline rates than oil-directed onshore and conventional drilling. Our capital allocation priorities are unchanged, and they are driven by a focus on return on invested capital. We are making investments in areas where we can generate high returns on capital, which are not directly available to shareholders in the market and we are returning excess capital to shareholders in a disciplined, flexible manner. Our highest returns on capital continue to come from the organic investments we are making to continue the growth of our Completions business coupled with the ongoing rollout of the Mud Analyzer in our drilling-related business. With the slowdown of industry activity, we anticipate our 2025 capital program will total between $55 million and $60 million, and we expect a similar level of capital investment in 2026. We evaluate our capital program with a focus on increasing revenue, generating free cash flow and creating value for shareholders over time rather than simply in response to prevailing near-term industry conditions. We will continue to pursue shareholder returns over time through our regular quarterly dividend, which we are maintaining at $0.13 per share and share repurchases. This combination of shareholder returns provide disciplined returns to shareholders over time while retaining flexibility to adjust our capital allocation during times of changes in industry conditions. Our balance sheet remains strong. At September 30, we had $75.6 million in total cash, including short-term investments and positive working capital of $111.9 million. At this point, we would be happy to take any questions that you might have. Operator: [Operator Instructions] Your first question is from Keith Mackey from RBC Capital Markets. Keith MacKey: Just the first question on the capital spend for this year and next year, kind of maintaining around that $55 million to $60 million level. Can you just talk about maybe I know it's Mud Analyzer and Completions weighted for anything beyond general maintenance. But can you talk about the mix of spending this year and next year? Will it be the exact same types of products that you're building? Or will it move on to a different stage of what you're actually spending the capital on related to those 2 products? Just curious for some more color on the growth CapEx for next year. Celine Boston: Yes. So I would say, similar level as you think about 2026 in comparison to 2025. We talked about in previous calls, we would have said roughly $25 million of the CapEx that we saw for 2025 goes towards growth-related investments in completions and expectations of growth into 2026 and beyond. And I would say that's a similar level that you can expect in terms of split in 2026. . And then on the drilling side, which would be the balance of that $55 million to $60 million, the majority of that CapEx actually would relate to the refresh investments that we're making on our existing hardware platform as we continue to look towards opportunities to grow product adoption and improve price realization on our existing technology base there. Keith MacKey: Okay. Got it. And can you just maybe talk a little bit more about the completion data management projects? How are you inserting yourself, I guess, in the product development life cycle, what kind of things are customers asking you for or looking to do as they use more of these IWS products? Jon Faber: Keith, I'll speak at a pretty high level at this point because we're still sort of in the early days of getting that sort of built out. But I think what is clear to us is that there are at least some parameters from the drilling process which could be helpful for somebody who's involved in the Completions process to understand perhaps what the rock properties might look like, which might help them think about how a fracture might propagate and so being able to make some of that information available during the completions process would be an example of an area where we think we're uniquely positioned having access to both the Drilling and Completions data sets. Keith MacKey: Okay. Got it. And maybe just one final one, if I could. Jon, can you talk about a little bit more about the growth drivers that you see in the target to or potential to double revenue from 2023 levels in 5 to 7 years? If industry activity stays roughly where it is now, what are sort of the general buckets of improvement that you'd see to be able to double that revenue? Jon Faber: Yes, sure. So I guess I kind of break it into a few things. There's obviously within the core drilling business, we've got an established track record over 15 to 20 years of growing revenue per industry day in the order of 6% to 7% compounded over time. And when we look at simply kind of inflationary effects of pricing over time, increased adoption of data-driven technologies related to people doing more with our automation and intelligence. And when we look at the rollout products like a Mud Analyzer, we're pretty confident that we can continue that sort of a track record in the drilling-related business. In the Completions side, we see, of course, opportunities just for all players in the industry to grow by as a result of people using more technology of the type we're offering in the Completions market. So we think there's sort of a broad-based technology adoption story that all participants would benefit from. And then as I would have referenced earlier, we think we may have some unique opportunities in that space related to the fact that we have access to both the Drilling and Completions data, and making those kind of available to customers in a uniform way. There's some ancillary services that happen around Drilling and Completions that probably would also stand to benefit from some data management capabilities which stand-alone have maybe been not attractive to people independently the drilling market or the completions market by participating in both markets, those sorts of opportunities we would think we would benefit from. And then in the international business, as I mentioned, we moved to more unconventionals, that tends to drive higher-value products from our product offering, things that are impacting drilling performance more directly. And so we think there's opportunities to grow on the international side as well. So at a high level, those are sort of the areas where we see growth. And as we said, it's probably a 5 to 7 years sort of a time frame, and it requires execution and hard work and focus on the things that we can be most impactful with. Operator: Your next question is from Aaron MacNeil from TD Cowen. Aaron MacNeil: I want to sort of build on Keith's last question. Obviously nice to see those longer-term ambitions. How do you suggest we sort of evaluate the success or failure of these initiatives in real time? And what sort of milestones would you point us to over the next couple of years? Jon Faber: Yes. Unfortunately, Aaron, these are very intentionally medium to longer-term priorities that we're talking about because they're nonlinear. It's a little bit easier to establish very near-term measurable things for you to evaluate against when you're talking about doing things you're already doing in a market that's already adopting this type of technology. And so because we're talking about, in a lot of cases, new things that are ramping into the industry, some of it, if you're honest, in the short term is much more around capability development, streamlining the product offerings to be able to scale in a more profitable manner. And those things are a little bit less directly visible. So we will certainly provide commentary on an ongoing basis around things we're doing in each of those sort of broad areas to ensure that we're moving them all forward. But it's not obviously that you're going to have very specific line items in our financials to point to in the next 12, 18, 24 months as interim measures when we're building towards where we need to be in 5 to 7 years as an outcome. Aaron MacNeil: It could be operational milestones as well, though, like if you're developing a new product or et cetera, like is there anything maybe not in the financials, but something more than qualitative that you could point to? Jon Faber: Well, I think we will provide comments on an ongoing basis about the types of things that we are working on to establish the ability to hit those objectives. Aaron MacNeil: Yes. Fair enough. Sorry to needle you. But maybe one more question on IWS. Presumably, you'll have some capacity expansions next year. How do you think of line of sight in terms of having homes for that incremental equipment today? Jon Faber: Well, when we look at the equipment, like a lot of what we're talking about on that capital build and Celine talks about CapEx, a lot of that's based on conversations with customers around what they expect to do going into 2026 type of a world. So I think as you can see from lots of folks in the completions market, the expectation in the fourth quarter, probably always is that it's lower than the third quarter. You hear things in Completions around white space, budget exhaustion and terms maybe those of us from the drilling world don't hear quite as often. But certainly hear lots of talk about what people plan to do early into 2026. And so we are certainly building with visibility towards where we think that equipment would go to work. Operator: Your next question is from Sean Mitchell from Daniel Energy Partners. Sean Mitchell: Just wanted to hit on the Completion side, maybe a little follow-up or color around, as you see the E&P consolidation and maybe a structural shift in completion design and strategies going from zipper to simul-fracs. How has that evolution really influencing your completions business in terms of utilization cycle times, customer engagement, maybe more sophisticated or a different kind of technology demand. Can you provide any color on that, that would be great. Jon Faber: Yes, you bet. In completions as with drilling, increased complexity, certainly increases the value proposition of the types of products that we're bringing to market. So when you're talking about ensuring that you can manage a more complex operation efficiently and very importantly, safely the types of technologies that we're deploying to those space become -- I don't say exponential that probably is overstating it, but it's significantly more important as you start adding more valves to the equation. And so that certainly is a driver of increased demand for the product and the value proposition resonates increasingly on a safety and efficiency perspective when you start to talk about more complex types of fracs happening. The other side of the question you asked around more consolidation. One of the things that we see is certainly a desire from customers to do things consistently across their operations and ensuring they're deploying standard operating procedures. And so a number of the technologies we offer to that market are really around ensuring consistent workflows and standard operating procedures are being followed as well. And so as you get larger, more sophisticated companies looking to do more complex operations, they are driving more standardization and how they do things, and that would also be a net benefit to things we do on the completion side. Sean Mitchell: Got it. And then maybe one more. Just as you think to expand internationally, where do you see the best opportunity set on the international front? Jon Faber: Well, certainly, Argentina is an opportunity in terms of it being one of our larger markets today. And so they're looking to do. We've talked a lot about part of the reason the revenue in the international decline is because of a shift to unconventionals. And so that shift to unconventionals starts to drive a lot more of a product offering from the drilling side, but also earlier enthusiasm for things around the Completion side. And then the Middle East, there's quite a bit of talk around unconventionals as well. There's opportunities for us there as well. So I'd point to those 2 specifically, not to say exclusively, but I think those two come top of mind if you think about kind of opportunities in the near term. Operator: [Operator Instructions] There are no further questions at this time. Mr. Faber, please proceed with closing remarks. Jon Faber: Thank you, Andrew, and thanks to those who joined us for this morning's call. As always, we appreciate your interest. We appreciate the questions and your support. If you do have other questions, you certainly are welcome to connect with Celine or myself at any point. And otherwise, we wish you a very good day and weekend. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and ask that you please disconnect your lines.
Operator: Good morning. Thank you for standing by. Welcome to Sylvamo's Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, your conference is being recorded. I'd now like to turn the call over to Hans Bjorkman, Vice President, Investor Relations. Sir, the floor is yours. Hans Bjorkman: Thanks, Tina. Good morning, and thank you for joining our third quarter 2025 earnings call. Our speakers this morning are Jean-Michel Ribiéras, Chairman and Chief Executive Officer; John Sims, Senior Vice President and Chief Operating Officer; and Don Devlin, Senior Vice President and Chief Financial Officer. Slides 2 and 3 contain important information, including certain legal disclaimers. For example, during this call, we will make forward-looking statements that are subject to risks and uncertainties. We will also present certain non-U.S. GAAP financial information. Reconciliations of those figures to U.S. GAAP financial measures are available in the appendix. Our website also contains copies of the earnings release as well as today's presentation. With that, I'd like to turn the call over to Jean-Michel. Jean-Michel Ribiéras: Thanks, Hans. Good morning, and thank you for joining our call. I'll start on Slide 4 with our third quarter highlights. Our uncoated freesheet sales volume increased quarter-over-quarter by 7%. Our teams also executed well, resulting in improved operational performance. We returned $60 million in cash to shareowners by distributing $18 million in third quarter dividend and repurchasing $42 million in shares. Our Board also approved a new $150 million share repurchase authorization in the quarter. Let's move to the next slide. Slide 5 shows the third quarter key financial metrics. We earned adjusted EBITDA of $151 million with a margin of 18%. Free cash flow was $33 million and we generated adjusted operating earnings of $1.44 per share. Now I will turn it over to Don to review our performance in more detail. Donald Devlin: Thank you, Jean-Michel, and good morning, everyone. Slide 6 contains our third quarter earnings bridge versus the second quarter. The $151 million of adjusted EBITDA was in line with our outlook of $145 million to $165 million. Price and mix was unfavorable by $14 million, primarily driven by paper and pulp prices in Europe. Volume increased by $14 million, mainly driven by stronger seasonality in Latin America and North America. Operations and other costs were favorable by $5 million, driven by improved operational performance. Planned maintenance outage costs improved by $66 million as we had no planned outages at our mills. Input and transportation costs were unfavorable by $2 million. Let's move to Slide 7. North America and Brazil industry conditions are solid while Europe and other Latin America are challenged. In Europe, market conditions continue to be very challenging. Pulp and uncoated freesheet prices remained under pressure. However, some pulp grades started to show signs of recovery at the end of the third quarter. Uncoated freesheet demand is down 5% year-over-year through September, while supply is down 7%. Wood costs in Southern Sweden are starting to ease, recently decreasing by a reported 8%. In Latin America, demand remains mixed. Brazil is up 3% year-over-year through September and prices are stable. However, demand in Latin -- other Latin American countries are down 5%. Pricing is under pressure in some countries. Even though the majority of this demand decline is due to Argentina and Mexico, some countries across other Latin America are having economic challenges as well. This demand decline in addition to shifts in global trade flows is resulting in continued pricing pressure across other Latin America. North America demand is stable year-over-year through September. Imports were up 46% year-over-year through August in anticipation of the tariffs are expected to moderate. In fact, customer feedback indicates inventories from increased imports are being consumed and returning to normal levels. Industry supply was reduced by 6% in the third quarter after Pixelle closed their Chillicothe Ohio mill in August. There's still uncertainty caused by the U.S. tariffs, which may take a while to settle out. Let's go to Slide 8. Looking ahead, we expect to deliver fourth quarter adjusted EBITDA of $115 million to $130 million. We project price and mix to be unfavorable by $20 million to $25 million, primarily due to paper prices in Europe and mix across the regions. We expect volume to be favorable by $15 million to $20 million, largely due to Latin America and North America. Other operations and other costs are projected to be unfavorable by $5 million to $10 million, primarily due to seasonally higher costs, and we expect input and transportation costs to be stable. Planned maintenance outages will be unfavorable by $18 million as we have 1 outage in North America planned in the quarter. Let's move to Slide 9. In August, International Paper announced plans to convert their uncoated freesheet paper machine at its Riverdale mill to produce containerboard by the third quarter of 2026. Last week, we announced we would continue to receive uncoated freesheet from Riverdale Mill until May 2026. Riverdale should supply us with approximately 260,000 tons in 2025 and we expect to receive around 100,000 tons in 2026. As a result of the supply agreement ending, we will optimize our product segment and customer mix and leverage our European mills to supply the U.S. and Mexico. We will be building inventory over time to help bridge the gap until our Eastover investments are complete, and we have the additional 60,000 tons of incremental capacity, which is expected to ramp up in the fourth quarter of 2026. Let's go to Slide 10. The Riverdale amendments we recently executed had a few components. One component was the IP agreeing to a $15 million reduction to the $100 million payment we would owe to IP in the event we sell the Brazil forest lands. We have no intention of selling forest lands as we believe we are unlocking value every day by producing uncoated freesheet. Owning forest lands in Brazil is a unique strength that differentiates Sylvamo. These assets provide a competitive advantage and goes beyond operational benefits. Direct control over wood fiber ensures security of supply, reduces exposure to market volatility and supports long-term cost management. Our forest lands represent a significant part of our intrinsic value that we feel is not reflected in our current market valuation. We recently had an appraisal completed on our forest lands, which are now valued at almost BRL 5 billion. Forest lands are tangible and appreciating resources that are the cornerstone of our strategy, delivering cost advantages and a source of intrinsic value for our shareholders. Now I'll turn the call over to John. John Sims: Thank you, Don, and good morning, everyone. I'll pick up on Slide 11. As we navigate through cyclical industry conditions and headwinds, we are focused on the things we can control. We are continuously working to improve our business. We are driving operational excellence and strategic initiatives across all our regions. These efforts should improve margins, reduce costs and strengthen our competitive position. In Europe, we're improving our product mix, winning new customers at our Saillat mill. We're actively working to reduce wood cost at Nymolla, a key lever of cost efficiency. Additionally, we're focused on reducing fixed costs and improving operational efficiency and reliability across the European region. In Latin America, we've secured new strategic Brazilian customers and further develop key partnerships in other Latin American countries, expanding our market presence. We're investing to improve wood sales efficiency to reduce costs by decreasing the need of higher cost third-party wood. Our team is also executing a pipeline of more than 100 initiatives across the entire business designed to strengthen EBITDA and cash flow. In North America, we're focused on strategic commercial initiatives to improve volume and margin by reducing supply chain costs and optimizing inventory. Finally, we're investing in our flagship mill in Eastover, South Carolina to improve our competitive advantages by lowering costs, enhancing efficiency and increasing capacity by 60,000 tons. Across all regions, these initiatives reflect our commitment to customers' operational efficiency and strategic investments to deliver sustainable value. So let's move to Slide 12. Our long-term capital allocation strategy drives shareholder value. We are focused on maintaining a strong financial position, reinvesting in our business and returning cash to shareowners. Our healthy financial position allows us to stay focused on our customers with a long-term perspective in mind, especially during times of challenging industry conditions like we're currently experiencing in some of our markets. It enables reinvesting in our business, enhancing our reliability, productivity and improving our service through operational excellence initiatives and it preserves the flexibility to return cash to shareowners. Dividends are an important part of our cash returns to shareholders and after paying $0.45 per share in all 4 quarters, we have returned approximately $73 million through dividends this year. Another strategic pillar of cash returns to shareowners are share repurchases. We will continue to evaluate opportunities to repurchase shares at attractive prices, especially when we feel our valuation is well below our intrinsic value. This is why in the third quarter, we repurchased $42 million worth of shares at an average price of $44.74, exhausting the remaining amount of our share repurchase authorization. This brings our year-to-date share repurchases to $82 million. In September, the Board also approved a new $150 million share repurchase authorization. Slide 13. Our strategy is to be singularly focused on uncoated freesheet paper which remains the largest and most resilient segment in the graphic paper space. We view the uncoated freesheet industry landscape as an opportunity. We are investing to strengthen our competitive advantages to drive earnings and cash flows. We view these investments as high return and low risk as we are staying in our core product line and reinforcing our position as a supplier of choice for customers. We will leverage our strength to generate high returns on invested capital. I'll now wrap up my comments on the next slide, Slide 14. You likely saw some public filings yesterday related to Atlas Holdings and a couple of our directors resigning. I want to spend a minute discussing this topic. At the direction of Atlas Holdings, Karl Meyers and Mark Wilde resigned from the Board effective November 5. I would like to thank both of them for their contribution to Sylvamo. As a reminder, they both joined our Board in 2023 as part of a cooperation agreement with Atlas. Sylvamo Board also thanks them for their service. With these resignations, the restrictions on Atlas and the cooperation agreement will terminate. When we move to the Q&A portion of this call, I hope you can appreciate that we will not be taking questions or commenting further on this matter. We appreciate your cooperation on that. Lastly, as we prepare for our leadership transition on January 1, and I am honored to lead Sylvamo as the next CEO. As Jean-Michel is retiring at the end of the year, on behalf of our senior lead team and all the employees of Sylvamo, I would like to take this opportunity to thank him for his 4-plus years of dedication to Sylvamo as its CEO. He led Sylvamo through the spin-off and other challenges in our first few years and has been instrumental to Sylvamo's success, positioning it for further long-term value creation. We wish him all the best. Jean-Michel, would you like to say a few words? Jean-Michel Ribiéras: Thanks, John. I appreciate your kind words and well wishes. Leading Sylvamo has been an absolute honor these past 4 years, and I'm pleased with everything we have accomplished. I would like to thank our employees, customers, suppliers and investors for their support and partnership. I'll leave knowing that the company is in very good hands, and its brighter days ahead of it. As I've said many times before, I'm confident in the future for Sylvamo and motivated by the opportunities that lie ahead. Thank you. I'll now turn it over to Hans. Hans Bjorkman: Thanks, Jean-Michel. John and Don. Okay, Tina, we're ready to take questions. Operator: [Operator Instructions] Our first question comes from Daniel Harriman with Sidoti. Daniel Harriman: Jean-Michel, congratulations on the retirement, and we certainly appreciate all your help since we've had you under coverage. I just have -- I'll start off with 1 today, and then I'll get back in the queue. But regarding North America, you highlighted stable demand even with imports running higher earlier than the year. And as those inventories continue to be worked down, I'm wondering if you think we can expect that normalization to translate into potentially a more stable or improved pricing environment as we move into 2026. John Sims: Daniel, it's John Sims. Thanks for your question. Yes, we're expecting and we are already seeing and we heard from our customers that the inventory is being working down -- worked down from the import surge that occurred earlier in the year as a result of the threat of tariffs, if you will. And that is working through the system and also the fact that imports have actually started to decrease coming in as a result of the tariff. And then also, you have the closure of the Chillicothe mill that we talked about, so that the operating rate should improve and strengthen going into next year. Operator: Our next question comes from the line of Matthew McKellar with RBC Capital Markets. Matthew McKellar: Just a follow-up on the last one there. How far along are we in that process of inventories being consumed? Are they approaching normal levels today? Is that something you'd expect by year-end? Or will that process continue into '26? John Sims: No, I would say that we're approaching normal levels right now. That's how we're seeing it currently. Matthew McKellar: Okay. Very helpful. And then a couple of quick ones on Riverdale, and how you're preparing for the end of that supply agreement. Can you give us a sense of how much inventory you're intending to build to bridge you to that incremental capacity at Eastover? And then maybe what kind of working capital investment you'd expect? And then at the time that the cancellation of that supply agreement was announced, I think you said the impact to 2026 EBITDA would be about $30 million at current margins. Is that still a good estimate of what you expect the impact to be based on how margins may have evolved and any changes to your plans since that time? Donald Devlin: Matthew, this is Don. Thanks for the question. So for the first part of your question, we plan to build about 60,000 tons of inventory through the year. Most of it will happen in the first half leading up to the Eastover outage for the conversion speed up of Eastover. And then we plan to consume that inventory in the balance of the year. So from beginning to end, it would even out and relative to the $30 million, I think in the previous call, we estimated the impact to Riverdale to be about $30 million. And that's the same. That hasn't changed for 2026. Operator: [Operator Instructions] And with no further questions in queue, I will now hand the call back to Hans Bjorkman for closing remarks. Hans Bjorkman: Thanks, Tina. We appreciate it, and thank you all for joining our call today. We appreciate your interest in Sylvamo, and we look forward to our continued conversations over the coming weeks. Thank you. Jean-Michel Ribiéras: Thank you. Bye. Operator: Once again, we would like to thank you for participating in Sylvamo's Third Quarter 2025 Earnings Call. You may disconnect.
Veronika Zimmermann: Good afternoon, everybody, and welcome to Hensoldt's 9M 2025 Results Call. Thank you all for joining us today. I'm Veronika Endres, Head of Investor Relations at Hensoldt. And with me today is our CFO, Christian Ladurner. Christian will guide you through this presentation today, which will be followed by Q&A. And with that, over to you, Christian. Christian Ladurner: Yes. Thank you very much, Veronika, and a very warm welcome to all of our investors and analysts following our company. It's great to have you with us today. I'd like to begin with a quick update of this time line, which you may remember from our recent analyst calls. Since then, our assumptions have further materialized. Right after the adoption of Germany's 2025 defense budget in September, the parliamentary sessions for procurement approvals gained strong momentum. By the end of 2025, a total of more than a double -- high double-digit number of so-called EUR 25 million approvals will have been passed, many of them with direct Hensoldt involvement. The first tangible evidence was our recent guidance upgrade for the 2025 book-to-bill ratio published 2 weeks ago. While the majority of expected orders is still anticipated to enter our books in 2026, the increased guidance for this year already reflects the early materialization of these strong dynamics. This sets the stage for a strong finish to 2025 with significant orders to be expected in the near term. Let me start with the Sensors segment. In October, we booked a major sustainment contract for the German P-8 Poseidon program worth EUR 130 million. Alongside the procurement of the German Eurofighter Tranche 5, the contract of our Mk1 radar is now in the flow down, and we expect to book the order with approximately EUR 180 million shortly. The same applies to further orders for TRML-4D air defense radar for Ukraine, for Switzerland with a combined volume of around EUR 200 million. Notably, the Optronics segment will contribute significantly to our order intake in 2025, combining both upcoming and recently booked contracts with approximately EUR 1.4 billion. This is predominantly driven by the land domain. The contract for the new reconnaissance vehicle named Luchs II is currently in the flow down process. This landmark order represents a volume of approximately EUR 850 million for Hensoldt. In addition, we anticipate further orders for the Leopard 2 main battle tank and for the Schakal, the Boxer platform equipped with the PUMA turret. The latter we expect in 2026. Further key contributors are projects for Algeria's border surveillance as well as upgrades for the German U212A submarines, both recently booked. I will give an overview of how these orders will contribute to our raised book-to-bill guidance for 2025 in a minute. Of course, all of you know that ramping up capacity is key to meet increased customer demand. Therefore, we have started our Operations 2.0 initiative, which we have introduced in H1 of this year. Since 2022, we have been expanding production capacity through continuous improvement, automization and outsourcing, integrated into our annual CapEx plan, and this will continue. And of course, we will provide more details at our Capital Markets Day next week. Nevertheless, our first concrete initiative. This is our new production site, which will significantly increase our production capacity for air defense radars. This strategic capacity expansion will enable us to substantially ramp up production from 2027 onwards, especially for TRML-4D and Spexer radars. We are investing around EUR 80 million in this rented site, combining resilience with synergies across our existing footprint. Let me now come to our financials for the first 9 months of this year. After outlining our promising growth outlook, let's now shift to what we have accomplished so far. So let me walk through our financial results for the first 9 months. To begin with, I'm very pleased with the performance we have once again achieved. Order intake developed as planned, reaching more than EUR 2 billion. Also this year's orders placement from Germany are heavily weighted towards year-end, we exceeded the high prior year figure by 9%. Key drivers behind this performance was the Eurofighter program as well as TRML-4D radars. Revenue performance was strong, increasing to EUR 1.5 billion. Optronics continued its strong momentum, while Sensors further gained traction in Q3 as anticipated following a slower start in the first half of the year. Passthrough revenue continued to decline in line with our planning. Excluding parcel revenue, core revenue grew strongly by 14%, reflecting the strength of our underlying business. With a book-to-bill of 1.3x, our order backlog again reached a new record level of EUR 7.1 billion, providing us with an excellent visibility. To sum it up, the increasing investments in defense by our German and international customers continue to translate into higher order intake and revenue. The strong performance of our top line is also reflected in our profitability. Adjusted EBITDA increased to EUR 211 million with an adjusted EBITDA margin of 13.7%. The increase was primarily driven by higher volumes in the German Optronics business. In the Sensors segment, product mix effects partly offset this growth, while the impact on margin from the logistical ramp-up has further diminished. Additionally, we continue to capture cost and revenue synergies from the ESG acquisition, further strengthening our bottom line. Adjusted EBIT increased to EUR 122 million in 9M 2025. Cash generation was excellent in Q3. Adjusted free cash flow increased to minus EUR 119 million per 9M 2025, supported by advanced payments received. While on the other hand, investments in our working capital continued as planned to manage the business volume in Q4. To conclude, our bottom line is on track and set to gain further momentum as the year progresses. Now let's have a look at our segments. The Sensors segment delivered a solid order intake of EUR 1.7 billion, exceeding previous year's high comparison base. This corresponds to a book-to-bill ratio of 1.3x. The development was driven by orders for the Eurofighter re-baselining and Halcon program as well as TRML-4D radars for Ukraine. Revenue in Sensors increased to EUR 1.3 billion. Despite the slower start in our radar production during the first half year, revenue growth was strong and fully in line with our expectations. Excluding the declining share of parcel revenue, core revenue in sensors rose by 12%. Adjusted EBITDA in Sensors increased to EUR 199 million. Product mix effects had a minor impact, while the effect of the ramp-up of the logistics center in H1 is further diluting. This is reflected in the adjusted EBITDA margin of 15.1%, catching further up as the year progresses. As mentioned, cost and revenue synergies from the ESG acquisition contribute to this as planned. Optronics realized a strong order intake with orders summing up to EUR 328 million, resulting in a book-to-bill ratio of 1.4x. This was primarily driven by orders for the U212A submarine retrofit, gimbals and site systems for ground-based systems. Revenue performance in Optronics was excellent, continuing the momentum from the previous quarters. This was boosted by the sustained strong performance of the German entity, which achieved revenue growth of 27% in the first 9 months. Main driver was accelerated production in ground-based systems. At this stage, we are also pleased to have successfully the first step of the move of the ground-based systems business in the Oberkochen, from the former Zeiss building to the new build Optronics campus. This milestone will provide our business with the capacity to continue the strong growth path ahead. In terms of margins, Optronics continued to show a significant improvement compared to prior year with adjusted EBITDA reaching EUR 12 million. This development was driven by higher volumes from the German unit. Let's now have a look how our order book will develop until year-end. In addition to the orders mentioned at the beginning, we are preparing for a broad series of additional contracts across our business areas such as for air defense, the Eurofighter program, our naval business as well as self-protection systems and services and integration. To sum it up, we are very well on track to secure major orders that will drive our order intake from around EUR 2 billion in the first 9 months to approximately EUR 4.4 billion per year-end. Let me now come to our guidance for 2025 updated 2 weeks ago. First and foremost, order intake. Following the recent development, we have significantly raised our book-to-bill guidance from around 1.2x to a range of 1.6x to 1.9x. As highlighted earlier, we expect to book key programs like Eurofighter and Luchs 11 already within this year, pushing the book-to-bill notably upwards. Furthermore, we specified our revenue guidance to approximately EUR 2.5 billion. As outlined in our recent analyst calls, the rollout of our new logistics center represents a strategic investment in long-term competitiveness and operational efficiency. While this go-live has temporarily moderated the pace of revenue growth in 2025, it is a critical enabler of sustainable growth and scalability in the years ahead. For adjusted EBITDA margin, we specified our guidance to 18% or higher. This reflects our focus on sustained strong profitability by investing in our capacity to secure long-term success. For adjusted free cash flow, we continue to expect strong performance with an unchanged cash conversion target of approximately 50% to 60%. And our net leverage target remains at around 1.5x, reflecting our disciplined financial management. Finally, our dividend payout ratio will continue to be in the range of 30% to 40% of adjusted net income, in line with our commitment to shareholder returns. So coming now to a conclusion, let me mention the following key takeaways. The ever-increasing demand for our products and solutions is reflected in substantial order intake across both segments, driving order book to a record high of EUR 7.1 billion. This continues to provide excellent visibility for the years to come. Our revenue performance remains strong, driven by sustained high momentum in optronics and accelerated growth in sensors during the second half of the year. This is reflected in our solid profitability, supported by higher volumes in Optronics, while the impact of Sensors margins from the logistical ramp-up is further diluting. Our outlook remains promising, and we are strongly positioned for the upcoming growth. Germany is taking the leadership role for defense in Europe, and Hensoldt has the right strategy, products and capacities to play a major role in upcoming German and European procurement programs. This is now increasingly reflected in concrete orders, driving our book-to-bill guidance significantly upwards and with further major contracts on the horizon. So in short, Zeitenwende 2.0 starts to materialize. Through targeted investments in capacity and processes, we are safeguarding our delivery capability. We proactively secured the further ramp-up of our air defense production from 2027 onwards, safeguarding our delivery capability and long-term sustainable growth. Thank you very much for listening. And with that, I'm now happy to open the floor to your questions. Operator: [Operator Instructions] The first question comes from Sebastian Growe from BNP Paribas Exane. Sebastian Growe: The first one would be on the Optronics segment. And apparently, the segment is outpacing the earlier indicated 10% EBITDA margin for this year. And against the backdrop, where do you see the segment trending both in '25 and particularly in the midterm, i.e., do you eventually see scope to return to the 20% plus levels that you achieved in 2020? And as a follow-up to this, as Optronics is going to roughly double its order backlog based on your statements. How should we think about the growth cadence in the outer years, i.e., would you agree that optronics might ultimately outgrow the Sensor segment? Christian Ladurner: Sebastian, many thanks for this question. So yes, a very good question about Optronics margin. You're right. So we guided until half year 10%. I have to say, currently, we see with the positive development, a figure which goes more into the direction of 14% EBITDA at the year-end. With having said that, we see every year a figure of around 2% in addition. And of course, in the midterm 2027, 2028, we expect that figures at the profitability of Optronics will be in this year, as you have mentioned, so for sure. And the second question, yes, you're also right. We see more momentum now from the optronics. We have to keep in mind that sensors is a classic project business with heavy also engineering load in the work, whereas Optronics is a delivery business. That means if we have everything in place and industrialized products and the demand is there, which is currently there, we are able to ramp up more intensively. And for, I would say, more concrete numbers, I'm happy to share with you on the upcoming Tuesday that we will give some more insights how the segments will progress. Sebastian Growe: Makes sense. I won't stretch my luck too far. Just one other quick one, if I may, on some comments we heard recently from your second largest shareholder. Those very comments suggest that there might be scope for an expansion of the cooperation between the -- as you referred to legacy part of the product offering. And I was just wondering considering also that there are so many cooperations happening in the defense sector, in which areas might you see headroom for more cooperations and that could either be then with the Italians or then eventually also other partners? Christian Ladurner: Yes. Thank you very much. You're right. The dynamics is quite high currently, and Leonardo has stated that there is a good collaboration with our company up to now, especially we have currently in the Eurofighter and also in the air defense topic. I see within -- with Leonardo, there are, of course, also opportunities in the land platforms to go for more cooperations even if there is nothing material yet. And of course, I think with the increasing budgets coming from Germany and acting Germany as a frontrunner, of course, other companies are interested in participating of this growth and then going to partnerships with German OEMs, but also in Hensoldt. And when you have seen now the Luchs II contract, which is at the end of the day, a cooperation between GDLS (sic) [ GDELS ] so General Dynamics Europe Landsystems (sic) [ General Dynamics European Landsystems ] and Hensoldt gives you also a concrete example where this successfully happened. And going forward, we see also possibilities in the land platforms, for example, also in space, also in air defense in all ranges. So there is more to come. And also here, we will give you some more details on Tuesday in the Capital Markets Day. Operator: The next question comes from the line of Ross Law from Morgan Stanley. Ross Law: So the first one, just on order intake. Obviously, it continues to track strongly. And obviously, you've raised full year guidance quite materially. What's a little surprising is that your cash guidance is unchanged. Can you maybe just flesh out the moving parts there into year-end as I would have thought that you're going to get a reasonable amount of down payments like you've noted for the 9 months? And then just on the outlook, you've confirmed your 2030 sales guidance. Can we also expect you to provide 2030 guidance for other metrics like margin at next week's CMD? And given the strong visibility from Germany specifically, can we expect you to provide some indications of growth for the group beyond 2030 next week? Christian Ladurner: Yes. Thanks, Ross. So in terms of down payments, first of all, it's a good progression we have seen now in the last year when we compare 9M 2025 with 9M 2024, we have EUR 200 million more down payments on balance sheet. On the other hand, I have to say we are heavily further investing into working capital. That means the strategy, and this is also seen in the figures is clearly to go for pre-investments in working capital to further deliver and outbalance this advance payments. So this is why I do not really expect an increase now of cash conversion by year-end. And regarding 2030, yes, we will give some more insights how we think about this EUR 6 billion figure on Tuesday and also some bottom line figures for sure, and also some aspects how we think the company will grow from 2030 onwards. I think it's not a secret when you now currently look how Germany will behave from this and next year onwards that most of the contracts will not only last 5 years, they will 5 to 8 years. And then we are at the beginning in the mid of 2030. And on top of that, there will be service business due to that the availability of services of systems in Germany has to be increased massively. So there is room and there will be more details on Tuesday. Yes, clear yes. Ross Law: Great. Thanks Christian, see you by next week. Operator: [Operator Instructions] Next question comes from the line of Christophe Menard from Deutsche Bank. Christophe Menard: Two questions on my side, just on the updated 2025 guidance. The revenue growth you have in Q4 is actually a bit softer than usual. Is it only linked to the logistical center? You're going to be growing more or less in line with what we've seen in the first 9 months. Usually, it's a stronger quarter. So the question is, is it just that phasing? And will -- should we resume kind of that accelerated growth in Q4 as of next year? The second question is on the margin. You stated 18% plus. As you previously outlined, Sensors was doing very well in the first 9 months and in Q3. What about -- sorry, Optronics, you talked about optronics. And my question is about sensors. We also had a very good performance on sensors. How can we think about the margin performance of sensors in the full year? Christian Ladurner: Yes. Thanks, Christophe, for that. Yes, you're right. It should be a little bit weaker. I think especially in sensors, when I look at the key products such as Eurofighter and TRML-4D, there are fewer figures now planned for Q4. But nevertheless, we see an increase. I think when we talk about 2026, we will be in a normalized Q4 again, which will be stronger from my point of view because then the logistics center effect will be fully phased out next year. So this is the picture I currently have. So in terms of margin, I've outlined 14% for Optronics for this year in the sensors, I expect approximately 19%, which is then in the sum around 18% to 18.2% and which gives us confidence to reach our guidance for the full year. Operator: Next question comes from the line of David Perry from JPMorgan. David Perry: Christian, look forward to seeing you next week. I was just going to ask you to unpick this big jump in the Optronics margin, the 14% so basically you're double year-over-year. Just how much of that is that R&D has dropped? How much of it is kind of one-off self-help, say, South Africa or something like that? And how much do you think is related to the volume? And then just to square the circle on it, can you just tell us where you think the revenue ends up for this year in Optronics, please? Christian Ladurner: David, many thanks for the question. I see currently that it's solely volume-based. So R&D, we are still in the digitalization of periscope and the WAO for the Puma. So this will last until 2027 because these figures go down. We are still at Ceretron. Ceretron is the sensor suit for the Luchs II, which has to be finished until 2027 until the first systems are to be delivered to GD. So this will stay at a high level. And as I said before, this is volume-based. South Africa is more or less on the level of the prior year. So this is exactly volume-based. In terms of revenues, I see approximately EUR 420 million to EUR 430 million for the Optronics segment. I see EUR 2.07 billion to EUR 2.09 billion in the Sensor segment, which then comes up to the group guidance. Operator: We have a follow-up question from Sebastian Growe from BNP Paribas Exane. Sebastian Growe: So the first one is on Sensors, and it's actually then a follow-up to Christophe's question. I think if one looks at the 9-month period, then I take the point that the dilution effects from the logistical ramp-up were quite significant. But if one singles out quarter 3, then apparently it's the first quarter where you're up like 200 basis points year-on-year. So the question that I have -- it's 3 questions actually. So the first one, is this logistical ramp-up fully digested by now as we speak? And conversely, it appears really that the ESG business is performing way stronger than potentially expected. So can you provide some color with regard to the trends in the, a, core and, b, then ESG business, please? Christian Ladurner: Yes, for sure, Sebastian. So first answer is clearly, yes, we have digested that effect. Nevertheless, I see approximately EUR 10 million of effect we will have. We had this EUR 10 million effect in Q1, which is from an absolute term still in the figures. Relatively, it phases out, as you have seen through Q1, H1 now 9M and also Q4. So this is clear. And ESG, yes, we bought this company for approximately 14% EBITDA. We see currently a figure which is around 15%. So this -- the cost synergies have completely realized as we have planned on a pro rata basis. So these are the 2 figures. Sebastian Growe: Okay. That's helpful. And then just finally, again, on the order pipeline and in addition to Ross' question. So I know it's hard to compare you guys with Rheinmetall, for instance, but they hinted at around EUR 20 billion in quarter 4, another EUR 40 billion, EUR 50 billion potentially in '26. And again, I appreciate that apparently, there are differences in both the business mix, the regional mix and whatnot. But from the sort of cadence and general sort of dynamics, would the sort of potential rule of thumb like seeing a doubling or so from the quarter 4 dynamics be directionally also the right yardstick for you? Put differently, what are you seeing recently from the order pipeline perspective going into '26? Christian Ladurner: Yes. Look, I expect in 2026, especially in the land platforms where we currently talk about these thousands of Boxers, Pumas, Leopard and so on. So from my point of view, there will be big dynamics in 2026 in the land platforms also in our business. And I think the book-to-bill we currently guide for this year, I see at least also for next year. This is simply due to the fact how the structure is currently working in the German parliament with having now the budget in place 2025 and 2026. So this is my view currently. We have to keep in mind that, of course, every special land system goes then by OEMs. That means there will be a kind of a flow down process between the OEM to receive the contract. But also next year, I see in terms of book-to-bill, a figure which will be similar as the figure we have now updated for this year. Sebastian Growe: Very helpful, thank you so much, and see you next week then. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Veronika Endres for any closing remarks. Veronika Zimmermann: Yes. Thank you all for listening today. As always, should you have any further questions, the IR team is around all day to follow up. And as Christian mentioned, we are very much looking forward to welcoming you at our CMD event next week. Have a great weekend. Thank you, and goodbye.
Operator: Ladies and gentlemen, welcome to Turkish Airlines' Third Quarter 2025 Earnings Call. [Operator Instructions] Now I will leave the floor to our host. Sir, the floor is yours. Murat Seker: Thank you very much. Good afternoon, everyone, and thank you for joining us. During the third quarter, the airline industry's operating environment was shaped by a number of external and internal factors. Traveler confidence in North America weakened amid unpredictable immigration policies, while the competition across Europe intensified as carriers increased capacity to capture peak season demand. Persistent supply chain constraints in aircraft and engine manufacturing, combined with cross-border tensions continue to affect market conditions. In this context, Turkish Airlines remained agile and disciplined. Our third quarter results reflect our ability to adapt dynamically to rapid evolving market conditions while maintaining a firm focus on our long-term strategy. In the third quarter, we also underlined our commitment to sustainable shareholder returns with the second installment of our dividend payment amounting $110 million. Before moving to the financial results, I would like to highlight the major developments and achievements of the quarter. Most importantly, we took an important step towards preserving our growth trajectory by placing orders for 50 firm and 25 options for Boeing 787 aircraft. Deliveries are scheduled between '29 and '34. Once completed, they will significantly elevate our operational efficiency, flexibility and passenger comfort across our network. Similarly, we completed negotiations with Boeing regarding the purchase of a total of 150 737 MAX aircraft, consisting of 100 firm and 50 option orders. Currently, we are working on the details of the deal with the engine manufacturer, CFM International. These steps reflect our goal of operating in an entirely new generation fleet by 2035 in addition to our annual capacity growth target of 6% for the coming decade. During the last quarter, we launched flights to Seville in Spain and Port Sudan, while resuming operations to Aleppo in Syria and Misrata in Libya, rebuilding our presence in these important regional markets. Turkish Airlines continued to be recognized internationally for its achievements in both service and quality and aircraft financing capabilities. We received the World Class Award from APEX for the fifth consecutive year, along with best-in-class distinctions in both sustainability and food and beverage categories, reflecting our strong commitment to delivering an exceptional passenger experience. Moreover, at the Airline Economics Aviation Awards in London, we were recognized with 3 major titles: European Overall Deal of the Year for an Islamic finance lease in Swiss francs, European Supported Finance Deal of the Year for a Balthazar-guaranteed JOLCO financing and Sustainability Aviation Overall Deal of the Year for our sustainability-linked JOLCO financing. These achievements underscore the depth of our financial expertise and our ability to secure competitive diversified funding from global markets. Following these updates, I would like to briefly touch on the rationale behind our investment in Air Europa. Based in Madrid, Air Europa operates a fleet of 57 aircraft across 55 destinations, carrying more than 12 million passengers annually. As a leading carrier between Europe and Latin America, its strong regional presence and complementary network will further strengthen our role as a bridge connecting continents. This investment also aligns closely with our long-term strategy, enhancing our access to the fast-growing Latin American market and creating new opportunities for both passenger and cargo traffic between Spain and Turkiye. By linking these 2 major global tourism destinations, we will improve connectivity across Europe, Latin America, the Middle East and Asia, offering passengers greater options, new travel itineraries and smoother connections. The collaboration will also foster tourism flows between Turkiye and Spain, supporting both economies and deepening cultural exchange. Importantly, this partnership is structured as a minority investment, ensuring Air Europa maintains its independent identity while benefiting from Turkish Airlines operational expertise and global network. Now let's take a closer look at our results. In the third quarter, Turkish Airlines total passenger capacity rose by around 8% annually. We carried more than 27 million passengers to their destinations, reaching a record number in a single quarter and recorded a load factor of 85.6%. Growth was largely driven by robust demand in Asia and Africa. On the other hand, softer demand in North America, intensifying competition in Europe and the geopolitical situation in Middle East presented the headwinds. During the July-September period, total revenues increased by 5% year-on-year, reaching nearly $7 billion. Passenger revenues rose by 6%, benefiting from strong volume growth. Meanwhile, cargo revenues declined by 7% to around $850 million, mainly reflecting ongoing trade tensions and increased competition from sea freight. Despite the revenue growth, profitability was lower compared to last year, mainly due to sequentially higher jet crack spread, the second half wage adjustment and partly softer yields. As a result, EBITDAR stood at almost $2.1 billion with a margin of 29.6%, while net income realized -- was realized close to $1.4 billion. With the slowdown in cost inflation, our structural improvements will become more visible as we progress in our initiatives to improve flight productivity, accelerate organizational streamlining and advance more centralized back-office functions. On the revenue side, we are taking steps to strengthen our passenger mix with increased premium offerings while supporting ancillary revenue generation through our Miles&Smiles loyalty program, TK Holidays, along with our express cargo subsidiary, Widect. Looking ahead, our forward bookings indicate optimism, supported by buoyant demand across Asia and Africa in addition to swift recovery in the Middle East after the peace deal. As evidenced by our October traffic results, improvement was across the board. Compared to same month last year, our number of passengers was up materially by 19% load factor by 2 percentage points, yields by 1% and RASK by more than 3% despite substantial capacity increase. Cargo volume rose by 16%, 10 percentage points higher on a monthly basis, demonstrating a good start to high season. Together with easing cost pressures and supportive fuel prices, we anticipate an EBITDA growth in the last 3 months of the year. In closing, against the headwinds, our positive traffic trajectory is encouraging us as we approach '26, supported by continuous investment in our business, and capitalizing on new opportunities, we remain strongly confident in the potential of our long-term strategy and return targets. I will now pass the call over to Fatih Bey to elaborate on our results and provide additional insights. Mehmet Korkmaz: Thank you, Murat Bey, and good afternoon, everyone. In the third quarter of the year, we expanded our passenger capacity selectively considering aircraft delivery delays, GTF groundings and regional conflicts. Sequentially, capacity growth increased by 1 percentage point from the previous quarter, standing 43% above pre-pandemic levels, while European peers recovered only 9% during the same period. Despite of the busy summer air traffic, our on-time departure performance increased by almost 10 percentage points compared to the third quarter of last year. In the July-September period, international transfer traffic expanded faster than direct traffic. On short-haul routes, particularly within Europe, direct growth remained relatively subdued due to intensified competition. However, a closer look at figures shows a significant increase in direct traffic from Latin America and Asia to Turkiye, demonstrating the continued appeal of our network's global reach. Similar to the second quarter, over 80% of total sales were made through direct channels, reflecting the success of our new distribution platform, TKCONNECT. This shift not only supports profitability by reducing costs, but also enhances our ability to offer personalized products and promote ancillary services more effectively. Accordingly, these results in cost savings of $48 million in the first 9 months of the year. Details of our traffic results show that the Far East remained one of the strongest regions. Compared to the same period last year, almost 9% capacity increase combined with a more than 11% higher demand led to almost 2 percentage points in rising load factor, well above our budget and encouraging for the upcoming months. Demand in Japan stayed robust, supported by sustained travel appetite and ongoing Osaka expert. Starting from the fourth quarter, we plan to expand capacity to Tokyo Narita by 40%. China also stands out as a key -- another key growth market where we will gradually raise weekly frequencies from 21 to 32. Given the strength of demand, we do not expect any weakness in load factors in near term. Further capacity growth is also planned in Indonesia, Thailand and Vietnam in addition to the launch of scheduled flights to Phnom Penh in December. On the other hand, rising competition in Malaysia and Singapore may put some pressure on unit revenues. Africa delivered another quarter of strong performance. Following a substantial capacity expansion, demand remained highly resilient with particularly remarkable results from our newly launched Libya routes. Benghazi and Misrata performed above expectations and contributed to overall regional momentum. The recent capacity increase in China is also expected to support growing flows towards West Africa, enhancing our network connectivity across the continent. In the North America, the impact of U.S. policy changes continue to weigh on the ethnic travel demand. As peak travel season came to an end, we are now transferring part of the capacity towards Asia to better align with market dynamics. On the other hand, Latin America demand continues to perform well, particularly on rout to Panama and Argentina. In Europe, competition remained intense throughout the quarter as local carriers significantly expanded capacity and pursued aggressive pricing strategies. Capacity additions from low-cost carriers have also negatively impacted AJet unit revenues. Demand from key markets such as Germany, U.K. and Scandinavia was slightly weaker, while increasing transit traffic partially offset the slowdown in local demand. Consequently, we observed a slight slowdown in direct travel from Northern Europe to Turkiye. Demand to and from Middle East began to recover as tensions that had escalated in June started to ease. Following the peace agreement, bookings have accelerated noticeably, pointing to a swift normalization in the region. In the domestic market, yields declined by 7% due to base effect and change in passenger mix. Last year's low economic class availability prompted more passengers to trade up to business class. With this year's higher capacity, economy availability increased, which in turn reduced the business class share. During the July-September period, passenger revenues rose by 6%. Strong performance in ancillary and technical services also contributed positively to our growth. External technical revenues grew by more than 28%, reflecting continued demand for maintenance services as production bottlenecks persist and the utilization of older aircraft remains elevated. We expect this momentum to continue in the coming quarters given the limited availability of new aircraft deliveries. Conversely, cargo revenues followed a different pattern. Trade restrictions and tariff measures weighed on overall cargo flows, which led to a 7% lower revenue in the third quarter. Apart from trade tensions, additional capacity from new vessel deliveries as the order book-to-fleet ratio is at its highest point in more than 15 years and expectations of a reopening of Red Sea continue to pressure yields. In the third quarter, AJet carried more than 7 million passengers. Despite groundings related to GTF engine issues, capacity increased by around 23%. During the period, AJet continued expanding its international network from Ankara, adding capacity to markets such as Egypt, Sweden, Uzbekistan and Kyrgyzstan. New direct services to European cities, including Madrid and Barcelona strengthened Ankara's role as a regional hub, connecting Europe, the Middle East and Central Asia. This expansion remains central to Ajet's strategy of positioning itself as a competitive low-cost carrier with a strong presence beyond Turkiye's borders. By the end of September, active fleet recorded 80 aircraft. With additional deliveries planned for the remainder of the year, annual capacity is expected to rise around by 15%, accompanied by higher load factors. As in previous periods, revenue growth during the third quarter was mainly supported by passenger operations benefiting from capacity increase. Conversely, lower cargo revenues and softer yields in certain regions limited overall profitability. On the cost side, although Brent fuel prices remained favorable, higher crack spread, wages and weaker U.S. dollar negatively affected performance. Consequently, profit from main operations declined by around 21% to around $1.1 billion, while EBITDAR decreased by 12% year-over-year to almost $2.1 billion. In the third quarter, total cost per ASK increased by 2.8% year-over-year, mainly driven by higher personnel expenses following the midyear inflation adjustments. On the fuel side, even though average jet fuel prices were lower than last year, widening crack spread limited the overall benefit compared to the previous quarters. Meanwhile, strict control over advertisement spending and a higher share of direct sales and fewer wet-leased aircraft partially offset the cost pressures. Negatively, airport and air traffic-related unit costs increased by almost 12%, mainly due to revised fee schedules at major European hubs and stronger euro. Aircraft maintenance CASK also remained elevated, reflecting the ongoing GTF engine issue. Free cash flow generation remained healthy during -- in the third quarter, amounting to around $350 million. Accordingly, 12-month community free cash flow reached $1.6 billion. After debt service, liquidity rose by $200 million sequentially to almost $7.9 billion. On the other hand, net debt increased by $700 million compared to previous quarter, mainly due to new aircraft deliveries and the weaker U.S. dollar. Correspondingly, leverage recorded is 1.4x, well below the target range of 2 to 2.5x. As mentioned by Murat Bey earlier, while travel demand remains positive in the fourth quarter, the softness observed in North America during the summer led us to slightly revise down our revenue growth guidance by 1 percentage point to 5% to 6%. Since the beginning of this year, ex-fuel unit cost development followed our expectations. In the final quarter, we anticipate a notable improvement in cost performance driven by base effect. With that, we are on track to reach our unit cost guidance of a mid-single-digit annual increase. Taking these factors into account, we are maintaining our 22% to 24% EBITDA margin expectation for 2025. With this, we conclude our prepared remarks section of our earnings call. Now back to Maria for the investor questions. Operator: [Operator Instructions] Mehmet Korkmaz: Welcome back. Before we start the Q&A question, I would like to just briefly mention about a couple of actions that we took during the summer. Summer was a busy period not only for our operations, but also for our Investor Relations team. As part of our improving IR activities, we conducted a perception study to gather valuable feedback from you, our analysts and investors. In the coming period, we will be gradually implemented the suggestions offered to strengthen our engagement with you. And with this occasion, I would like to thank all of the participants for taking time to share their views. Now let's continue with the Q&A section of our call. Murat Bey, we got quite a few questions from our analysts and investors. Starting with, could you walk us through the main factors that shape the third quarter performance? Murat Seker: Sure. Thank you, Fatih. On the positive side, the first thing comes to mind is the strong demand we have been seeing in the Far East and Africa and then third wise, the domestic market. In the Far East, for example, RPK was up by double-digit 11%. In Africa, it was up by almost 20%. And the third-party revenue share of Turkish Technic, which currently is the third biggest MRO provider in Europe. The revenue from third party went up by 28% in this quarter. These were the positive developments, plus brand continuing to be lower than projected. And the structural tailwinds that Fatih also touched upon a little bit, the improvements on our distribution and sales costs as we started to use more of our direct channels, they were also helpful in the -- to the bottom line. On the negative side, the volatile geopolitical situation and unpredictable immigration policies and cargo yields being down by almost 16% year-over-year, the jet crack spread being up by 8% to 10% level, and the inflation adjustment on salaries, personnel expenses were the 3 big items that provided a negative development for this quarter's performance. Mehmet Korkmaz: Murat Bey, can you provide an update on the current status of the GTF groundings and how they are impacting your operations? We got this question from [indiscernible] and [ Kurt Hofton ]. Murat Seker: Well, I mean we know we have been in a very, very close coordination with Pratt & Whitney, who is trying to solve the problem in this speediest way. Still, we have quite a sizable number of aircraft that are grounded. Of the 100 GTF-powered neo aircraft we have in the fleet, today, 40 of them are parked. And this seems to be continuing around 40. It will go up to 50 come down a little bit, all throughout '26 as well. So there has been a major improvement. But this, of course, is a little related to the fact that we keep getting more GTF-powered neos to the fleet. So we keep using them so that our staff -- the capital utilization and aircraft utilization continues. Mehmet Korkmaz: Murat Bey, could you also provide insights into current passenger booking trends? October results were quite strong. And maybe region-wise, you may elaborate on the details. Murat Seker: Sure. Well, as I just said, Far East, Africa and domestic have done well so far. And looking into the future, this -- in the Far East, for example, we expect to have a 13% and then another like a 13% to 15% capacity growth in the next 2 quarters, including the fourth quarter of this year and the first quarter of next year. Overall, before getting the region-specific details, we are planning to put 10% to 11% ASK growth with a flattish yield in the last quarter of this year in overall our growth. Into the regions, I just mentioned Far East. Then after Far East, we will see a very significant growth in the Middle East. There is, of course, a lot of the base effect here. And then Africa is going to have about 13% to -- 12% to 13% capacity growth in the next 2 quarters. The forward reservations from November for the next 6 months look quite positive. We are expecting a busy winter travel seasons ahead of us, especially from December to April of next year, we see double-digit capacity growth month-over-month, and then we also see mid-single-digit yield growth going forward. Mehmet Korkmaz: The unit revenues in some regions has been weaker in recent months, particularly in North America. Have you made any adjustment in pricing or market share strategy? And do you consider to defer some aircraft deliveries to reduce capacity growth? Murat Seker: As we keep saying in almost every investor call, the diverse network we have is allowing us to channel the capacity between regions easily depending on the demand environment. While relative softness in North Africa -- North America, sorry, we have started to transfer that capacity to Asia at the beginning of the quarter where the demand has been much stronger. Additionally, we expanded the product segmentation in pricing to all international regions after implementing it in Americas and Europe. Also in Asia, we have done some tactical adjustments like increasing the capacity to Bali and exotic destination and getting a larger share of the segment traffic out of Philippines, for example. Mehmet Korkmaz: This is quite a popular question. We have been getting a lot of this from our investors. Some suggest that Turkiye is becoming a more expensive travel destination compared to its peers. Considering the third quarter performance, what is your view? How the demand looks like in the upcoming period? Murat Seker: Well, according to the tourism figures of the first 9 months, which was announced last week, number of visitors to Turkiye went up by 2% to 50 million, which actually aligns closely with the updated annual growth target of 4 million for 2025 from about 62.5 million to 65 million, which was the number announced at the beginning of this year. Moreover, over the last 5 years, tourists to Turkiye increased tremendously. When you compare the amount of tourists we had in 2024, compare that with the number in 2021, it is more than -- it has more than doubled. And just from -- it has even went up higher than its 29 (sic) [ 2019 ] level of about 20%. So when you look at this macro scale, number of tourists coming to Turkiye has been increasing dramatically. However, in particular in '25 -- in '24 to '25 we have been seeing some slowdown in the pace which we think is natural. So it cannot keep continuing 10%, 15% year-over-year. When you look at the third quarter, in particular, still number of tourists coming to Turkiye was up by almost 2%. And then it's -- as I said, it resonates well with our year-end target numbers. For Turkish Airlines, in the third quarter, we carried almost the same number of passengers to Turkiye compared to last year. So we don't see much of a deterioration or shrinkage in this segment. Although there might be some negative effects due to relative strength of Turkish lira, tourism members -- tourism numbers suggest the resiliency of this industry. Also, we have been seeing some change in the composition where the tourist is coming from. Latin America, and Far East has been growing rapidly, which yield higher ticket price and tourism income for the country. For example, we have recorded 7% increase in number of passengers traveling from Far East to Turkiye in the first 9 months of this year, especially after we opened our route to Australia. And in addition to that, to Japan, South Korea and Thailand were sending a significant number of tourists to Turkiye. Mehmet Korkmaz: Thank you, Murat Bey. Can you also share how premium cabin performance compared with the economy during the quarter because most of the peers also mentioned about the strength of the premium class. Murat Seker: Well, the network-wide, we actually have been observing stronger premium segment performance than the main -- the economy cabin. Passenger profile for the premium segment is much less sensitive, both the economic volatility and the low-cost competition. In the third quarter, premium segment revenue yield change was almost 11% -- sorry, 11 percentage points higher than the main cabin. In the second quarter of this year, the difference between premium and economic class was 5%. So in the summer months, the difference in the passenger yield went up by more than twice. As a result, premium resilience to competition has been showing itself. '25 is the record year for our premium class load factors. In terms of aircraft, wide-body performance has been much, much stronger. Demand is being driven by the flows mainly from the Asian countries like Japan, China, Vietnam and Hong Kong. Mehmet Korkmaz: How would you assess cargo performance last quarter? And what is the outlook for the remainder of the year? Murat Seker: Well, the -- by its nature, the third quarter is typically a soft season for air cargo. Nevertheless, Turkish Cargo demonstrated a strong tonnage performance, achieving an increase of more than 10% compared to the previous year. On the other hand, unit revenue performance was significantly negatively affected by tariff-related concerns and effect of these tariffs on trade flows, especially on Asia, North America axis. And to some extent, spillover effects of the conflict in Middle East region. However, the recent trade deal between the U.S. and China, along with the peace talks in Middle East could potentially improve the outlook as we enter the high season for cargo. Internally, though, our new cargo revenue management system, which went online recently, is expected to bring additional 2% to 3% revenue in 2025. We continue to expect close to flat cargo revenues with a high single-digit increase in volumes, which we hope to compensate most of this drop in the yields with higher load factors. Mehmet Korkmaz: Continuing with the cost questions, what are your expectations for fuel unit costs, on what assumptions? Can you also share your hedging ratios? And do you anticipate any changes in this ratio in near term? Murat Seker: Well, although the oil prices trend downward with slight volatility, jet fuel costs tend to stay high, which reduces the benefit attained from the low Brent price. We expect around 10% lower fuel cost year-over-year in '25 with the assumption that year over average is going to be around $68, $69 levels. Our current hedging ratios for '25 is around 50%. And for '26, it is around 23%, respectively, with a breakeven price of approximately [ $64.5 ]. We expect a minimal fuel hedge loss this year, less than $20 million. And we maintain a structured and scenario-based approach designed to remain effective under various market conditions. Mehmet Korkmaz: Murat Bey, could you also share your ex-fuel unit cost expectations for 2025? And are there any efficiency measures to be implemented? Murat Seker: Well, the ex-fuel CASK, as you saw in the presentation on the third quarter, it was quite high. We expect that to come down to mid-single digits lower than 5% -- lower than 4% levels year-over-year in '25. And the reason for this improvement on the top of 9-month results is, first, we see moderation in inflation, which is decreasing the pressure on the inflation adjusted costs. And we have paused hiring, except for capacity growth. This will enhance our operational leverage and generate greater efficiency. And we have been increasing the crew and aircraft utilization through both schedule optimization and improving our on-time performance. Capitalizing corporate-wide functions like -- and scaling down the international organization structure is another component of it. We have put significant KPI monitoring scheme to all of our subsidiaries and the expansion of our direct sales channel, TKCONNECT has been improving our distribution and sales costs. Further, we are implementing quite a few AI projects on customer support and for back-office automation, which is also bringing us some internal efficiencies. We expect these items on the personnel efficiency, on strongly monitored KPIs and on more utilization of the AI tools to bring ongoing efficiency gains for Turkish Airlines. Mehmet Korkmaz: Murat Bey, just to add a couple of things. Hanzade from JPMorgan also asked about why staff costs are increasing ahead of our initial expectations while agreements are fixed and seem to have favorable sport cost inflation this year? Hanzade, be honest, the Turkish lira depreciation was lower than our expectation. At the same time, Turkish lira inflation was higher than expectation. So there is a mix of between 2. So we saw around 2 percentage points of ex-fuel CASK headwind from that impact. And continuing with the guidance question, are there any changes to your guidance for the fourth quarter considering third quarter revenue and forward bookings? Murat Seker: For the whole year, we are keeping our profitability target the same, while lowering the revenue growth guidance by 1 percentage point to 5% to 6% increase. As you might recall, in the earlier calls, we were targeting 6% to 8% revenue growth. This mainly is due to the softer revenue performance of the third quarter. The fourth quarter EBITDAR will be closer to last year with 22% margin. And for the whole year, thus, our EBITDAR margin expectation is going to be again between 22% to 24% levels. Nominally -- and nominally, we should be slightly lower than last year's amount of $5.7 billion EBITDAR. Mehmet Korkmaz: As we approach the year-end, we are getting a frequent question about our 2026 guidance, maybe just in terms of capacity and margins. What are the moving parts? Murat Seker: So we're still working on the budget. There is a lot of mileage we need to take before we share our '26 expectations. But roughly speaking, on the capacity-wise, I can say that we'll keep the growth continuing. This year, in '25, ASK growth expectation was around 8%. And next year, we expect that to be around 9% levels. For TK, it will be around like 7%. AJet is getting a lot of new aircraft. So the growth -- ASK growth, capacity growth for AJet is going to be larger. And thus, we are expecting overall 9% capacity growth. One, of course, big uncertainty here is the fleet. Although we believe all the deferrals that were supposed to be deferred in this year are planned and scheduled from Boeing and Airbus side. So we don't expect any surprise. But if anything, that might be one critical issue that would change our projections. For the profit evolution, we are going to be guiding somewhere between 24% -- 22% to 24% EBITDA margin as in '25, ex-fuel cost pressure should have less negative impact on our bottom line due to the better domestic and global inflation outlook. Still though, as I mentioned, because we have not agreed with the union yet, there is a collective bargaining agreement to be discussed, which is going to be initiated within the next few months. So that could bring some uncertainty. But overall, helped with the inflationary -- lowering of the inflationary pressure, we believe 22% to 24% EBITDAR margin will be attainable. Mehmet Korkmaz: What is the latest projection for the fleet size by the end of 2025? And any guidance for 2026? Murat Seker: So for '25, assuming getting our aircraft deliveries on time for the remaining 2 months, we expect around 35 net entries this year. Overall, we will be getting about 70 aircraft. This is together with TK, AJet and Cargo, and there will be 34 aircraft exiting the fleet. With the updated aircraft delivery table, we increased our '25 year-end fleet expectation to somewhere between 525 to 530 aircrafts. In '26, we are expecting roughly 50 net aircraft additions to the fleet. For TK -- sorry, for TK, it will be about 26 new additions, 20 narrow-body, 6 wide-body. For AJet, about 50, but a big portion of it will be replacing the old aircrafts and then short-term lease aircrafts. And then we'll get a cargo aircraft as well. So overall, there will be roughly 80 entries and 30 exits. Mehmet Korkmaz: In various mediums and public disclosures, you announced a number of significant non-aircraft investments in line with your growth strategy. Is it possible to elaborate on those? Murat Seker: There are significant investment projects we are undertaking, which were postponed during the pandemic. Starting from 2023, mainly, we started to revisit those projects. We needed a new aircraft maintenance hangar, which we initiated in '23. We need an additional second phase of our cargo terminal, and we need a new catering building in Istanbul Airport. These will be the biggest -- these 3 will be the biggest investment, non-aircraft-related investments ahead of us, a new cargo terminal, a new catering building, a new maintenance hangar. And in addition to these 3, after our agreement with Rolls-Royce to maintain A350 engines, we are going to be starting very soon to build an engine overhaul facility in Sabiha Gökçen Airport -- in Istanbul Airport. These 4 will be the major investments. However, they are not the whole list. As we are expanding our flight academy, we are expanding our simulator center with adding new simulators, and we are building data centers for Turkish Airlines' own needs. Mehmet Korkmaz: Third quarter leverage exceeded the guidance. And what were the main reasons? And we will be able to reach year-end targets? And how should we think about the expected leverage and net debt level? Murat Seker: So we were guiding a leverage of somewhere between 1.1 to 1.3x. In the third quarter, we realized 1.4x leverage, which is a net significant deviation, but it still is higher than our expectation. The reasons for this change is we had to lease additional aircraft to compensate the GTF-related groundings, which was about 9 aircraft of a value of about $1 billion. Then as -- the second factor, as the U.S. dollar was devalued against euro, the U.S. dollar equivalent total debt of Turkish Airlines increased because we have a significant amount of euro-denominated aircraft financing. It also led to an increase in the leverage. And third, slightly lower EBITDA due to the relatively softness in the demand that we saw in third quarter was the factors for this slightly higher leverage. For the new guidance to the end of 2025, factoring the above items plus the cash outflow regarding to Air Europa's share buy, we will see that the net debt-to-EBITDA multiple could be somewhere between 1.6 to 1.8x for 2025. Mehmet Korkmaz: Can you also comment on AJet's performance? And when will you -- when will AJet announce their results separately from Turkish Airlines? What is the capacity increase in AJet at year-end? And one last question about this -- IPO plans. Murat Seker: Well, AJet carried 7 million passengers in the first 3 quarters -- in the third quarter and more than 17 million passengers in the first 9 months of this year. So despite of the aircraft groundings due to GTF engine issues, passenger capacity increased by 24% in the third quarter. So the demand has been really strong on AJet side. They also have been investing heavily to improve their on-time performance, which was about 5 percentage points higher than 2024, and it reached 76% level. The annual capacity growth expectation is around 15% and 3.5% points higher load factors. So these all show that [indiscernible] work for AJet is going well. However, their cost base, their fleet is still needs to settle and then needs to improve. We believe we still have some more time to be able to separately report AJet's financials, but we are planning to report their traffic early next year separate than Turkish Airlines. This strong revenue evolution and improvements in the fleet have -- are going to increase -- improve its bottom line. For this year, for 2025, we are anticipating their revenue to be above $1.5 billion. And about the IPO, at the moment, we don't have such a plan. We think AJet is on a good and strong track. Next year, more than 70% of their fleet is going to be new generation aircraft. And then they are increasing their net operation in Europe, CIS region and North Africa. So the network is developing their sales channels and then ancillary revenue capacity is increasing. So -- and we are not in a rush to IPO AJet. Once it's on a seamless -- it's on a strong path of sustainable growth, we might consider such an option, but it's not in our agenda at the moment. Mehmet Korkmaz: Are we interested in any other deal like Air Europa in the foreseeable future? Murat Seker: Well, we did a little bit of an introduction about why we chose Air Europa and why we went through such an investment. So on the big picture, of course, being such a big network carrier, we are always open in similar collaborations throughout the world, being in Europe, in Americas, in Asia, Africa or Middle East. As long as we see a valuable value addition proposition, and it doesn't need to be only through an equity acquisition. It can be through several other channels, too, like the airline JV we had with Thai Airways. So as long as the partnership complements and supports our operation and it creates synergies, we remain open to this kind of opportunities. Mehmet Korkmaz: Murat, we also got another question related to Air Europa. Are there any -- I'm going to answer that, just sake of time. Are there any potential risks related to regulatory or required operator approvals at this stage? Could you also share any insights on lease expense or true EBITDAR performance and net debt level? To be honest, at this moment, due to regulatory application process, we are not able to answer any of those questions. Continuing with the fleet size, you expect a significant expansion. How will we manage the capacity increase? Do you believe the market will grow enough to accommodate your future capacity? Should we consider an erosion in margins due to massive capacity expansion? Murat Seker: Well, currently, our flight network is spanning about 355 destinations across 130 countries. And we believe there is still potential of growth in the market. To put it into some perspective, our network currently is reaching over 90% of the world's population, GDP and trade volume. We see Istanbul as a very strategic location, which is sitting across major global passenger and trade corridors connecting Asia to Europe, Middle East to Africa, Asia to Americas. And each of -- each new route that we open and each new frequency we add exponentially increases our unmatched connectivity. The aviation is currently expected to grow around 4% annually over the next decade. So our guidance of around 6% annual growth is seeming to be reasonable. And we are not going to keep adding new destinations. A very significant portion of this growth is going to come through increasing frequency in the existing markets and getting deeper in our existing network. And by our -- in our 2033 strategy, we have already factored in a low single-digit decline in unit yields by taking the competitive pressure and market dynamics into account. Thus, a growth of 6% ASK growth and EBITDAR margin between 20% to 25% is -- we think is reasonable. Mehmet Korkmaz: You also got a number of questions regarding our Boeing orders. Could you update us on the recent Boeing order and deals? What is the expected delivery schedule? And also, we got additional online questions. For example, Hanzade is asking about, do you see any risks on Boeing orders given continued engine negotiations in case of a decision not to proceed, would you be able to meet your capacity targets? Murat Seker: So the Boeing order, I think the question is referring to the narrow-body side because the wide-body is already placed and the deliveries, as I said, are going to be between '29 to '34, '35. On the narrow-body side, actually, next week or within 2 weeks, there will be another face-to-face meeting. But no matter how the meeting goes, we don't see this as a big threat on Turkish Airlines growth projections because we have proven that when the -- we don't get a direct order from the both OEMs that missing capacity has been successfully fulfilled through operating leases. Last 5 years, in particular, we were -- we had a lot of deferrals in our orders from Boeing and Airbus, yet we could grow the fleet size by more than 150 aircraft between 2020 and 2025. So we don't think it's going to be a big threat. And in any case, even if we place the order today with Boeing, the first delivery of this narrow-body is going to start in 2029 or 2030. So it's still -- we are talking about too far into the future. And there are a lot of options being from the Airbus, being from the leasing companies in the market that can be considered. So keeping these options there, to Hanzade's question, we don't see a threat on our growth projections. But this doesn't mean that we are not going to be continuing to discussions with Boeing. It has been quite a long time together with the wide-body order book. We have started negotiations together on the wide and narrow-body front. It's 150 aircraft, narrow-body aircraft. And once we settle the few remaining issues with CFM, we believe we might also be in a position to announce this deal not too far in the future once the negotiations finalize and meet our demands. Mehmet Korkmaz: Considering recent results and the operating environment, will there be any update on the 2023 strategy? Do your expectations align with the recent results? Murat Seker: When you look at it more broadly, we introduced our strategy by 2023, and we are in 3 years now into the strategy. When you look at the bottom line, we are fully in alignment with our strategic profit targets. But when you break it down, you'll see that because of the delayed deliveries, we are a little below from our strategic targets on the revenue front. And because of the higher inflation than anticipated, there has been pressures on the cost side. But the demand, again, which was not factored in to be this strong, the stronger-than-anticipated demand in '23 and '24 alleviated these negative factors and allowed us to be able to achieve from our -- to achieve the profit targets. So we are not revising our 2033 targets, but we will make an adjustment in the -- hopefully, by the first quarter of 2026, we will make some adjustments on the strategy, mainly because now it is -- seems impossible that we will be able to achieve the fleet and -- as we were targeting in '26 and '27. So those numbers need to be adjusted. But the bottom line, we don't think a big change on the profit and profit margins. Mehmet Korkmaz: Could you also provide information about the contribution of technical segment to operational profitability? Murat Seker: So usually, our main purpose of Turkish Technic is to serve Turkish Airlines maintenance needs. And as in the world, aircrafts are getting older, their maintenance requirements are increasing and to keep the fleet in operation in the busy summer months becomes more and more important. And due to Turkish Technic's strong capabilities in maintaining a very wide range of aircraft, its geographic location, its capacity to maintain aircraft currently in 3 -- in 4 different airports is giving it a lot of opportunities for third parties. As a result of this, in the first 9 months of this year, their total revenue went up by 75% to almost $2 billion. And -- by 2033, we keep investing in our MRO capacity. It will go up from the existing level of around like 65 aircraft being that we can maintain simultaneously. This number is going to go up to about -- it's going to double like 120 aircraft by 2033. Mehmet Korkmaz: Murat, we have 2 more questions, and I can quickly address them if you allow me. First, is there any major operational impact on your North America operations currently due to the airport slowdowns caused by current shutdowns? Before joining the earnings call, I spoke with our flight operation control center, and they said that it is related to the U.S. domestic market. So no, we are not seeing any impact. And also, we got questions about October traffic results. Could it purely something about extending season? To be honest, we don't believe so with -- by transferring capacity from United States towards Asia, that allows us to feed our after new flights in Istanbul. So that also increased our connectivity. And as a result, we expect fourth quarter passenger results to be strong because of that connectivity improvement. And with this question, we conclude our earnings call. Thank you all for your participation, and we look forward to being with you next quarter. Operator: We would like to once again thank you all for the presentation. So ladies and gentlemen, this concludes today's conference call. Thank you for your participation.
Operator: Thank you for holding, and welcome to Alliant Energy's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. I would now like to turn the call over to your host, Susan Gille, Investor Relations Manager at Alliant Energy. Please go ahead. Susan Gille: Good morning. I would like to thank all of you on the call and the webcast for joining us today. We appreciate your participation. With me here today are Lisa Barton, President and CEO; and Robert Durian, Executive Vice President and CFO. Following prepared remarks by Lisa and Robert, we will have time to take questions from the investment community. We issued a news release last night announcing Alliant Energy's third quarter and year-to-date financial results. We narrowed our 2025 earnings guidance range, provided 2026 earnings and dividend guidance and provided our updated capital expenditure and financing plans through 2029. This release as well as the earnings presentation will be referenced during today's call and are available on the Investor page of our website at www.alliantenergy.com. Before we begin, I need to remind you that the remarks we make on this call and our answers to your questions include forward-looking statements. These forward-looking statements are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters discussed in Alliant Energy's news release issued last night and in our filings with the Securities and Exchange Commission. We disclaim any obligation to update these forward-looking statements. In addition, this presentation contains references to ongoing earnings per share, which is a non-GAAP financial measure. References to ongoing earnings include material charges or income that are not normally associated with ongoing operations. The reconciliation between ongoing and GAAP measures is provided in the earnings release, which is available on our website. At this point, I'll turn the call over to Lisa. Lisa Barton: Thank you, Sue. Good morning, everyone, and thank you for joining our third quarter earnings call. Today, we're pleased to share our Q3 and year-to-date results, another quarter and year where we delivered solid financial and operational performance. We will also share the outlook for the remainder of this year, update you on our strategic initiatives, including our capital expenditures, financing plans through 2029 and discuss how we're positioned to accelerate and extend our earnings expectations. We are well positioned because of the Alliant Energy Advantage and the realization of additional near-term low growth opportunities from data centers. We are continuing our consistent track record of execution and financial performance. Our performance is driven by our customer-focused investments and supportive regulatory environments, a winning strategy for driving continued growth, while prioritizing affordability and reliable service. Our focus on customers and building stronger communities is at the heart of everything we do. With our compelling large load opportunities and diverse capital investment plans, we are well positioned to continue meeting customer, community and investor expectations. We will cover each of these advantages today, as shown on Slide 3, as they power Alliant's future. To start, I am pleased to share updates for the quarter. Our projected peak demand growth by 2030 has increased to an industry-leading 50% through the execution of a fourth electric service agreement with QTS Madison. We signed a new agreement with Google that further accelerates the load ramp in Cedar Rapids, and we continue to cultivate an active pipeline of additional opportunities. Our focus has been on prioritizing plug-in-ready sites, which minimize transmission investments and accelerates our ability to serve new customers. As a result, we can deliver project certainty, near-term earnings and near-term positive community and customer benefits. Concurrently, we continue to execute well against our capital plans. We completed construction of the Grant and Wood County energy storage projects totaling 175 megawatts and completed the Neenah and Sheboygan Falls Unit 1 advanced gas path projects, which increases the efficiency and capability of each of these Wisconsin facilities. These load growth opportunities and continued investments in our existing generation show how we're continuing to efficiently grow at the pace of our customers to foster economic developments across our service territory. Next, our financial highlights. We delivered strong performance through the first 3 quarters. We are maintaining our midpoint and narrowing our 2025 ongoing earnings guidance range to $3.17 to $3.23 per share, as shown on Slide 5, and we are trending towards the upper half of this range. As shown on Slide 6, we are initiating 2026 earnings guidance of $3.36 to $3.46 per share, which represents a 6.6% increase over our 2025 midpoint. Our 2026 annual common stock dividend target is $2.14 per share, a 5.4% increase from the 2025 target of $2.03 per share. And we're increasing our 4-year capital expenditure plan by 17% to $13.4 billion. This translates to a projected rate base and investment compound annual growth rate of 12% from 2025 to 2029. We expect our compound annual growth rate across 2027 to 2029 to be 7% plus. This is based on the planned growth in rate base and the expected data center revenues during that period. We will continue to assess our long-term earnings growth potential as we execute on our data center expansion and load growth plans. As shown on Slide 9, construction is well underway on 3 of the 4 data centers under agreement, 2 in Cedar Rapids, Iowa and 1 in Beaver Dam, Wisconsin. This progress clearly demonstrates that we are focused on meaningful near-term opportunities, each of which serves to unlock the potential of our customers and communities. The contracted demand from the 4 facilities totals 3 gigawatts, translating to 50% peak demand growth by 2030. Accordingly, we've updated our 4-year capital plan, and we will invest $9 billion in both new and existing generation, complementing investments we are making in electric gas and technology enhancements. Looking beyond the plan, we have a solid outlook of investment opportunities that extend our growth potential. Investment upside would be driven by additional load growth beyond what is included in the base plan. We are focused on enabling real near-term growth, attracting high-impact projects to accelerate economic development as part of our commitment to Iowa and Wisconsin, and providing investors with a clear view of well-developed opportunities. As we continue to expand our pipeline, we remain committed to proactive community and stakeholder engagement, positioning Alliant Energy and the communities we serve for growth. Advancing win-win outcomes that maintain affordable service for customers and communities ensures Alliant continues to deliver value while unlocking the potential of our customers and communities. To share a few examples of win-win outcomes. First, the Iowa retail construct stabilizes electric base rates for customers through the end of the decade, serving as a perfect example of a win for our existing customers through stable rates. Second, we executed an agreement to enable fiber connectivity to one of our data center customers by leasing our underground conduit in our service territories, which provides substantial financial benefits to our existing customers. And third, last week, QTS advanced its Wisconsin data center plans with meaningful community contributions, full funding of all infrastructure and the purchase of renewable energy credits from new projects, reducing costs and creating value for all WPL customers. Support from our regulators has been key to moving our plans forward. The Iowa Utilities Commission approved the individual customer rates for our 2 data centers currently under construction in Cedar Rapids. Through these filings, we've demonstrated that our approach effectively protects existing customers, while allowing them to benefit from additional growth. And yesterday, the Public Service Commission of Wisconsin approved our unanimous retail electric and gas rate review settlement for forward test periods 2026 and 2027. This rate review cost effectively advances responsible energy solutions, strengthens the safety and resilience of our energy network and expands options available to customers. Our strategy is rooted in being a trusted partner in delivering outcomes, customers and regulators seek with a strong focus on customer value and forward-looking investments. We are well positioned to provide competitive rates for both new and existing customers over the long-term as a result of our economic development success and our continued focus on cost controls. The Alliant Energy Advantage is an acute focus on driving near-term growth, making smart investments to serve that growth while keeping bills low and benefiting new and existing customers. In short, being plug-and-ready enables stronger alignment between our revenue growth and capital investments. I will now turn the call over to Robert to provide our financial results, earnings and dividend guidance, financing plans and an update on our regulatory matters. Robert Durian: Thank you, Lisa. Good morning, everyone. Yesterday, we announced third quarter and year-to-date ongoing earnings. With third quarter ongoing earnings of $1.12 per share, we have realized over 80% of the midpoint of our 2025 earnings guidance. As shown on Slide 5, our ongoing earnings change year-over-year was primarily due to higher revenue requirements from capital investments at our Iowa and Wisconsin utilities and the positive impacts of temperatures on electric and gas sales. These positive drivers were partially offset by higher operations and maintenance expenses, driven by increased generation costs from planned maintenance activities and the addition of new energy resources as well as higher generation development costs to support long-term growth. Additionally, higher depreciation and financing expenses contributed to earnings fluctuations. Through September of this year, net temperatures positively impacted electric and gas margins by approximately $0.02 per share. In comparison, net temperatures negatively impacted electric and gas margins for the first 3 quarters of 2024 by $0.10 per share. Margins from our temperature-normalized electric sales have also been better than planned with higher-than-expected sales to commercial and industrial customers in both states. Electric margin comparisons to last year have experienced timing differences through the first 3 quarters of this year as a result of the new rates implemented in Iowa in the fourth quarter of 2024. The new seasonal rates are flatter, resulting in a less pronounced increase in summer rates, which has distributed earnings more evenly throughout 2025, resulting in quarterly timing differences from last year's margins, but no material impact on full year results. Turning to our full year 2025 earnings forecast. As a result of our solid earnings through September and our projected fourth quarter results, assuming normal weather, we have narrowed our 2025 earnings guidance and are trending within the upper half of the $3.17 per share to $3.23 per share updated range. As Lisa mentioned, we also announced our projected 2026 earnings guidance range and dividend target. We are expecting to continue delivering an attractive total return to our investors through a combination of earnings growth and dividend yield. The 2026 earnings growth represents a 6.6% increase from our 2025 guidance midpoint, which is higher than our typical 6% forecasted growth. And our 2026 annual common stock dividend target is $2.14 per share, a 5.4% increase from 2025. We are moderating the pace of expected dividend growth to efficiently fund our increased capital expenditure plan. We will continue to target a dividend payout range of 60% to 70%, but expect to be in the lower end of the range during the period of our plan with higher investment opportunities. As shown on Slides 11 and 12, we have updated the capital expenditure plan, which strengthens the diversity of our resources. We are investing in natural gas generation and energy storage projects to meet the capacity requirements of our growing customer demand. We are also making improvements in our existing fleet to enhance the capacity and energy output of those resources. And we continue to invest in our renewable portfolio by adding new wind and repowering existing wind sites. We have proactively safe harbored our energy storage and wind projects in our plan in order to preserve tax benefits for our customers, making these projects more cost effective, providing lower fuel costs and delivering greater affordability for our customers. With our refreshed investment plan, we now have a compounded annual growth rate of 12% for rate base plus construction work in progress, reinforcing our confidence in meeting our long-term growth objectives. Moving to our financing plans. In the third quarter, we successfully refinanced $300 million of debt issuances at IPO and issued $725 million of our first junior subordinated notes at our parent company. We plan to use the proceeds from the junior subordinated note issuance to retire maturing debt in March 2026. The equity content of this debt issuance is expected to assist us in maintaining cushion in our FFO to debt metrics to retain our current credit rating. As we look to future financings and with the increase in our capital expenditure plan, we provided an updated financing plan through 2029 on Slide 13. Of note, our capital expenditures will primarily be financed with a combination of cash from operations, including proceeds expected from the continuation of our tax credit monetization and new debt, hybrid and common equity issuances to maintain authorized regulatory capital structures and a desired consolidated capital structure of approximately 40% to 45% after factoring in the equity component of hybrid instruments. We have significant growth opportunities. The $2.4 billion of new common equity included in our current financing plan for 2026 through 2029 will primarily be used to invest in the resources needed to supply our customers' growing energy needs. We believe the equity is manageable over the 4-year planning period and are anticipating settling the planned equity issuances ratably over that period of time. We plan to continue derisking our planned equity issuances on a forward basis, utilizing the ATM, while also being opportunistic with favorable market conditions. Of the $2.4 billion of new common equity, we have raised our planned 2026 amounts already through forward agreements. And therefore, we have only $1.6 billion of remaining equity to be raised over the next 4 years, excluding equity expected to be raised under our Shareowner Direct Plan. As shown on Slide 14, our 2026 debt financing plans include up to $1.1 billion of long-term debt issuances, including up to $300 million at Alliant Energy Finance or parent, up to $300 million at WPL and up to $500 million at IPL. Finally, I'll update you on our regulatory initiatives included on Slide 16 and 17 as well as those filings planned for the future. In Wisconsin, we have 4 active dockets currently in progress, 3 of which involve requests for preapproval of customer-focused investments. First, a request for investments to refurbish the Forward wind farm, targeting additional production tax credits from the project for the benefit of our customers. Second, a request for investments in a liquefied natural gas storage facility, our first ever, to add firm natural gas capacity. This will ensure we can reliably meet current and anticipated gas supply needs, while maintaining an adequate reserve margin during Wisconsin's coldest winter days. And third, a request for investments to expand the Bent Tree Wind Farm, adding over 150 megawatts of new wind to provide more 0 fuel cost energy and additional tax benefits for our customers. We are also awaiting the PSCW's decision on the individual customer rate filing for our Beaver Dam data center. In Iowa, we have 3 active dockets in progress. We have requested advanced remaking principles for up to 1-gigawatt of wind, which has the potential for customers to avoid significant fuel costs, while investing in cost-effective and responsible energy resources. And we requested 2 certificates of public convenience, use and necessity, one for 720 megawatts of natural gas-fired simple cycle combustion turbines, which will be located in Marshall County, Iowa; and a second for a 94-megawatt natural gas RICE unit in Burlington, Iowa. We expect decisions from the Public Service Commission of Wisconsin and the Iowa Utilities Commission on these dockets in 2026. Turning to our planned regulatory filings in the future. We expect to file our individual customer rate tariff for QTS Madison later this month. And in conjunction with our updated capital expenditure plan, we also expect to make future regulatory filings in both Iowa and Wisconsin for additional renewables and dispatchable resources to enhance reliability, continue to diversify our energy resources and meet growing customer energy needs. I'll now turn the call back over to Lisa to provide closing remarks. Lisa Barton: Thank you, Robert. In conclusion, we're excited about our year-to-date performance and the growth opportunities in front of us at Alliant Energy. What sets us apart? Unlocking the potential of our customers and communities is at the center of our strategy. By pursuing win-win solutions and focusing on near-term opportunities, we're driving affordability, fueling growth and creating lasting shareholder value. Thank you for your continued support. We look forward to speaking with many of you at the EEI Financial Conference and plan to post updated materials on our website later today. At this time, I'll turn the call back over to the operator to facilitate the question-and-answer session. Operator: [Operator Instructions] Your first question comes from Bill Appicelli with UBS. William Appicelli: Just a question around -- the color, if you could provide on the ramp on the demand, right, around what that could mean for the trajectory of earnings above that 7% as the load starts to come on to the system? Lisa Barton: Yes. Great question. So the way to think about the 7-plus is that it would be at least 7% to 8%, and this is before upside to the plan. And as a reminder, this is all known projects and so forth. One of the things to keep in mind in terms of that time frame, and we've talked about this being our desire to create cascading ways of growth. And as such, timing is important. So there's some lumpiness. When you think about the 50% load growth, that's really significant. So timing is something that we'll certainly be watching on a going-forward basis. William Appicelli: Okay. So the 12% rate base growth. So when we just think about backing off of that, it's really the equity dilution. Is there anything else to think about when you walk that back to earnings growth? Robert Durian: Yes. Great question, Bill. I think of the 12% is a combination of both rate base growth plus QIP growth. So roughly about 10% rate base growth, but also about 2% of QIP growth over that time period. Given the volume of capital expenditures we've got in our plan, the QIP balances are going to increase pretty significantly. But to your specific question as far as the walk between the 12%, the combination of those 2 and what we're signaling here for at least 7% to 8%, most of that is related to the equity dilution. We've also got what I would characterize as a conservative set of financial assumptions when it comes to interest rates. And then there might be what I would characterize some small regulatory lag, but it's pretty modest. So it's primarily the equity dilution and just kind of probably more our conservative nature with some of the interest rate assumptions. William Appicelli: Okay. And then just one follow-up there. Specific to Iowa because of the uniqueness of that regulatory framework. I mean, what are the assumptions here in terms of earned returns? Is it just at your authorized across the plan? There is some optionality for you to the upside to retain some of those benefits if you can outperform, right? Robert Durian: That is correct, Bill. Yes, think of the State of Iowa right now, we've got the electric side of the business that does have a new regulatory construct that was put into effect last year that does provide us a lot of certainty of our ability to be able to earn our authorized return and does have some upside opportunity for us. If we go beyond our authorized return, we share those benefits with our customers. Right now, we've just assumed that we're going to earn our authorized return. And then on the gas side, it doesn't have that similar construct. We will have to go in for future rate cases to be able to minimize the regulatory lag there, and we'll time those based on future capital projects to ensure that we can get as close as possible to earning that authorized return. Operator: The next question comes from Nicholas Campanella with Barclays. Nicholas Campanella: Maybe just your kind of calling out that it seems that this 7-plus is pretty conservative. You're in active negotiations for the 2 to 4 gigawatts of additional load. Can you just give a little bit more color on what stages of those incremental opportunities are, and what your line of sight is to maybe have another kind of signed load contract in 2026? Lisa Barton: Yes. No, great question. So yes, I'm going to go back to last year. When we talked at EEI last year, we announced a gigawatt, Q1, 2.1 gigawatts. And today, we're at 3 gigawatts. We have been very focused on making sure that there are near-term opportunities that they are less transmission dependent. And we're also having a very high bar in terms of what we're sharing with you all. So these are ones that we are in active negotiations on. These are ones where we have our transmission interconnection studies done and so forth. And so this is something to very closely watch over the next 12 months and some of which, of course, will be sooner. We will -- we are committed as we have in the past to continuing to give you a very clear line of sight and to avoid speculation on all of these. Nicholas Campanella: And then just so I'm kind of understanding it correctly, that would then kind of put this growth rate above 8%. Is that the right way to think about it? Lisa Barton: It would be above that, yes, above that 5% to 7% that we talked about. So this is all great upside to our plan. Nicholas Campanella: Maybe I could also just ask, thank you so much for the financing commentary. What is your FFO to debt going to be at the end of '25? Where do you kind of see it through '26? And then also just you have $300 million of tax credits through '26. Does that continue at that level through 2030? And just understanding if you have to eventually replace that cash flow down the line? Robert Durian: Great question, Nick. So yes, if you think about our FFO to debt metrics, throughout the planning period, we're really targeting to try and have roughly about 50 to 100 basis points of cushion. And really, that's going to let us further grow into the plan. When you think about the 2 to 4 gigawatts that Lisa indicated, we want to make sure we've got strong balance sheets to be able to grow into that at even higher levels than we've got kind of currently indicated with the 7% to 8% plus. So -- and as we think about the tax credits, there's roughly about, I want to say, $1.5 billion, $1.6 billion in the plan over the next 4 years. We've had a lot of strong interest from counterparties to be able to buy those credits and have a lot of confidence in being able to execute those as far as generating the credits and then turning those into cash. And so I feel really good about the plan with all of those aspects. Nicholas Campanella: One more, if I could. Just the 12% load growth CAGR is large. And I understand the timing of how you get above this 7% plus could also be related to just the load ramping. So just what's the starting point that's embedded in '26, so we have a base to work off of? Robert Durian: It's actually pretty modest in 2026. We do start to see some of the data centers taking more what we call production load instead of construction load in the second half, mainly in the fourth quarter of 2026. And you'll see that continue to ramp through 2020 -- sorry, 2030 is when we expect to be at that full level of the 3 gigawatts of max contract demand that we have in our plan right now. Nicholas Campanella: All right. Looking forward to seeing you guys soon. Operator: The next question comes from Julien Dumoulin with Jefferies. Julien Dumoulin-Smith: Just a follow-up on the 2 to 4 gigs in the pipeline here. Previously, you've identified something like 1.5 gigawatts of mature opportunities with a high probability of conversion, maybe 85%. Taking out QTS Madison, there's something like 600 to 800 megawatts theoretically still in that bucket, perhaps more. But how would you characterize the probability of conversion over time for the remaining 3 to 3.5 gigs there? And then -- and maybe how fragmented is this pipeline? Is the demand dispersed across Iowa and Wisconsin evenly? Just any commentary you have there. Lisa Barton: Yes, I appreciate that. So everything that we had in the 1.5 that I'll call it the blue zone from previous decks means still an incredibly high level of confidence in that. Quite frankly, we've got a high level of confidence in all of this. And think about -- this is how I think about it. You look at Iowa. We serve 75% of the communities in Iowa. We serve 40% of the communities in Wisconsin. If you're a data center, what do you need? You need fiber, you need land, you need transmission, you need a utility that's willing to work with you and that is well positioned to be able to deliver on its commitments. And that's where I think when you think about the Alliant Energy Advantage where we hit it out of the park, we are in rural Iowa and rural Wisconsin, surrounded by transmission. We've been focusing these data centers and continue to focus this 2 to 4 gigawatts on those locations where they don't have to wait for a 100-mile transmission line or anything else. We're really trying to make sure that we can bring this load in sooner and faster. So that gives us a lot of confidence in being able to price appropriately and why we're just so excited about our ability to unlock the potential of our customers and communities. And not only that, we're in MISO. And MISO is acutely focused on making sure it's got robust transmission planning, that it's got an interconnection process, both for new generation as well as for loads that allows us to grow at this very active pace. Last thing I'll mention is we've got really constructive states between Wisconsin and Iowa. Right now, it's -- Iowa is very well positioned. As is Wisconsin, I think you'll see more of the data centers gravitating a little bit more towards Iowa, and that's just simply because we've got a lot of sites there. Remember, we've invested heavily over the years in land, and we've been able to have that as an attractive source for folks. But we're confident in the fact that in both jurisdictions, the significance of this load growth is really going to be driving affordability for all customers. And I think that, that's another key differentiator for us. And that allows us to be very well positioned from a regulatory standpoint. Regulators, as we mentioned earlier in my comments, are at the key -- they're just a key gating item for the entire sector. And our performance here that you've seen with the approvals of the ICRs and the approvals that you're seeing with the generation projects and the approval of the rate settlement, the unanimous rate settlement, it really just tells you that we've got the wind at our back when it comes to making sure that we're aligned with what our regulators care about. That's what you have to solve for in this space. Julien Dumoulin-Smith: Yes, absolutely. No, I mean, given your execution thus far and kind of the plan you've set out here, that 8% plus after 2027, it seems reasonably achievable here. I kind of want to follow-up on that specifically, just as you mentioned in the slides that you have, as you integrate more load and growth into the plan, you could reassess guidance looking forward. Your current look-forward period, it coincides sort of with the end of the stay out in Iowa or there could be some uncertainty to the timing kind of as to whether you'd like to file then or how you'd like to approach the construct. But how should we think about rate case timing here? The way you're going to look at the outer years of your plans, the growth rates you're willing to commit to, knowing that you have that regulatory further out, you might have regulatory uncertainty in the forward period. Just kind of going -- bringing that together with the idea that you've got this really visible above-average growth plan that you could potentially attain with upside here. How should we think about all these factors in the outer years? Lisa Barton: So let's start with Wisconsin. Wisconsin, we've got forward-looking test years every 2 years. That positions us very well to have that clean line of sight on what we need from a generation investment standpoint, really ensuring that we're able to minimize lag. As you recall, in Iowa, we did not have that. And the introduction of the individual customer rate in combination with the structure that we have really allows us to make sure we're able to earn our authorized every year and be able to grow at the pace of our customers. So in terms of how we're thinking of that over the period, I'm just going to point back to how successful MidAm has been. And over the past 10 years, they have not gone in for a rate review because of this construct. So that is why we are doubling down on our focus on making sure that we're unlocking the potential of our customers and communities. Rural Iowa, which is what we serve at 75%, they want to grow. They want data centers. They want to grow. This allows the property base to go up as well as driving costs down for customers. So we're going to continue to focus on that. Ideally, we wouldn't have to go in for another rate review. So I don't know, Robert, any additional commentary you'd like to provide? Robert Durian: Yes, we feel confident about the future of the plan. We only went through 2029 just because that's our standard process of just adding another year to the previous year, but don't read into that, that we have any concerns about beyond 2029. With all the growth that we see in front of us, we've got a really strong plan and feel like that's going to go well beyond 2029. Julien Dumoulin-Smith: Understood. So with the certainty you kind of have here in the construct, are you confident that there's a possibility here post '27 into the '28 time frame, you could be considering an 8% plus EPS guide? Is there further upside to the upside you've said here? Lisa Barton: You really want to look at what's coming online from a data center standpoint. Everything is timing related. If we can get data centers to be coming online sooner, that's certainly good. We have transmission investments that both ATC and ITC are making. They're relatively minimal in the scheme of things, but a lot of that is going to be associated with timing. And I think a really good indicator is what we announced with Google. And Google is working with us to accelerate that load ramp. So those are all the kinds of things to be watching for. And as we mentioned earlier, we're going to be very transparent. We're not going to throw a bunch of speculation at you. We're going to give you that clean line of sight. So that should -- I'm hoping that will be very helpful to you all. Operator: The next question comes from Aditya Gandhi with Wolfe Research. Aditya Gandhi: Just on your 7% to 8% plus commentary, what should we think of as the base for that 7% to 8%? Is that the midpoint of 2026 guidance for now? Is that a good way to think about it? Lisa Barton: It is. Aditya Gandhi: Okay. Great. And then on the 2 to 4 gigawatts of negotiations that you're having, can you give some more color on whether these are expansions of existing facilities or customers you've contracted with? Or are they new customers? And then just how should we think about the cadence of updates going forward? Will you just update your plan in Q3 next year? Or could we see an update potentially before that like you did in Q1 of this year? Robert Durian: Yes. I would think of the 2 to 4 gigawatts is a combination of expansions of existing sites as well as, as Lisa indicated, we have a lot of additional sites across our service territory that have transmission capabilities, land availability that we think are going to be great spots for new data centers. So it's a combination of those 2. When I think about the counterparties to these, these are all very high-quality hyperscalers or colocators. And so that's what really gives us a lot of confidence in being able to get these to the finish line because we know they're motivated customers with a lot of financial wherewithal to be able to kind of get us to the finish line on these. And as far as the timing goes, I would say in the next 12 months, we'll probably have a lot more clarity within the 2 to 4 gigawatts. And as Lisa indicated, every quarter, we'll give updates as far as the status of those. And if we make progress within the next 3 to 6 months, we'll obviously share with you information on the quarterly call. Aditya Gandhi: Great. And just one more, if I may. Could you give us some more color on sort of the agreement that you signed with Google to accelerate the load ramp there? Can you just remind us what the load ramp looked like earlier and what it's looking like right now as you're trying to accelerate it? Robert Durian: Yes. I think of that as of the 3 gigawatts, it's about 300 megawatts in total. And yes, they were interested in just going faster. I'll go back to my earlier comments. You'll see some of that starting to come in, in the second half of 2026, and then just going to ramp quicker than we originally anticipated. So you'll see more load in '27 and '28 than we originally expected. But that's built into our base model right now and included in the plan. Aditya Gandhi: Understood. Lisa Barton: 3 of the 4 projects are under active construction. So it's an amazing thing to watch how quickly these folks grow. Operator: Ms. Gille, there are no further questions at this time. Susan Gille: No more questions. This concludes our call. A replay will be available on our investor website. We thank you for your continued support of Alliant Energy, and feel free to contact me with any follow-up questions. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.