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Operator: Ladies and gentlemen, welcome to OTP Bank's Conference Call regarding the financial results for the first 9 months 2025. Please be advised that the conference will be recorded. [Operator Instructions] At this point, I would like to hand over the floor to Mr. Laszlo Bencsik, Chief Financial and Strategic Officer. Laszlo, the stage is yours. Laszlo Bencsik: Thank you, and thank you, everyone, for joining us today. Good morning or good afternoon, depending where you are. Let me jump into the presentation. As usual, the deck is available for download on the website, but we are also projecting it parallel to the con call. So maybe we go to Page 3, where we have the most important numbers, yes. So first of all, we have this kind of noise in the data due to the fact that many -- most of these extra taxes or all the excess taxes in Hungary were booked in the first quarter for the entire year and some other supervisory fees as well in various other countries. Therefore, if you want to capture the -- properly capture the business performance, and we need to accrue those costs over the year. So you have -- you can see 2 sets of numbers, one at the bottom with gray that's reported and then this kind of the other set of numbers with green where between the quarters, we have accrued allocated evenly the one-off costs. So if we look at the kind of accrued numbers, then the first 9 months was HUF 886 billion. That's like EUR 2.2 billion, EUR 2.3 billion, 5% up last year first 9 months. But I mean, the actual business performance was stronger than that. If you look at the, for instance, the pretax profit, then this growth was already 8%. That's due to the fact that the extra taxes primarily in Hungary increased a lot. And we put these extra taxes, the bank tax and the extra profit tax into the tax line. And on that line, just in Hungary, the extra profit tax increased by HUF 38 billion year-on-year. So that's a major factor actually in the profit after tax number. Now if we were to look at the operating profit year-to-year performance, then it was actually 16% up for the first 9 months. And then obviously, risk cost was somewhat higher, as you can see on this chart on the credit risk cost rate and the total risk cost rate. Having said that, most of this kind of extra risk cost is coming from Russia due to volume effects, the Russian risk cost rate was 7.6%. So that's part of this kind of consolidated number. And if we were to take out Russia, Ukraine, Uzbekistan from the risk cost rate and the credit risk cost rate and the total risk cost rate we would get quite similar numbers to last year actually. So I think it's safe to say that we have had another strong quarter in the third quarter of this year. And there's no reason to believe that the following quarters will be anything worse. So we remain quite optimistic regarding the current trend, the current run rate and also the potential future developments. This profit growth has primarily been driven by especially the operating profit growth by volume growth. We indicated at the beginning of the year that we expected more than last year credit growth. Last year, we had 9%. And the good news is that already at the end of the 9 months this year, the year-to-date performing loan growth was 10%, and it's going strong. So I think it's fair to assume that we will not just have higher number than last year, but materially higher, substantially higher growth rate. And this seems to be the run rate at the moment. Return on equity, again, this kind of accrued ratio, 22.7%. Cost to income, 39%, below 40%, very good and net interest margin stable. And I already a little bit talked about the credit risk cost rates, which are higher than last year, but mostly driven by the contribution from Russia. The following slide is rather technical. It shows this kind of difference between the reported and this kind of accrued or even recognition special items. So I'm not going to dwell into this, but that explains this almost HUF 37 billion difference between the 2 numbers. So let me go to the core performance, OTP Hungary. Again, 5% up year-on-year, but this extra profit, the windfall tax increase is primarily here or substantially here in Hungary. So the pretax number again, with this even recognition of the one-off cost would have been 15% up. So after-tax profit, 5% up, pretax profit, 15% up year-on-year. And this was primarily driven, again, loan growth and some margin improvement. I mean, last year, first 9 months, the NIM was 2.84%. This year, 3.09% and slightly increasing quarter-by-quarter. Here, you can see this kind of detailing of the extra burdens in Hungary. And you can see how much the windfall tax, the extra profit tax increased. Last year, we paid HUF 7 billion altogether. And this year, we expect to pay HUF 54 billion. And there was a strong increase in the transaction tax as well. The tax rates were increased last year and that they became effective late last year, and the impact is actually quite substantial for this year. Having said that, there is plenty of good news regarding our performance in Hungary. So if you look at the recent novelty on Page 6, this is the home start loan program, another subsidized mortgage program, which was -- which started in September this year. And you can see -- I mean, the -- if you just look at the stock numbers, the impact is relatively modest given that it was -- it only started in September. But if you look at the applications, you can see how much the applications increased. So the September level was kind of 3x, more than 3x on average monthly level. So this is a very popular program. It provides opportunity for clients to take mortgage loans at 3% fixed. So this is what they pay, and we receive an interest rate subsidy. And with that subsidy, it is actually a reasonably profitable product. So it is clearly beneficial for clients, and it's also a profitable product for the banking sector. Now this means that the current run rate of, let's say, annualized 12% because the first 9 months, as you can see on this chart, mortgage loan growth was 9% year-to-date. We annualize it just roughly, it's like 12%. So this 12% annualized run rate can increase, and we definitely expect this to increase for the next year, for the next 12 months at least. And that can be up to, I mean, high teens, even closer to 20% till at least till the end of the second quarter next year. If we look at the other product segments in Hungary, consumer loans going strong, almost 39% higher contractual demand in the first 9 months of this year than last year. Our market share is very strong. Now this is a quite attractive profitability product. That's one of the profitability drivers for us in Hungary. So having this strong market share and having this strong growth rate, this is quite good news. Our market share recently increased. The other kind of important market share number on this slide, I think it's in the kind of lower right corner, 41.4% is our market share from retail deposits, and it's again, quarter-on-quarter increased a little bit. You may remember that the first half of the year, a large chunk of retail government bonds were repriced and that caused some reallocation of funds by retail clients. And the good news is that we seem to manage -- be able to manage this transition well and our market share again started to grow in deposits. Corporate. Corporate is probably even more exciting it does seem to be that finally, we see a turnaround in corporate loan growth, especially in micro small. So as you can see on this chart, micro small year-to-date growth rate was 12%, large corporate or total corporate 5%. And that's a big improvement compared to '23, '24, where volumes were basically flat. And we read this now as an indicator of a potential turnaround, at least in our client portfolio. Obviously, this trend reversal has been supported by the current subsidized scheme, which is the called Széchenyi Card MAX+ scheme targeting like small corporates in Hungary. Our market share is very strong in this product. And due to all these changes, as you can see on this page, we reached a historic high in terms of our market share to Hungarian corporates, loans to Hungarian corporates above 20% historically highest number, very good news. We are very happy about this. On Page 9, you see some of the -- or well, all of the non-Hungarian bank performances. It's -- I think it's quite solid across the board. Maybe the only kind of pledges in Uzbekistan. We talked about this. As you can see, both the nominal profit declined materially compared to last year and the ROE also went down. I mean, this is something we discussed in detail in previous presentations. We had to limit the volume growth of consumer loans for quite a long period for almost 1 year until we fixed the IT infrastructure and then kind of restarted the growth of consumer lending somewhere in the second half of the second quarter this year. And these results are very strong and very, very promising. I will show you in a few slides, I will show you the details how well new production is building up in Ipoteka, Uzbekistan. So I'm very hopeful that starting from now quarter-by-quarter, we will be able to improve our performance and reach back potentially to previous levels. The NIM development, net interest margin development, again, it's fairly stable quarter-on-quarter, even on a basis point level. And since the beginning of the year, 5 basis point improvement. The improvement is primarily coming from Hungary. Hungarian margin keeps improving, while in some of the other banks in Uzbekistan, where cost of funding increased in Bulgaria, where it's a euro rate environment, and this is due to the euro somewhat lower rate than last year overall and Serbia having some hit. But primarily, the improvement, as I said, was driven by Hungary improvements. Let's have a look at the volume trends, the performing loan volume trends. across the group, 10% year-to-date. And again, we don't have any reason to assume that growth slows down. It's actually quite the opposite. In Hungarian mortgages, we expect definitely acceleration in the first -- in the last quarter, in this quarter. And also in Uzbekistan, as you can see, this 13% increase year-to-date is not evenly distributed between the quarters. First quarter was flat. second quarter, 4% growth and third quarter, 9% growth just in 1 quarter. So this is when we are kind of up to maybe not 4%, but a much higher speed than previously. The other, I think, important development is Ukraine. As you can see, we -- somewhere at the end of last year, we decided to be more active in lending in Ukraine, and that resulted in more than 50% growth in consumer lending. Obviously, this is from a relatively low base, but nevertheless, we started to grow and also corporate and leasing started to grow meaningfully this year, and this is in line with our kind of strategic decision to be active on the lending side in Ukraine, obviously, selectively, but we believe that there's a well defined, actually broad segment of clients who are quite able to take on some leverage and loans. Maybe a few more words about the Uzbekistan development because this is important for us strategically. As you can see, we -- on this one, you see the cash loan volume changes and disbursement numbers by quarters and our market share. And we had this difficult period starting from the first quarter last year, which period pretty much ended a year after. And in this time, we lost market share, our operating results declined. and our profits declined, but now I believe we have reached a turnaround. And as you can see, our market share started to grow in the third quarter. And you can see how much we were able to ramp up production of cash loans. And now this is -- now we believe that we are giving these loans based on sound understanding of clients' creditworthiness and it's well supported by data. So we feel confident that these are going to be quite profitable vintages what we are churning out. In terms of deposits, Again, a strong performance year-to-date, 9%. And just to remind you, the net loan-to-deposit ratio of the group is 74%. So nominally, we have 50% more deposits than loans. So despite the somewhat lower growth rate, the actual nominal increase was substantially more in deposits than in loans. So the group level kind of liquidity situation improved due to this. And the primary drivers here are in Hungary core and Bulgaria and in the retail. These are the 2 countries where we have dominant market share in retail deposits around 40% in both countries. And in both of these countries, retail deposits are very profitable. So this is a kind of growth and profit engine of the whole group, retail deposits in those 2 countries and so far, so good. quite strong performance in both sides. In Bulgaria, there's an additional big event. By the end -- by 1st of January, Bulgaria finally joins the Eurozone after around 25 years in the currency board in a fixed currency -- successfully fixed currency regime, very well deserved, and we expect further positive ramifications from this -- from the accession to the Eurozone. And the only -- I mean, where we had decrease, it was Uzbekistan, But again, funding, especially retail deposits is quite expensive and the growth -- the volume growth in retail loans was not as strong as we originally planned for. So therefore, we scaled back somewhat the deposit volumes in order to optimize for profitability. But again, this recently as the volume growth recovered, we again started to somewhat increase deposit volumes. So this is subject to pricing basically. On Page 14, credit quality. Again, Stage 3 ratio compared to the end of last year improved compared to the second quarter, flat, strong coverage, as you can see, in comparison to some of the other players as well. There's no major development on that front. In terms of capital adequacy, 18.4%, which is still a decline compared to end of last year, but that's mainly due to the Basel IV impact, which kicked in 1st of January, 90 bps negative. And still a 20 basis points transitionary measure is being out phased by the end of this year. So the kind of fully loaded number year-end -- if you fully load with the changes expected till 1st of January, then it would have been 18.2%. Nevertheless, strong and well above regulatory requirement. In terms of liquidity, I mean, quite liquid. The liquidity coverage ratio, 235%. Again, the minimum required is 100%. We -- during this year, we started with a Tier 2 in January, and then we have done 2 covered bonds, very successful, quite -- we're quite happy with the pricing levels and a senior preferred and offshore yuan bond, another one. We are trying to diversify our investor base on the debt capital markets as well. Now -- so this is the kind of internal performance and then some reflections in the mirror, right, how others see us. First of all, rating, there have been many upgrades. Moody's was the very recent one. They improved the counterparty rating of OTP Bank to A3 and the senior preferred bond, the negative outlook disappeared. So it's Ba3 stable and also the Tier 2 rating improved to Ba1, and then prior -- previously during the year, S&P improved our rating. So there, the senior preferred rating is BBB, which is actually a notch higher than the sovereign rating, which is BBB- the Hungary sovereign rating. So again, this is, I think, a rare event that the bank is rated higher than the sovereign, but I believe this is very -- that's a realistic situation. So scope rating even higher. And we have a Fitch rating for Ipoteka Bank, Uzbekistan Bank, which also improved during the year, and they have been through a very successful issuance. They just printed a bond recently, which was very well received by the market. Page 18, that's the -- we like to show this one. This is S&P kind of capital Global Market Intelligence unit. It's just a financial comparison of -- comparison of financial performance of the largest European banks. Last year, we were #1, this year, #2. So next year, we want to get back to #1 as well. And then EBA stress test #13 that was done during the early part of the year. So we are in the first kind of 1/4 of the participants. And just very recently this week, there was an ESG upgrade. MSCI upgraded our ESG rating to A. So I mean, forward-looking, we are I'm sure you will ask questions about that. But as usual, we will share with you our expectations, our guidance for next year when we present the annual numbers, and that's going to be the first week of March, as usual on a Friday. So I won't talk much about next year. But I think it's clear that we have a strong momentum, and there's no reason to believe that this strong momentum should deteriorate. So I mean, especially if we look at the macro environment, on a very high level, we expect basically GDP growth improvements in most of the countries where we operate. And where it's not improving, the kind of slowing down is quite moderate and from quite high levels. So Bulgaria slowing down to 3%, Croatia to 2.9%, but these can be better numbers, to be honest, because the recent data in these countries actually outperformed our previous expectations and maybe Uzbekistan also slowing down. But in the case of Uzbekistan, again, the latest GDP data was much better than what the market expected. So even these countries are doing well. And the biggest kind of improvement in terms of GDP growth is expected in Hungary, where, I mean, next year, our expectation is 3%. It's an election year. Consumption. The order the strong consumption is going to further accelerate and then we don't expect further decline in investments. So this actually seems a quite realistic expectation to go up to 3% after 3 difficult years, '23, '24 and '25. The short-term expectation, we decided not to kind of formally change them compared to what we did in the -- at the end of the second quarter. But I think it's very obvious that loan volume growth, which already 10% compared to 9% last year. So this 9 months year-to-date 10% and obviously, we expect the run rate to continue or even somewhat improve, as I said, in case of Hungarian mortgages and in case of this big consumer loans for sure. So we are not just going to have higher number, but I think it's going to be a materially higher number in the loan growth, and that's going to have obviously positive impact for next year earnings. Margin, again, I mean, the -- it's actually very stable. So again, no reason to believe that it's going to be otherwise. Cost-to-income ratio, this is where we kind of improved the guidance at the end of the second quarter. And now the new guidance is close to 41.3%. We are still below 40%. So I think this is, again, quite likely. And in terms of risk cost, the risk cost rate Actually, first 9 months was higher than last year. But again, this was primarily driven by especially the Russian volume growth and higher rate there. And ROE 22.7%, again, strong number. And it's -- I mean, the denominator is obviously much bigger than last year. We are accumulating capital faster. That's the reason behind the return on equity somewhat lower still this year than last year. In terms of capital actions or capital strategy, I'm sure again, that you will have questions, but we will keep our usual custom and announced how much dividend payment the management will propose to the AGM next year when we present the annual numbers first week of March next year. What we do now, we are executing this buyback program. We did HUF 60 billion at the beginning of the year, and then we started another HUF 150 billion program at the end of April when we got the second package approval from the Central Bank. And we are at HUF 88 billion, and we continue this program. So that's pretty much the kind of short presentation going through the highlights, so to say, of the year or the third quarter. And please, if you have questions, ask them and we try our best to answer. Operator: [Operator Instructions] the first question is from Gabor Kemeny, Autonomous Research. Gabor Kemeny: The first question would be -- I would pick up on your points on loan growth, please, which is indeed pretty strong, I believe, around 12%, 13% annualized in -- as of Q3. And yes, I was kind of blown away by the home start numbers you showed on Page 6 by the applications. It seems like there's a broader strong trend. So how do you think about the loan growth outlook going into '26, accelerating towards the mid-teens, possibly the high teens? Is that conceivable? And related to that, do you think your NII growth will be kind of proportionate to the loan growth? Or would you like to highlight any possible changes in customer spread, securities income, which could shape your NII going forward? And my last question would be on M&A. I believe you were linked to ForteBank in Kazakhstan recently in the press. Can you share any views about your appetite to enter into Kazakhstan, please? Laszlo Bencsik: Okay. Yes. I mean, I share your enthusiasm regarding loan growth. I think this is, as you said, a strong run rate. And if you look at the forces -- the current forces shaping the future trajectory of the loan growth, they seem to be positive, right? Certainly, Hungarian mortgages, very clear. Certainly, Uzbek consumer loans, these are trend kind of new trends, which have already been set, and we expect them to continue. The other positive development is in Hungary, right? The Hungarian corporate has started to grow finally. And now I think it's kind of -- we believe that now it's actually a new trend. And all the other countries are doing well and the GDP numbers that I showed, we expect to get stronger or remain at elevated level. So again, allow me not to give a concrete guidance for next year because just kind of policy-wise, we are not doing it now. But I think your observation is very correct that the run rate is 12%, 13% and the factors which may influence the future growth rate seem to be rather positive. Now I mean -- and that's obviously supportive for NII. Now in NII, I mean, there are 2 factors which are very important here. One is actually deposit growth and more specifically, deposit growth in retail and especially in Hungary and Bulgaria, and these 2 countries have been growing quite strong and Bulgaria joining the Eurozone. So then it's conversion, we might end up having somewhat higher kind of one-off kind of current account volumes as well. In Hungary, we -- I mean, disposable income growth may accelerate given the -- that it's kind of pre-election period, and there are various kind of disposable income increasing factors for various parts of the retail, so that, that's also kind of marginally positive. In Bulgaria, we are going to -- when they join the Eurozone, the current 12% reserve rate is going to go down to the Eurozone 1%. And we don't -- and currently, we don't receive any interest on the 12% reserve rate. So that's going to be a boost. Plus we have the kind of replacement of the kind of old lower-yield Hungarian government bonds with higher-yield ones. So that's also kind of supporting factor. So again, in terms of NIM without net interest margin, without giving a numeric guidance, again, I think the kind of factors which influence the NIM forward-looking seem to be rather supportive. And plus, there's a big plus. So it doesn't seem to be the case that the euro rate is going to plunge substantially further and the reasonably stable euro rate going forward is again, a support for the NIM in the euro-related part of our book. Sorry, I cannot comment anything specific regarding M&A. In terms of geographies, I mean, we have been clear about this before that we consider Central Asia as a region with high growth potential, and we consider the whole region attractive. And we are quite happy with what we did with the investment in Uzbekistan despite the difficulties what we faced, but that's -- I think that's okay, given that it's a new market and we brought a bank through privatization. And so yes, I mean, the region we quite like. And the country you mentioned is part of that region. But no specific comment, sorry. Operator: The next question is from attendee joined via phone. Unknown Attendee: I have a couple of questions on -- related to growth outlook, if I may. First of all, I've seen that in a number of locations, be it Russia, Serbia, Croatia, you had been facing somewhat negative regulatory environment, which affected both fees as well as NII development. And I'm wondering what do you think, what the future holds in those countries and maybe some others where the credit growth is pretty high like Bulgaria. What do you think in general, the regulations, how that's going to affect the growth going forward? And second question also related to growth is on Slovenia. Probably if I'm seeing right, your year-to-date loan book growth after the merger is somewhat falling behind major competitors, I believe. So if you could comment how you're going to, in a way, fix the situation and come back to a more growth-oriented strategy there? Laszlo Bencsik: Well, yes, I mean, there have been some macro prudential measures, Russia, Uzbekistan. But this -- we usually welcome macro prudential measures because make lending kind of more rational business, and it discourages players who have, in some cases, very different risk appetite than we have and can kind of do harm to the market. That can -- that happens, right? So macro prudential measures, we are usually happy with, even if they slow down somewhat the overall growth of the market and so on, but we welcome them. Now Serbia was different. In Serbia, the measure was that we -- it's a forced lowering of the consumer loan APRs, right? We -- all the banks were strongly suggested to voluntarily decrease their APRs, the interest rates of consumer loans to clients who have less than the average wages and income. And that's very harmful. So that's a distortion to risk-based pricing. It's a kind of rude interference into the market conditions. So it's a kind of mixed basket. But in Serbia, this change, it's not going to slow down lending. It's going to boost lending, obviously, right, because it means that we have lower rates potentially higher demand. Now Slovenia, I mean, Slovenia, the problem is pricing. Some of our competitors and unfortunately, not exactly the small competitors follow pricing strategies, which we -- which are very difficult to understand, put it this way, what was the economic rationale behind that. And this is a challenging situation. Well, we try to do our best. I mean the other thing that -- I mean, this is a country where we recently got a new CEO of a very dynamic and very experienced colleague who has very ambitious targets and aspirations. But even with this comment, I think kind of 6% year-to-date growth, I mean, annualized 8%. It's actually a well-developed Eurozone country. I don't think that kind of 8% annualized run rate growth rate is not kind of acceptable in a way in a Eurozone mature market. Having said that, again, this is probably the country where we have the biggest challenge in terms of pricing behavior of some of our competitors. Unknown Attendee: Yes. Understood. May I also maybe revisit the case for subsidized mortgage lending in Hungary. During the conference, I just want to confirm if I got it right. I think a figure of around 20% annual rate was mentioned. And I just wanted to specify, did you allude to the segment or subsegment of Hungarian subsidized mortgage outstanding? Or was it the figure which was related to Hungary for all outstanding loans? I presume you referred to mortgage segment, but I'm not sure whether that was the total mortgage segment or the subsidized mortgage segment only. Laszlo Bencsik: Yes. As I said it, I think, today as well that the current run rate without this home start program was annualized 12%. And our original expectation and early experience regarding demand suggests that this 12% run rate can improve. And I said, yes, that it can be for the next kind of till the end of second quarter next year, at least, can go up to high teens, even close to 20%. We don't know exactly, but it's very clear that acceleration should be expected. And again, as I shared with you, the early data do support that previous assumption. And this number refers to mortgage loans altogether, mortgage volume growth in Hungary, not just the subsidized but total. Operator: The next question is from Simon Nellis, Citigroup. Simon Nellis: Just a few questions from me. I guess the first one would just be on risk cost and how you feel about the outlook going forward. I think risk cost has been a bit more elevated than in earlier quarters, last 2 quarters. So just would be interested in hearing your thoughts about any imminent risks or lack of risks going forward. And then my -- maybe let's start with that one. I have 2 more, if that's okay. Laszlo Bencsik: Yes. I mean, if you look at the third quarter risk cost of HUF 57 million, HUF 29 million came from Russia, and that's just related to the I mean, the nature of the product there. We do consumer lending, it's growing and it's a high kind of normal risk cost level. And I mean profitability is really strong there. So it's not a concern at all. And other than that, we increased provisioning in Bulgaria. It's related to consumer loans as well primarily. But it's, again, within the expected range and quite okay, and we have strong loan growth. And we actually had a corporate -- actually 2 corporates in Uzbekistan, which resulted in another couple of billion more. So these are the kind of focus points of the provisions what we created. We don't see reason to be worried or we don't see a change in the kind of underlying portfolio quality dynamics anywhere. So no. Simon Nellis: Okay. And could you update us on the core banking system upgrade and if there's any implications for cost growth going forward there on that front? Laszlo Bencsik: Cost growth. No. We are actually doing very well. So the first 2 products, we -- I mean, very niche products, and it's kind of small volumes, but they actually started to operate. So far, so good. So we are progressing according to plan. we are happy with the vendor. We are happy with the system. I mean, it's a lot of work in the problem with core system replacements that is the positive business impact is not that obvious, right, because you typically don't have a whole range of new functionalities. It's just a simpler and more efficient and easier to develop environment in a more sustainable environment. So no, we don't expect cost to increase due to this at all. And in a kind of midterm scenario, there might even be over -- I mean, we expect a kind of overall reduction in the total cost of operating this environment. But I mean, usually costs we like to talk about when we manage to reduce them. So this is -- but the expectation here is not that we are going to have a huge peak in the OpEx in Hungary because we introduced the system. No, that's not the case. The extra effort, extra expenditure and cost, which is involved with the core banking system replacement, it's already there in our cost structure this year. So the full team is engaged. No additional cost increase. And hopefully, midterm, when we are done, there might be some improvement in the cost structure even. Simon Nellis: And then just one last one on me on capital return. So I think you have an ongoing buyback. If that buyback completes before the year-end, would you do another one? Or would we expect some new news on capital return only with the full year result? Laszlo Bencsik: There's no -- we haven't decided on this. But I mean, we seem to be strong in capital generation. And if you ask me, the share is still undervalued. So I'm quite supportive personally to continue the program. But we are not close to the end. So we are only -- there's still -- we brought back HUF 88 billion, I think. And so there's still quite some to go. Operator: The next question is from Gabor Bukta, Concord Securities. Gabor Bukta: I have 2 questions. First of all, just a follow-up on capital allocation. So I think you have executed around 60% of the current share buyback program. And if you won't finish it until the year-end, is it possible to extend it? Or what's going to happen with the remaining shares? Because I'm a bit concerned about how you can execute by the year-end because the liquidity of the stock is relatively low versus what you should buy back on the market? And the second question is regarding the provisions, but not on loan provisioning rather than on the Russian bond portfolio because as far as I know as I see the provisions you created for Russian bonds amounted to HUF 97 million by the end of the quarter and stopped setting aside any provisions for these bonds. What is your strategy? And once you think you created any provision for this bond, how would you see when you ref those provisions of the coverage? Laszlo Bencsik: Yes. I mean the extension of the program is possible, but it requires supervisory approval. I mean, given the level of capital adequacy and all the numbers around our performance, I don't see why this would not be given if we were to ask for it. So yes, it is possible, but it requires approval. Indeed, this kind of 79% coverage on these bonds, which majority of these bonds are actually paying regular interest. That's a question. We increased this coverage based on the very firm requirements of our supervisor. So this is conservative. And to be honest, I don't know. I mean this reflects the current view. There will be an event in early December, the first of the bonds, which are kind of performing at the moment, we have a repayment date. And so this is going to be the first principal repayment. And if this happens without any problem, then -- and we don't see any -- we don't foresee any problem sir. So if it does indeed happen, then I think that's going to be a kind of trigger point where we have to discuss with our supervisor if they want to change or don't want to change their view on the required level of provisions or required level of conservativeness on the -- regarding the these bonds. So I mean -- and this is just assuming the status quo. Obviously, if this terrible war ends and the sanction environment potentially changes, then there's, I believe, an even bigger room to release these provisions. But today, I mean, the official answer is that this is the level what we decided conservative enough to reflect the situation and to respond to our supervisors' requirements. Operator: [Operator Instructions] the next question is from Máté Nemes, UBS. Mate Nemes: I have just a few questions left. The first one would be on corporate lending on Slide 8. I heard you clearly that this might be the green shoots we're looking for in terms of the turnaround in corporate lending, the 5% year-to-date. Can you talk a little bit about the nature of the corporate lending here? Are these -- is this essentially pent-up demand for investment type of loans or we are not quite there yet? That's the first one. The second question would be on growth of the various countries. It's clear you're seeing really high loan growth in a number of markets, including Bulgaria, including Russia, including Hungary. Can you talk about perhaps the mix effects you're expecting both in terms of top line and bottom line in the next few years? What sort of weight do you feel comfortable with for one or the other operating countries that are currently showing high growth? And the last question would be on the cost/income ratio guidance. I think you've been quite clear that the FX adjusted organic performing loan volume growth north of 9% is basically not a problem, and that's just a conservative guidance. Is it also the case for the cost/income ratio? Or shall we expect the usual sort of strong seasonality in the cost base in Q4, and we could see that 39% pro rata number deviate materially? Laszlo Bencsik: The corporate -- the large corporate growth is not investment driven. That's mostly working capital, to be honest. And that's -- so we don't see a big new investment cycle coming. There's still a potential upside. And I don't think this is going to happen in the next 6 months. But at least working capital demand is getting there. And where we see actually more fundamental growth is the micro small segment, which is kind of -- and these are the typical kind of small Hungarian mid-caps, put it this way, which are more consumption-driven and more kind of retail oriented. There's actually new investment on their scale, obviously. And there's kind of capacity increase as well in line with the strong growth in consumption. So I think in the micro small segment, there's underlying fundamental, I think, improvement. On the larger corporate, it's not yet a new investment cycle. Now this mix effect, again, I mean, there are 2 clear pockets or segments where we expect acceleration. It's Hungarian mortgages and we expect consumer loans, right? That's clear. Other than that -- and Hungarian corporates started to grow after kind of 2 years of kind of 0 growth. And Ukraine started to grow as well, which was, again, not growing much or actually declining in '22 and then kind of flat '23, '24 and started to grow this year. So this now seems kind of strong across the board. And if you further adjust with Hungarian mortgages for the next year and for Ipoteka consumer loans, if you just kind of -- you increase this year-to-date to the run rate, the quarterly run rate, then I think you got a picture which reflects the current situation. And I don't -- and I don't see why there should be big shifts in the mix, except when the -- if the war ends, if the war ends, then Ukraine can be substantially stronger. I mean there will be a huge opportunity then for -- and that opportunity will only be kind of constrained by our risk appetite. So I think this is the kind of potential further structural changes in the future should the war finally end, which I hope is near. Cost-to-income ratio, I think the usual kind of seasonality can be expected. So the rate will be somewhat more -- the cost-to-income ratio will be somewhat higher than the first 9 months. But we already improved the guidance because we originally expect -- the original guidance was higher than last year. Now it's around last year. I mean, we try to do our best and not to have too much seasonality, but some seasonality is actually quite natural. So yes, somewhat higher than 39.3% is realistic. Mate Nemes: Got it. That's very helpful. Can I just follow up on the second question on the mix effects and very, very helpful color there. Do you see any areas where you feel like this or the other markets may be running too hot or certain product groups and that perhaps might not be sustainable at these levels beyond the next 2, 3 quarters? Laszlo Bencsik: The last 3 years, the kind of fastest growing was Bulgarian mortgages, and that's actually quite a ride, what we have seen there. And there came macro prudential measures, which somewhat calmed down, but not too much the growth. So this is a question, and we expected slowdown this year and the growth rate actually exceeded expectations. So that's -- I think if you look at Page 11 and the kind of across the group growth rates, it's Bulgarian mortgages where I think it would be natural to slow down. Operator: The next question is from attendee joined via phone. Unknown Attendee: Given the credit market running quite hot and spreads level being quite tight, are you considering AT1 issuance? Or is that a possibility only if M&A opportunities come up down the line, as you suggested in the past? Laszlo Bencsik: Issuance of? Unknown Attendee: AT1 additional... Laszlo Bencsik: AT1. No, no. I mean, AT1, again, this is the -- our earmarked reserve for a potential big acquisition, right? So if a potential -- if a big acquisition happens, then we issue. Unknown Attendee: Okay. I thought maybe given where spreads are and different players doing the AT1, it could have been a good timing also for you, but it seems like not. And for next year, maybe in terms of funding, would it be every currency euro? Or I mean, you talked before about diversifying your investor pool, et cetera, et cetera, and you currently have deals with different currency out there. So just wondering. Laszlo Bencsik: We are typically opportunistic between dollar and euro. And we -- as you see, we have started to open up to Chinese yuan and so far offshore. But we always swap back to euro. So whenever we issue FX on a group level, we swap back to euro because that's kind of one of the core balance sheet currencies of the group. Operator: [Operator Instructions] As there are no further questions, I hand back to the speaker. Laszlo Bencsik: Thank you very much. Thank you for participating. Thank you for your very good questions and for your interest. I wish you all the best, and I hope you join us when we present the annual results early March next year. Thank you. Goodbye. Operator: Thank you for your participation. The first 9 months 2025...
Operator: Good day, ladies and gentlemen, and welcome to the Ziff Davis Third Quarter 2025 Earnings Conference Call. My name is Tom, and I will be the operator assisting you today. [Operator Instructions] On this call will be Vivek Shah, CEO of Ziff Davis; and Bret Richter, Chief Financial Officer of Ziff Davis. I will now turn the call over to Bret Richter, Chief Financial Officer of Ziff Davis. Thank you. You may begin. Bret Richter: Thank you. Good morning, everyone, and welcome to the Ziff Davis investor conference call for Q3 2025. As the operator mentioned, I am Bret Richter, Chief Financial Officer of Ziff Davis, and I'm joined by our Chief Executive Officer, Vivek Shah. A presentation is available for today's call. A copy of this presentation as well as our earnings release is available on our website www.ziffdavis.com. In addition, you can access the webcast from this site. When you launch the webcast, there is a button on the viewer on the right-hand side, which will allow you to expand the slides. After completing the formal presentation, we'll be conducting a Q&A. The operator will instruct you at that time regarding the procedures for asking questions. In addition, you can email questions to investor@ziffdavis.com. Before we begin our prepared remarks, allow me to read the safe harbor language. As you know, this call and the webcast will include forward-looking statements. Such statements may involve risks and uncertainties that could cause actual results to differ materially from the anticipated results. Some of those risks and uncertainties include, but are not limited to, the risk factors that we have disclosed in our SEC filings, including our 10-K filings, recent 10-Q filings, various proxy statements and 8-K filings, as well as additional risks and uncertainties that we have included as part of the slide show for the webcast. We refer you to discussions in those documents regarding safe harbor language as well as forward-looking statements. In addition, following our business outlook slides are our supplemental materials, including reconciliation statements for non-GAAP measures to their nearest GAAP equivalent. Now let me turn the call over to Vivek for his remarks. Vivek Shah: Thank you, Bret, and good morning, everyone. In our third quarter earnings release, we announced that Ziff Davis has engaged outside advisers to help us evaluate potential opportunities to unlock value for our shareholders. I'd like to provide some additional context to this disclosure. At the end of fiscal year 2024, we significantly enhanced our segment-level reporting, going from 2 to 5 reportable segments. One of our goals with this change was to provide investors with a more comprehensive understanding of the financial characteristics of each of our divisions. And we believe that this reporting has resulted in greater insight into the performance and intrinsic value of these businesses. We've been encouraged by the reaction to this reporting change, including the engagement from public market investors and analysts, some of whom have used the enhanced disclosures to adopt a "sum of the parts" approach to the valuation of Ziff Davis. We applaud those efforts because we believe they do reveal a meaningful discount in our current market cap relative to the intrinsic value of the company. At the same time, we have also received interest from both strategic and private equity investors in certain of our businesses, presumably doing their own analyses of our various components. In order to properly evaluate this interest, we have engaged outside advisers to assist us in assessing how certain potential transactions could unlock greater shareholder value. While no final decisions have been made to date, our focus remains on maximizing value for all shareholders. There is no assurance that this evaluation will result in any transaction and we are very willing to continue to operate with the current business structure, which is profitable, growing and generates strong free cash flow. It's worth noting that proactively evaluating and acting on opportunities to create value for shareholders is embedded in our company's culture and history. You'll recall that in 2021, we undertook a similar process that resulted in the spinoff of our Consensus business as an independent public company, demonstrating our willingness to take action when it serves our shareholders' interests and unlocking significant stakeholder value at that time. In that transaction, Consensus' post spinoff enterprise value was close to $2 billion. This was a very positive outcome for shareholders and employees of both companies. If and when there are material developments related to these initiatives, we look forward to providing updates then. And we will, of course, continue to be intently focused on executing against our operating plans. Turning now to our performance in the third quarter. We grew revenues nearly 3%, marking a fifth consecutive quarter of revenue growth. While our adjusted EBITDA fell slightly year-over-year, we grew adjusted diluted EPS by 7% as we increased our share buybacks to capitalize on the current valuation disconnect in the price of Ziff Davis stock. Three of our 5 reportable segments grew revenues in Q3, including a return to growth for our Cybersecurity & Martech segment. So let me share some observations about each of our 5 segments. Tech & Shopping revenue dropped 2% in Q3 with adjusted EBITDA down 12%. This was primarily driven by the continued wind-down of our game publishing activities, which had a negative year-over-year revenue swing of $6.9 million. And as you'll recall, we previously announced that we are no longer investing in new game titles, but we have a slate of preexisting projects which will launch over the next 4 quarters. Excluding game publishing, the Tech & Shopping segment grew in both revenues and adjusted EBITDA, led by CNET, which delivered strong year-over-year growth in licensing driven by new awards, expanded video capabilities and sponsorships and the continued rollout of our Best Buy partnership that began implementation in Q3 of 2024. Gaming & Entertainment revenues were about 4% lower year-over-year, with adjusted EBITDA growth of nearly 3%. Gaming & Entertainment's revenues can be lumpy due to the timing of title releases. Year-to-date revenues are up approximately 2%, and we are on track for revenue growth in the seasonally important fourth quarter. Q3 was Humble Bundle's best quarter of the year and was the second highest revenue quarter for the business in the last 5 years. Humble Bundle subscription revenues were up 5% year-over-year. Events continue to be a large focus for IGN entertainment for audiences and advertisers alike. IGN was back at San Diego Comic-Con in July, and was once again the studio partner for Gamescom, the world's biggest gaming show held in Germany every August. Health & Wellness' growth accelerated in Q3 with 13% year-over-year revenue growth and 18% year-over-year adjusted EBITDA growth, both representing high watermarks for the division in the third quarter. The growth was balanced across subscription and display and performance marketing revenue. We continue to deliver positive results with our pharma commercialization programs while supporting health-seeking consumers with our digital health and wellness solutions like our Lucid app, which saw strong subscription growth this quarter. Since we acquired Everyday Health, the division has evolved into a multifaceted solutions provider to the pharma commercialization, digital health and wellness and provider solutions markets. Participation across these verticals is particularly strategic in a world where the line between traditional health care and consumer-driven self-care continues to blur. Our ability to deliver positive, tangible results for pharma with both patients and providers continues to place us in a strong competitive position. The Connectivity division delivered 2% year-over-year revenue growth as several deals shifted into the fourth quarter. Year-to-date, revenues at Connectivity are up 7%, and we are confident that revenue growth will accelerate in Q4, not just from timing benefits, but underlying strength in the pipeline and the introduction of new products. Continuing our efforts to leverage our platform, brand and distribution to launch new offerings, the first new product is Speedtest Certified, which launched in September and provides a highly localized Wi-Fi certification program to target enterprise verticals under the Speedtest brand. Speedtest Certified is off to a promising start with strong global demand, including the certification of our first customer in October. The second new product, which we are planning to launch in Q4, leverages Ekahau's core capabilities and is designed for rapid network validation, diagnostics, troubleshooting and continuous network connectivity testing. Our initial target customers are Internet service provider technicians and IT organizations, from which we have already received very promising expressions of interest. Cybersecurity & Martech revenue grew 2% in Q3, consistent with our forecast this segment would return to growth in the quarter. Growth was driven by strong performance in Cybersecurity, in particular from consumer VPN and consumer cloud backup. I highlighted the momentum in VPN on our Q2 call and it's great to see the turnaround in this business. In Martech, we completed the small but exciting acquisition of Semantic Labs, a performance-based customer acquisition platform focused on the SaaS vertical. Semantic is a great complement to the customer generation capabilities we have elsewhere in our Martech portfolio as well as in our Tech & Shopping segment. Across the company, we are leveraging AI to enhance our products and improve operational efficiency. As mentioned on the last call, we developed an AI platform to refine how we serve our advertisers. This platform creates precise audience segments, powered by billions of real-time signals from across our portfolio, translating this proprietary data into what we call moment-of-influence solutions. This quarter, we officially launched 2 commercial applications of this proprietary platform. In Health & Wellness, we launched HALO, which activates our deep first-party data to identify and target high-intent audiences, maximizing campaign ROI. It is operational and the early client response has been strong. In Gaming & Entertainment, we introduced IMAGINE, a first-of-its-kind cognitive AI platform that combines cultural intelligence with predictive audience modeling to help brands understand, forecast and reach entertainment consumers in real time. We're currently in private beta with select strategic partners, with a full commercial rollout planned for early 2026, aligning with IGN's 30th anniversary. We are also deploying AI to drive efficiency. In our Shopping business, for example, 80% of all user-submitted coupon codes are now processed automatically with AI, one of many workflow optimizations being implemented company-wide. On capital allocation, we are in a strong position with substantial cash to continue buying back stock at attractive levels and significant leverage capability. Even as we explore potential opportunities to unlock the intrinsic value in our businesses, which we believe is not appropriately reflected in our per share value, we are still committed to an acquisition program that generates attractive cash-on-cash returns for our shareholders. This is a consistent strategy for us. Following the Consensus spinoff in late 2021, we closed 6 M&A transactions in fiscal 2022. And with that, let me hand the call back to Bret. Bret Richter: Thank you, Vivek. Let's discuss our financial results. Our earnings release reflects both our GAAP and adjusted non-GAAP financial results for Q3 2025. My commentary will primarily relate to our Q3 2025 adjusted financial results and the comparison to prior periods. Please see Slide 4 for the summary of our financial results. Q3 2025 revenues were $363.7 million, as compared with revenues of $353.6 million for the prior year period, reflecting growth of nearly 3%. Q3 2025 adjusted EBITDA was $124.1 million, as compared with $124.7 million for the prior year period, reflecting a decline of less than 1%. Our overall adjusted EBITDA margin was 34.1% in Q3 2025. We reported third quarter adjusted diluted EPS of $1.76, up from $1.64 in Q3 2024, reflecting growth of more than 7%. This increase is due in part to our share repurchases, which reduced third quarter 2025 adjusted weighted average fully diluted shares by nearly 3.3 million shares or 7.5% as compared with the prior period. Importantly, year-to-date, we have delivered growth in revenues, adjusted EBITDA and adjusted diluted EPS as well as a significant amount of free cash flow. Slide 5 reflects performance summaries for our 2 primary sources of revenue: advertising and performance marketing and subscription and licensing. Both of these revenue sources grew year-over-year in the third quarter of 2025. Q3 2025 advertising and performance marketing grew 5.9% as compared with the prior year period, while subscription and licensing revenues grew by 2%. Q3 2025 other revenues declined by $4.3 million year-over-year, reflecting the significant decline in revenues from our games publishing business, which more than offset growth from other products and services. Slide 6 through 10 reflect the Q3 financial results of each of our reportable segments. As Vivek noted, 3 of our 5 segments grew revenue in Q3 2025. With regard to adjusted EBITDA, while there are numerous factors that impact margins in each quarter at each business, I want to highlight a few significant items that impacted Q3 2025 adjusted EBITDA at Tech & Shopping, Connectivity and Cybersecurity & Martech. As we noted, the year-over-year performance of Tech & Shopping was negatively impacted by the performance of our games publishing business, which is in the process of being wound down. We report this revenue net of the amortization of our game publishing investments. And during the last 2 quarters, we reported negative net revenue for this business as this amortization exceeded revenue during the period. This quarter, we reported nearly $7 million less net revenue from publishing than we did during the third quarter of 2024, and this reduction flows through at a very high contribution margin to adjusted EBITDA. In the absence of this impact in Q3, Tech & Shopping would have had positive adjusted EBITDA growth for the quarter. Connectivity's Q3 2025 adjusted EBITDA margin was impacted by the timing of the contracts that Vivek highlighted in his remarks. However, it also reflects the investment we are making in Connectivity to support its anticipated growth. As Vivek mentioned, Connectivity has already launched 1 new exciting product to the market, with another product launch planned for Q4. Q3 2025 reflects our investments in product development, cloud services and sales expenses to support these new products ahead of revenue generation from them. Overall, we are excited about the prospects of these new products as we begin to head into next year. Finally, Cybersecurity & Martech adjusted EBITDA was primarily negatively impacted by the timing of certain expenses. In Q2 2025, Cyber & Martech delivered more than 5% year-over-year adjusted EBITDA growth despite a modest decline in revenues. This quarter, despite an increase in revenues compared with the prior year period, Cyber & Martech's adjusted EBITDA declined by approximately $500,000, primarily as a result of these timing issues. Please refer to Slide 11 to review our balance sheet. As of the end of the third quarter, we had $503.4 million of cash equivalents and $119.6 million of long-term investments. We also have significant leverage capacity on both a gross and net leverage basis. As of September 30, 2025, gross leverage was 1.7x trailing 12 months adjusted EBITDA, and our net leverage was 0.7x and 0.5x, including the value of our financial investments. During the third quarter, we closed 2 small acquisitions to expand the capabilities of our Connectivity and Cybersecurity & Martech businesses. In the first 9 months of 2025, we closed a total of 7 acquisitions across our businesses, and we invested a total of $67.3 million net of cash received to support our M&A program. We anticipate we will continue to be an active and disciplined acquirer as opportunities arise to add capabilities to our businesses in an accretive manner. Since our second quarter earnings call, we've repurchased 1.5 million shares of our common stock, with certain of these repurchases occurring during the month of October. Through the end of the third quarter of 2025, we repurchased 3 million shares, deploying $109 million or close to 85% of our year-to-date free cash flow. Overall, through today's date, we've repurchased more than 3.6 million shares since the start of 2025. We have nearly 2.75 million shares remaining under our stock repurchase authorization, and we continue to believe that the current trading level of our stock does not reflect the intrinsic value of our underlying businesses. Following this earnings call, we plan to utilize a 10b5-1 Plan to continue to repurchase our shares. Turning to Slide 13. We are reaffirming our fiscal year 2025 guidance range. As noted on prior calls, this is a broad range, which we set in February of 2025. And we currently anticipate our key fiscal year 2025 financial performance metrics of revenues, adjusted EBITDA and adjusted diluted EPS to fall within this range. As we have discussed today, the consolidated financial performance momentum that we experienced in the second quarter of 2025 did not broadly carry forward to our third quarter results. And while a number of our businesses continue to show strength, we currently anticipate fiscal year 2025 total revenues and adjusted diluted EPS to be within the lower half of our guidance range, with adjusted EBITDA expected to be closer to the lower end of our guidance range. Please note that the fourth quarter is typically our seasonally largest revenue quarter. Slide 20 includes a reconciliation of free cash flow. Q3 2025 free cash flow was $108.2 million, 35% higher than the prior year period. As of the end of Q3 2025, trailing 12 months free cash flow was $261.2 million. We believe that our ability to generate significant free cash flow is a clear indication of the intrinsic value of our businesses and highlights the disconnect we see in our share price. Overall, through the third quarter of 2025, we have delivered year-to-date growth in revenue, adjusted EBITDA and adjusted diluted EPS, as well as significant free cash flow. Based on our current expectations, we have maintained our expectation of delivering fiscal year 2025 results within our guidance range. And we plan to continue to dedicate our investable resources to our active stock repurchase program while pursuing attractive M&A opportunities. And as Vivek noted earlier, we remain committed to identifying and pursuing all opportunities that we believe offer strong prospects to enhance shareholder value, and we have taken tangible proactive steps to pursue certain of these opportunities. Although there is no assurance that the evaluation will result in any transactions, we are excited about the potential outcomes that may result from these efforts. With that, I will now ask the operator to rejoin us to host our Q&A. Operator: [Operator Instructions] And your first question this morning is coming from Robert Coolbrith from Evercore ISI. Robert Coolbrith: Congratulations on the results. Vivek, I know you have some opinions about where the valuation disconnects versus intrinsic value may be most acute. I wanted to ask if you'd be willing to share any thoughts there. And then secondly, I'd imagine you've had some inbound interest from time to time in the past. Is there something unique about this moment that makes this the right time to entertain that interest in a more significant way? Is the volume of interest where you think you could drive some competitive auction dynamics? Or have you gone some of these businesses to a place where you think an exit now makes more sense? Vivek Shah: So Rob, thanks for the questions. And I should also thank you, I know in your last note after our last call, you did do a "sum of the parts" analysis, which is what we were looking for. And I think to answer your questions, I do think things changed at the beginning of this year when we, for the first time, broke out the company into 5 reportable segments, which gave the entire marketplace a real view into the different businesses and the different drivers, the different growth characteristics, margin profiles, et cetera. And so look, up until then, I think for a lot of people, they were just trying to feel around and estimate. We did that, as I said, with the public market in mind, with our current investors and prospective investors and with analysts in mind. But what it also did was just attract a lot of attention from strategics and sponsors. And so look, from our point of view, that -- I would say that that was different than maybe in the past. And so the decision to engage advisers at this point was really in response to the level of inbound interest. But I would also say that we're at a point where the disconnect between the current value of the company and we believe the intrinsic value of the company, the true value of the company in our own minds, is probably at the widest it's ever been. And so with respect to your question on specific businesses, look, we go into this with an open mind, with a goal of unlocking the maximum amount of value. And what I would say is that we believe every one of our divisions should command a multiple, each of them individually, higher than what is the current Ziff Davis multiple. So in my mind, this value disconnect isn't just in a couple of places, it really is across the board. Operator: Your next question is coming from Cory Carpenter from JPMorgan. Cory Carpenter: I had a follow-up to the strategic review and then one on AI overviews, if I could. Just, Vivek, kind of continuing on that theme, maybe what all is on the table here? It sounds like you think there's a disconnect across all divisions, but are there any properties that maybe you think of as core or off-limits in terms of divesting? And would you consider perhaps the whole company, if that was something that you were seeing interest in? And then on AI overview, some of the other publishers called out an impact this quarter on traffic just as that ramped up a little faster than expected. Curious to hear what you've seen there. Vivek Shah: Thanks for the questions, Cory. So starting with: is anything off the table? No. We're, as I said, we're going in with an open mind. And so we don't have a specific preference. With respect to your question about the whole company, look, the inquiries have been about specific businesses, and we do believe that exploring opportunities for select units is likely to be far more value accretive than considering a transaction for the entire company. That said, look, to the extent we receive credible interest in the broader company, we have an obligation to evaluate any opportunity that could unlock meaningful value for shareholders. I think with respect to just the AI overviews and traffic, might be just worth sort of reiterating what I've said in the past in terms of our view that the company is pretty well positioned and insulated from fluctuations in search traffic. 35% of our total revenue is traffic -- is web traffic dependent, half of that coming from search, so roughly 17.5% revenue exposure. And in AI overviews specifically, AI overviews currently appear in 29% of the queries that drive the lion's share of our traffic, which is actually a tick-down. So the prevalence of AI overviews with respect to the queries that are valuable to us is relatively stable. What I will say, so I don't -- I'm not thinking as much about AI overview prevalence. I'm thinking more about search volatility. There have been a number of algorithm changes, and happening with pretty significant frequency, that's creating a fair amount of sort of rank volatility, which is different than, I think, the AI overviews piece. So that's something we're watching. I think there's a lot of experimentation going on right now in the Google search experience. And so we're feeling some of those chops and some of those bumps. Operator: And your next question this morning is coming from Shyam Patil from SIG. Shyam Patil: I guess you, as you mentioned, you've prepared the market for this kind of announcement just with your segment-level disclosures as well as some of your commentary in the past. I'm just curious, what do you prefer? And then maybe kind of a separate but related, like what do you think is more likely, selling pieces of the business, selling the whole company? And then if it is just selling off certain pieces, what's your value kind of creation and unlocking kind of thesis or philosophy going forward? Would it be we buy businesses, we sell them and then we use that cash to buy back stock or do further M&A? Just how do you just think about kind of those things kind of going forward as you kind of try to figure out what the business could look like over the next 3 to 5 years? Vivek Shah: Shyam, all great questions. Look, I'll start with your question on preference. And my preference is whatever creates the most impactful and positive outcome for the per share price of Ziff Davis. Look, our shareholders have been patient. We feel an overwhelming obligation to really reward that patience. So I would say that the preference is a function of what's going to unlock the most value. And so it's hard to know or say what that's going to be until we get into this process and start to really understand market dynamics. And as you know, many of our businesses are performing really, really well. And so I think we feel optimistic about where that dialogue is going to go. In terms of the larger strategic question you're asking about the company, look, I think what remains unchanged is that we are, I think, very good at identifying opportunities to use our digital transformation skill set to unlock value in businesses across the landscape. We've done it with digital publishing businesses, we've done it with data businesses, we've done it with software businesses. And that remains unchanged, right? And so I think we're going to continue, however this company evolves, to continue to be a programmatic and serial acquirer to unlock value. Obviously, at this point -- and we have done that generally with the view of being long-term holders of those assets. And the market is telling us right now that, hey, look, that may not be the right equation. And so that's where thinking about these options starts to make sense, whether that's the continued model or we revert back to the hold model. I can't say. I think we just have to be flexible. I think we have to be thoughtful about all of this. The other thing I'm going to say is that just we're going to consider all opportunities, so that could be sales, that could be investments, that could be spinoffs. So I think there are various transactional options that we're also going to consider in this process. Bret Richter: And Vivek, I might just add one short thought. I mean widening the lens. Our overall approach is to provide products and services to the communities we serve effectively and generate profits, cash flow and growth. And use that cash flow to ensure, one, we have a healthy balance sheet, and then allocate that capital to go back to that core philosophy of generating growing cash flows. There'll be times, and there have been times, in our journey where we shift that capital allocation to -- from M&A to share buyback. And now we're adding one more leg to the equation, we're considering other opportunities to unlock value. So I don't think overall the approach changed or sets a new course for the company. We're just reacting to where we are in the broad market. Operator: Your next question is coming from Ross Sandler from Barclays. Ross Sandler: Great. Vivek, I guess, a philosophical question. If we're at the peak of system-wide Google referral traffic hit for the broader open web, the broader industry, and revenue impact or revenue headwind for companies like Ziff Davis or any other publisher might be peaking right now and potentially diminishing in a year or 2, why is right now the best time to put the for-sale sign up? Has the outlook for your display growth changed dramatically at all? I'm just curious as to why right now if we're in the peak of that impact. And then, Bret, just a modeling question. I think you said we're going to land in the lower half for revenue, which I think implies like a low single-digit growth rate for advertising in the fourth quarter. Just curious what you're seeing thus far, and yes, the framing of that guide. Vivek Shah: Yes. So Ross, it's an interesting question, and it actually reflects I think the dynamics that are existing in other businesses and not ours, right? So I think what I'm suggesting is this whole AI overview narrative really hasn't been relevant to our businesses. I mean take our Health & Wellness business for a moment. Close to 13% revenue growth in the quarter, year-to-date 12%, adjusted EBITDA up 18%. This business is doing exceedingly well. I mean it's sort of Exhibit A with respect to, I think, the nature of our businesses relative to maybe others in the marketplace. So I would say it maybe a little bit differently, which is we're demonstrating that, notwithstanding what seemed like large industry headwinds, our businesses are doing exceedingly well. So that's one thing, and I think it's possibly why we have had folks reach out on various parts of the company. I will also point out that 2 of the segments have nothing to do with Google, and that is Connectivity and the Cybersecurity & Martech segments. And as you know, within Cybersecurity & Martech businesses, our various businesses. So look, I think that -- and then even within Tech & Shopping, RetailMeNot has a different kind of dynamic. So I think maybe the issues relating to Google and search, while relevant to a few of our brands, may just not be that relevant to the rest. And so with that recognition in the marketplace, which is, "Wow, you know what, these businesses are built differently. They have different dynamics. The market -- the public market doesn't appreciate that, doesn't see that. We do." There's an opportunity here. And I think that's what's going on. Bret Richter: Ross, with regards to your second question. I think it's a fair observation too, and of course, we haven't provided that figure specifically. But looking at what might be implied for advertising in the fourth quarter, I think you said low single digit. I think first, I'd call out probably the most important factor is we'll be lapping the CNET acquisition in the fourth quarter. So we'll be comparing CNET year-over-year, while up to this point for the most part it's been a contributor. And Vivek highlighted a couple of things and I highlighted, that certain of our businesses, the momentum in second quarter didn't quite carry through. And just emphasize what Vivek just said, in other businesses like Health & Wellness, it certainly did. But a little soft product launch in the marketplace as it relates to gaming and advertising, some search volatility, which impacts Tech & Shopping. I think it's a fair observation that we'd be looking for subscription growth to outpace advertising growth in the fourth quarter. Operator: Your next question is coming from Rishi Jaluria from RBC. Rishi Jaluria: Wonderful. Look, I appreciate all the color and increased transparency. Definitely do agree stock seems very undervalued here, and anything that can release shareholder value is great. But I want to turn now to maybe the M&A opportunities. Because, Vivek, I mean, I think it's pretty clear from the way you're talking about the impact of AI search overviews and maybe AI search as a whole, that you seem to be -- your properties seem to be weathering this better than a lot of smaller properties. And maybe I want to think, where is there an opportunity for you to get really aggressive as an acquirer or a consolidator with some of these properties out there that don't have that scale, that don't have the platform, don't have the diversity and, quite candidly, don't have the experience of, as you alluded to, weathering all the different search algorithm changes that have happened over the past decade, and maybe more than that? Because it really feels like given where sentiment is today, and maybe we're at peak negativity on the AI search and media, that there really is just an opportunity for you to deploy a lot of capital right now and find some even smaller dislocated properties and really just kind of bring them in. Maybe walk us through how you're thinking about that, what sort of opportunities you see in the market? Vivek Shah: Yes. No, listen, it's a great question. And I think all the following things can be true. We can be buyers of our shares, we can anticipate transactions to unlock value for our company, and then we can deploy capital in acquisitions. Because I agree with your view, which is 2 pieces, that we have built the platforms and approach that has worked and weathered the storm. Others may not have. And isn't that a buying opportunity? So for sure, we agree with that. And I'll point out that, look, we've deployed close to $70 million for acquisitions thus far this year, and that program is not slowing down at all. But there's also no question that a big share of our capital deployment has been going to buybacks. It continues to stand out as, frankly, the best option for our capital. I mean we could buy this, what we believe is an amazing company, at almost unbelievable multiples. And so we've continued to do that. I think through just to date, it's 3.6 million shares. It's a significant part of our shares outstanding. And that's going to continue. So look, I think that we're always balancing how we deploy our shareholders' capital in the right way against the realities of the per share price experience for our shareholders, and looking to find that balance in this process and going forward. Operator: Your next question is coming from Ygal Arounian from Citi. Ygal Arounian: Maybe the M&A question from a different angle, as you kind of go through this process, if you're more willing to think a little bit more about expanding into new verticals or areas of sort of higher growth? And then on the AI side, maybe on licensing in particular, and I know there's a lot going on there. One of your competitors talked about sort of a marketplace model where, rather than an all-you-can-eat, sort of a pay-as-you-go. And it sounds like there's more interest for the LLMs to come to the table with the Cloudflare blocking. Just wanted to get an update on how things are going there on your approach. Vivek Shah: Yes, 2 great questions, Ygal. So just on the M&A front, look, we've always had a preference for buying leadership brands. CNET, leadership brand in tech; IGN, leadership brand in gaming; RetailMeNot, leadership brand in shopping; Everyday Health, leadership brand in health, et cetera, et cetera. So I think we're always looking for brands that have leadership, because I will say that leadership brands can define their business models by demand and not supply. So much of the conversation is around supply because so much of the media business model has been around programmatic, which is a supply-driven business model, not a demand-driven business model. And so I think we're going to continue if we were to do things that look for businesses that enhance existing leadership or established leadership in new categories. With respect to AI licensing, so we are active, very active with AI licensing discussions and encouraged by sort of this growing market consensus that compensating content owners is just a reality and a necessity. Now we're not going to sign any deal that doesn't provide fair value exchange for our content because this is -- setting the right financial precedent is important for a sustainable model. As you pointed out, the CDN layer with Cloudflare and others, we continue to block AI bots. And I think sources do matter. I think if you have a garbage in, you're going to have a garbage out problem in these models. And so I encourage everyone to always look at the sources when you look at the answers. I think you'll be surprised now to see what some of the sources are, because as trusted sources of information block, like we and others are doing, it does create, I think, a quality problem. I'll also point out, we've joined RSL, which is Real Simple Licensing, which has a standard that has been set which essentially adds machine-readable licensing terms to our robots.txt and also the RSL Collective, which is kind of like ASCAP or BMI, where there's sort of a negotiated collective. All to say that I do have a fair amount of optimism that the future will represent a pretty interesting new business model for content that receives compensation from various AI systems and models. So I am confident in that. I just think that in the early goings of this, you kind of want to set the precedents right. Operator: Your next question is coming from Chris Kuntarich from UBS. Christopher Kuntarich: Vivek, you've called out that the cash that was generated from the Consensus transaction, that was put towards 6 transactions. You were kind of talking in a previous response about going out and acquiring leadership brands. I guess in the event of a spinoff, should we be thinking about kind of the philosophical shift even further kind of on the margin towards targeting a different growth profile of business, maybe kind of expanding from leaders to emerging leaders and looking at something, again, with potentially higher growth profiles? Vivek Shah: Yes. Look, it's a great question and it's one we talk about a lot, which is, in the end, how do we arrive at the returns profile? One of the challenges for us is that, look, I think in the end -- or one of the realities for us is that we really focus on cash-on-cash returns, not necessarily multiple expansion to drive valuation, right? So we've always said, look, we're just going to be an EPS compounder in double digits. We're not at that target right now, I understand that. But that is our goal and expectation. And so look, I think to do that, we really do price/earnings and cash flow. And it's sometimes hard with some things that are smaller and growthy for that to be inside of our portfolio and get any credit. And it may not have the same margin profile and free cash flow characteristics. And so I think we focus a lot on free cash flow, free cash flow yield. And to the degree to which it fits our formula, I think we'll do it. But what we're not signaling here is a change in our formula. I do really think that what we have done an exceedingly good job of is finding investment opportunities where we can unlock a fair amount of cash flow out of those businesses. So I wouldn't want to abandon that in whatever we do. And then whatever this journey -- wherever this journey takes us, I still think we're going to very much be committed to that approach. Operator: There are no further questions in queue at this time. I would now like to hand the call back to Bret Richter for any closing remarks. Bret Richter: Thank you, Tom, and thank you, everybody, for joining us today. We appreciate your time and investment in the company. We look forward to speaking with you over the next couple of months and during our fourth quarter call. Operator: Thank you. This does conclude today's conference call. You may disconnect at this time, and have a wonderful day. Thank you once again for your participation.
Michael Judd: Hey, everyone. I'd like to welcome you all to Opendoor's inaugural open house earnings live stream. I'm Michael Judd, Opendoor's Head of Investor Relations. A few housekeeping items before we get started. Details of our results and additional management commentary are available in our earnings release, which can be found at investor.opendoor.com. The following discussion contains forward-looking statements within the meaning of the federal securities laws. All statements other than statements of historical fact are statements that could be deemed forward-looking, including, but not limited to, statements regarding Opendoor's financial condition, anticipated financial performance, business strategy and plans, market opportunity and expansion and management objectives for future operations. These statements are neither promises nor guarantees, and undue reliance should not be placed on them. Such forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those discussed here. Additional information that could cause actual results to differ from forward-looking statements can be found in the Risk Factors section of Opendoor's most recent annual report on Form 10-K for the year ended December 31, 2024, as updated by our quarterly report on Form 10-Q for the quarters ended June 30, 2025, and September 30, 2025, and other filings with the SEC. Any forward-looking statements made on this webcast, including responses to your questions, are based on management's reasonable current expectations and assumptions as of today, and Opendoor assumes no obligation to update or revise them, whether as a result of new information, future events or otherwise, except as required by law. The following discussion contains references to certain non-GAAP financial measures. The company believes these non-GAAP financial measures are useful to investors as supplemental operational measurements to evaluate the company's financial performance. For a reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP metric, please see our website at investor.opendoor.com. With that, let's get into the open house with Kaz and Christy. Kasra Nejatian: Good afternoon. My name is Kaz Nejatian. I'm a computer nerd turned lawyer turned founder, but I think of myself primarily as a product manager. That's what I spent most of my career doing, building products and leading teams to build better products faster. I'm not the guy you invite your place if you want someone to bring to party. I'm the guy you invite your party if you want someone to fix your Sonos. On my first day at work, I told our team at Opendoor that we're going to make a bunch of changes and that the new Opendoor would look nothing like the old one. And that's because, well, the old Opendoor had kind of lost its way. Before I tell you why I think Opendoor was broken, let me share you one example of the thing that has changed just in the last few weeks, so you can get a sense of the scale of the change. Look, on my first day at work on September 15, Opendoor had entered into contracts to buy 120 homes in the prior 7 days. By last week of October, that number had risen to 230 homes. In 7 weeks, we nearly doubled our speed of acquisition. I think it's reasonable to ask how can we move so fast right now when we used to move so God damn slowly. If you give me a couple of minutes, I'd like to tell you what caused the old Opendoor to be so broken. I think this diagnosis will kind of matter in how we rebuild Opendoor. Having been inside the company for just over a month, it's kind of obvious to me that the old Opendoor had just lost faith in the power of software to make selling, buying and owning a home easier. It just kind of thought of itself as an asset manager trying to predict the economy. And the previous Opendoor also didn't really believe in the power of AI to do anything, much less to make our work less toilsome. When I joined the team, I'm not kidding, there were a dozen people whose only job it was to copy and paste information from PDFs into glorified spreadsheets. The previous Opendoor also didn't really believe in itself. I was genuinely shocked when I found out that one of Opendoor's biggest expenses in the first half of this year was millions of dollars paid to a well-known consulting firm to tell Opendoor how to do its job. Everywhere I looked in my first 30 days, I found consultants making decisions that should have been made by executives. Finally, the previous Opendoor had become so risk-averse that it no longer really believed in buying and selling homes. If you ignore COVID, we bought fewer homes in Q3 than we have since 2017 when Opendoor was just a tiny start-up. Look, in the last few weeks, we've reversed course on all of these decisions. We are ditching manager mode. We're now firmly in founder mode. We are refounding this company. This is Opendoor 2.0, and we believe different things. So what do we believe at Opendoor today? We believe that we have to use all of our energy and every modern tool at our disposal to build products that make homeownership easier and less frictionful. We believe we're a software company, and our leverage comes from engineers writing code. We believe machines are better at pricing assets than humans. We believe AI will empower us to avoid toilful work, and we can have a leaner and more aggressive company. We believe we are here to make hard decisions, and we will never ever abdicate that responsibility to management consultants. We believe in being operationally excellent, especially in marketing and corporate functions. When I was at Shopify, I insisted that we manage our marketing dollars like a hedge fund would manage its IRR. We're going to do the same thing here. We're going to spend money only on channels that give us great payback, and we're going to stop spray and pray marketing. We believe slowing down buying homes just to buy them at a significant spread is a bad strategy. Look, the only folks who are going to sell their house at a large spread are people who know things that you don't know. They want to get rid of their house as fast as possible. This is the definition of adverse selection. It's not a buying opportunity. It's a massive red flag. To use Wall Street terms, Opendoor is going to be kind of like a market maker in the future, not a prop desk. We're going to profit from flow, speed and tight spreads, not on bets on the direction of the economy. Our business plan is simple: buy and sell lots and lots of homes quickly, be operationally excellent and increase our value to each homeowner by launching services like mortgage, insurance and warranty. Starting last month, we reduced our spreads while simultaneously stepping up operational rigor and tightening our selection discipline. The goal is simple. We're going to make stronger first offers, buy more good homes and get more good sellers through our funnel. To avoid adverse selection, we're building our inspection process from ground up, structured in-app video and audio, feed goes directly into AI that creates condition profiles that are validated through a standardized inspection process that give us great data. The result is going to be a consistent high-fidelity view of every single home. This trust but verify approach is going to improve the speed and the quality of homes while giving us amazing data to adjust our process, allowing us to grow our portfolio without sacrificing pricing discipline, without giving up on asset quality and without slowing down transaction velocity. But buying a great home isn't the end of our job, right? It's also important that when Opendoor buys a house, we provide value and services to both buyers and sellers. That's why earlier this week, we launched Opendoor Checkout. It's available in select markets now, and it's going to expand to our entire inventory soon. A buyer can walk into an Opendoor home, tour it and place an offer to buy it on opendoor.com without ever talking to a human being. We're shipping the buy now button for homes on the Internet. We're going to improve on this. We're going to add more products and more features for homeowners to simplify the home buying experience, starting with mortgages and warranties. Look, in the future, buying a home will be as seamless as buying a car from Tesla. You'll choose your home, your financing, your warranty, your insurance, all in one place, all in one flow. Right now, homeowners have to deal with a bunch of different companies, brokers, agents, a lot of different stuff to get what they need for a house. That doesn't make sense. We have the Internet. We're going to fix this. And over time, we'll add everything a homeowner needs when they need it, all bundled into one simple experience. Opendoor's goal is really simple. We're going to tilt the world in favor of homeowners and those working hard to become homeowners. That's our goal. And we're going to pursue it with an incredible amount of aggression. Since my first day as the CEO of our company and our first day in this new Opendoor, we've launched over a dozen new products and features. They include things like an end-to-end AI home scoping, where machines instead of human beings decide what repairs are needed and what renovations need to be done. We've automated title and escrow, where AI has started doing some of the work that goes into closing a transaction. We've launched Opendoor's trade-in widget, where we help builders to offer a home trading program like they do in car dealerships. The new Opendoor Key app allows agents, Opendoor experts and soon any homeowner to assess their homes just like an expert. Now we're going to fully power this with AI rather than someone showing up with a pen and paper. We launched Buyer Peace of Mind, giving people certainty when they buy their home with benefits like home warranty and early move-in. We launched AI-powered multilingual agents, explaining home valuation to homeowners and helping them move forward with Opendoor. And we're launching a new partnership with Roam, connecting sellers with Roam's Assumable Mortgage platform to help them move when they want to. We've also made significant improvements in our SEO products, significantly increasing organic traffic. But closest to my heart has been our push to default to AI everywhere. And this has allowed our frontline operators to iterate without writing code. One of our nontechnical teammates built a no-code tool that cut our quarterly inventory management process from 10 hours to about 7 minutes. And this list of launches should show you that we have this renewed aggression at Opendoor. We're going to focus on building great products. But aggression by itself is not a strategy. It's better than hope, but it's not enough. So here's our 4-step plan to channel that energy. First, by the end of next year, we will drive Opendoor to breakeven. We think about this in terms of adjusted net income on a 12-month go-forward basis. That means Opendoor will start generating cash and will never be forced to raise equity ever again. Second, we will drive significant positive unit economics while increasing the velocity at which we transact in homes. This includes launching financial services like mortgage. Third, as we increase our unit economics, we will change the company's focus from primarily building channels to transacting directly with buyers and sellers. We're also going to focus on reducing our days in possession rather than arbitrarily increasing spread, which has had genuine significant negative consequences for us. Fourth, once we've accomplished the first 3 steps, we're going to focus on allowing buyers and sellers to transact on Opendoor without having to buy or sell from Opendoor. This is going to significantly lower our capital risk, but more importantly, it's going to give folks options they want. Over time, as we succeed in these initiatives, Opendoor will change the homeownership experience in the same way Amazon changed the shopping experience, both directly and through its third-party marketplace. Let me be clear, adjusted net income breakeven is a milestone, not a goalpost. We have a huge runway ahead of us. Yes, there's going to be some headwinds, we're going to get some things wrong, but we're committed to consistently delivering improved unit economics and you're going to begin seeing progress towards adjusted net income breakeven milestones as we clear old inventory and increase our acquisition speed. In my first month, we've already made significant progress on the first 3 steps. As we move towards breakeven adjusted net income, we're prioritizing durable cost reductions. Chris is going to talk about some of these, but I want to give you some examples. We reduced spend on external software and have terminated or are in process to terminate over 20 software vendors to date. We've reduced spend on external consultants. Opendoor spent millions on management and PR consultants in the first half of 2025. The go-forward plan is 0. And to drive positive unit economics and increase the velocity at which we transact in home, we've significantly changed our buying behavior. For example, up until mid-October, when someone came to opendoor.com and typed in their address to sell us their house, we would have up to 11 Opendoor employees in the hot path of that sales contract closing. Today, that number in many of our flows is down to one person, and that one person is there to audit the machine to make sure we don't make unnecessary mistakes in underwriting. In fact, we're now doing almost 750 home assessments per week using AI. It used to take us close to a day from the time we collected artifacts to time we complete assessments. In our new flows, this takes about 10 minutes. In the last week of September, we entered into contracts to buy 128 homes. In the last week of October, we entered into contracts to buy 230 homes. To accelerate transaction speeds and customer choice, we can now accept a USDC as a payment method for home purchases. And to make the company primarily D2C, we've turned on Opendoor's D2C flow once again. The company had completely shut down almost all of these flows. Look, while we want customers who want experts to be able to work with one, we are once again accepting customers who want to sell us their home directly. Last week, these customers made up over 20% of our total home assessed. And in a test we ran in mid-October on over 2,000 accounts created, we saw that our new D2C totally unoptimized funnel was able to convert 6x better than the non-D2C funnel. We're far, far from optimizing this, but we believe we have significant opportunity to improve our overall conversion. Okay, that's a lot. Before I hand off to Christy, I want to spend a minute to talk to you about previous decisions Opendoor made about its capital structure. Because look, I think it's important that you hear from me directly about this. When I took this job, I knew Opendoor needed a balance sheet that was fit for our ambitions. Every home needs a solid foundation. And for us, that's capital. There are aspects of our balance sheet that are just genuinely phenomenal. We have 10 different lending facilities with long-standing partners, some of them as long as 9 years, who've demonstrated their ability to scale with us as we grow. Today, we can finance roughly 5,000 homes all at once and close at almost 100% advance rate at great prices. At our peak, that number was about 20,000, and we're going to get back there. And I'm genuinely confident that we can get there with our lending partners. But they're also part of our capital structure that were not focused on the long term. They seem to have been designed and driven by fear rather than setting us up to win. To be blunt, when I joined, the balance sheet had a [ pink lock ]. The company had issued convertible notes with an early repayment that could have forced us to repay them in full before the end of this year. That would have been disastrous for the company. And my first priority was to remove this pressure and give us runway to execute on our vision. Let me be clear, I despise dilution. If we issue a share, it has only one job, to make every other share worth more for our existing shareholders. But to give us some breathing room, I made a decision in my first week to use our existing ATM program to raise nearly $200 million. This bought us the time we needed to deal with the notes without a gun to our head. Earlier today, we reached an agreement to retire the majority of these notes. We took the steps we needed to clean up our capital structure, and we now have the balance sheet we need to stop playing defense and start playing offense. But there's a second part to this, and it's about you. We wouldn't be here without you, our shareholders. You believed in the long-term value of this business, even when our capital structure didn't really reflect it. And I don't believe in asking you to stay on this journey without sharing directly in the upside we're creating together. Look, public markets have a long history of taking shareholders for granted. We're not going to do that. In fact, we're going to reverse that. This is why we're issuing a dividend warrant. Each of you will receive 3 series of warrants, Series K, Series A and Series Z with exercise prices at $9, $13 and $17. One warrant for each series of 30 shares you hold. These warrants are going to cost you nothing and their value goes up as we make Opendoor into what it can be. We want to be on the same side of the table as our shareholder. We're returning some value to you today. You can sell the warrants as soon as you get them, but I'm hoping that you'll stay along for this ride, that you'll participate in what we are building together. We're going to move forward together. And when Opendoor succeeds, our shareholders are going to share in that success. And yes, I'll admit it, it gives me just a bit of joy that this will totally ruin the night of a few short sellers. Look, we're building a new company, right the open. Opendoor 2.0 is committed to its community because we're building and because who we're building for matters. We're going to talk to you the way we talk in the office in plain English, sometimes with a few cuss words, but always with transparency. Please consider this our clean break from corpo jargon. We're just going to talk to you and tell you when we make mistakes. And we know that this transparency is not a burden. It's a feature of your trust in us. We want to hear from our shareholders, your ideas, your questions and even product bugs because we want to fix things fast and build better. If you haven't already seen this, my [indiscernible]. I am more bullish today about Opendoor's ability to change homeownership than I was when I took this job. I'm more bullish because I see a lot more of what is happening inside the company than folks see from the outside. And I think one of the ways in which we can bring you all along for this journey is to just communicate more frequently, more directly and tell you what we are doing, what's working, what's not. Christy is going to tell you a bit more about how we intend to do this after she shares our third quarter results. Christy? Christy Schwartz: Thank you, Kaz. Our third quarter results reflect the deliberate choices made earlier in the year to prioritize risk management over volume growth, defined by wide spreads and a risk-averse posture that treated buying homes as something to avoid rather than our core business. The numbers tell the story. In the third quarter, we purchased 1,169 homes, roughly in line with the expectations shared at Q2 earnings, but well below our recent historical acquisition volumes. We delivered revenue of $915 million, above the high end of our guidance as we deliberately cleared old inventory before the slower winter selling season. When you stop buying homes, you don't just lose volume, you lose the ability to manage your inventory mix. We were left selling through older homes that were selected under the old strategy, and that showed up in our margins. GAAP gross profit was $66 million in Q3 compared to $105 million in Q3 of the prior year. GAAP gross margin was 7.2%, down 40 basis points year-over-year. Contribution profit was $20 million and contribution margin was 2.2% compared to contribution profit of $52 million and contribution margin of 3.8% in Q3 2024. On costs, prior leadership did meaningful work to restructure our cost base, and we will continue that effort. Third quarter GAAP operating expenses totaled $134 million. Adjusted operating expenses were $53 million, a 41% improvement from $90 million in the third quarter of 2024. This improvement was driven by disciplined cost management across all components, marketing, operations and fixed operating expense. As we rescale acquisitions, we're doing it from the structurally lower cost base. Net loss for the third quarter was $90 million compared to a loss of $78 million in Q3 '24. The prior year number included a $14 million gain from the Mainstay deconsolidation. Adjusted net loss totaled $61 million, an improvement from an adjusted net loss of $70 million in the prior year period. These are the results of the old Opendoor. What matters now is what comes next. Earlier, you heard the plan for Opendoor 2.0. I'd like to take a moment to walk through the foundation it runs on, our capital. We ended the quarter with $962 million in unrestricted cash and $187 million of equity invested in homes. We held 3,139 homes, representing $1.1 billion in net inventory. We had $7.6 billion in nonrecourse asset-backed borrowing capacity, of which total committed borrowing capacity was $1.8 billion. As Kaz mentioned, we have executed three substantial capital transactions to set our balance sheet up for the scale ahead. First, the rapid increase in our stock price triggered a condition in our 2030 convertible notes that could have required us to repay the full principal balance in cash during the fourth quarter of 2025. Using our at-the-market or ATM equity program, we proactively raised equity in September 2025, selling 21.6 million shares at a weighted average price per share of $9.26 for nearly $200 million of gross proceeds. Second, today, we refinanced a substantial portion of the 2030 notes with equity. As a reminder, these notes bear interest at a 7% annual rate. The combination of these two transactions add meaningful liquidity to our balance sheet, reduce our cash interest costs and provide enhanced financial flexibility. Third, to align Opendoor's upside with all shareholders, our Board declared a pro rata warrant dividend. Every shareholder will receive 3 series of freely tradable warrants for every 30 common shares held as of the November 18 record date with exercise prices of $9, $13 and $17. Zooming out, we believe we have the right capital setup for the Opendoor 2.0 operating model, higher volumes, faster turns, tighter spreads and more products to serve homeowners. Now let me tell you how we're executing against that model and how you can hold us accountable. We are targeting to reach adjusted net income profitability by the end of 2026 measured on a forward 12-month basis. To get there, we're focused on three key management objectives that we monitor internally. For each objective, I want to frame for you why this matters, what we're doing and how you can hold us accountable. First, scale high-quality acquisitions. More volume means more revenue from transactions and ancillary services plus better leverage of our cost base. Further, market concentration creates a flywheel. When we own meaningful share in a market, we attract more inventory, which attracts more buyers, which attracts more sellers. We have multiple initiatives underway to drive this growth. Most importantly, as Kaz described earlier, we started reducing our average spread while increasing our operational rigor and selection, stronger offers for high velocity, high-quality homes, discipline on higher-risk homes. We're pairing that with AI-driven scoping and standardized pre-offer inspections to raise conversion and cut time and costs from offer to acquisition. You can track our progress against our acquisition goals through the end of 2026 on our new dashboard at accountable.opendoor.com. Individual weeks will fluctuate, holidays, weather, local market events will be focused on the trajectory over time. Second, improve unit economics and resale velocity. Speed and profitability per transaction enable us to build a sustainable business while enduring macroeconomic changes. Higher profitability per transaction gives us the ability to decrease the spreads embedded in our offers, leading to more acquisitions. This objective is supported by our tailored spread framework. By pricing more aggressively for high-quality, faster-selling homes and maintaining discipline on higher-risk assets, we expect our acquisition mix to skew toward more marketable homes that need less repair and renovation. We expect this to shorten the time from acquisition to listing and days on market, thereby reducing our holding costs. Second, we are innovating at an incredible pace with a renewed focus on execution and a culture of challenging everything to be better. Much of our product innovation is designed to automate workflows and increase resale velocity, supporting a business model focused on turns, not spread. You can hold us accountable to improving resale velocity by tracking the percentage of Opendoor homes on the market for greater than 120 days, which we report quarterly in our 10-Q. You can also follow our product, feature and partnership launches on accountable.opendoor.com to see how we're building the velocity into the business. Third, build operating leverage. We will scale transactions faster than fixed costs. So each additional home adds accretive profit. We're cutting aggressively in the right places, eliminating consultants, removing redundant tools and software, reducing marketing waste and streamlining operations while simultaneously reinvesting a portion of those savings into engineering and AI automation. Importantly, we expect to shift our overall operating expense profile toward variable components that flex with volumes rather than remain fixed through cycles. You can hold us accountable by tracking two specific metrics we report quarterly in our 10-Q. Fixed operating expenses should hold relatively steady as we rescale volumes and trailing 12-month operations expense as a percentage of trailing 12-month revenue should hold relatively steady or decrease over time. These three objectives are the foundation of our path to profitability, and we're building in the open so you can track our progress along the way. Turning to our outlook. Our guidance is going to look different than what you've seen in previous quarters. Our business is changing rapidly. Just in the past few weeks, our acquisition contract speed increased by nearly 2x. We're focused on execution and outcomes, not on benchmarking every turn during the transformation of this scale. Our results in the upcoming quarter are largely the outcome of us managing decisions that were made several months ago. We're focused now on making the right long-term decisions for the business, not managing the short-term guidance. What matters and what we want to be held accountable for are the actions we take from here and the results they drive over time. Our destination is clear, adjusted net income profitability by the end of next year, measured on a 12-month go-forward basis. We've already seen the levers in this business work. You can't build a breakeven business in a spreadsheet. You build it by shipping product, operating with discipline and learning from the market. For the near term, I will provide you with these guideposts. Acquisition rescaling. We're committed to rescaling acquisition volumes. We expect fourth quarter 2025 acquisitions to increase by at least 35% from Q3 as our product launches and pricing strategy changes take hold. You can track our weekly acquisition progress at accountable.opendoor.com. Revenue. We expect Q4 revenue to be higher from the outlook we provided at Q2 earnings, but decrease approximately 35% quarter-over-quarter due to low inventory levels from Q3's reduced acquisition volumes. Contribution margin. Our priority since mid-September has been to clear old inventory homes selected under the previous strategy that prioritize spread over quality. That's pressured our contribution margin sequentially since April through October. And we believe we bottomed out in October. Margins will improve through the end of the year as we replace legacy inventory with better homes, but Q4 contribution margin will be below Q3 as we reverse the downward trend. Cost discipline. We are focused on continuing to manage and improve our cost structure. Adjusted operating expenses for the 12 months ended June 30, 2025, were $307 million. For the 12 months ending June 30, 2026, we expect to spend $255 million to $265 million. Excluding the $15 million cash make-whole award for our CEO, this is a year-over-year decrease of approximately $62 million or 20% at the midpoint. We expect to achieve these savings while concurrently investing in engineering and AI automation to drive further operating leverage. We're cutting the waste and reinvesting in what matters. Finally, adjusted EBITDA. Given the near-term margin pressure as we clear old inventory, we expect Q4 2025 adjusted EBITDA loss in the high $40 million to mid-$50 million. We're building Opendoor 2.0 in the open, holding ourselves accountable to measurable objectives and giving you the transparency to track our progress. The journey won't be perfectly linear, but our conviction in the destination and in the levers that get us there is unwavering. With that, Michael, I'll turn it over to you for questions. Michael Judd: Great. Thanks, Christy. Our first question comes to us from video submission from Vlad Tenev. Vladimir Tenev: What's up, Kaz? By the way, we're super pumped that you guys are streaming live to retail on Robinhood. I think the question on everyone's mind is what's going on with tokenization? How real is it? And how do you think it could revolutionize the homeownership experience? Kasra Nejatian: Thanks, Vlad. Thanks for hosting us. Look, I'm such a big fan of Robinhood, and I hope that we can continue to do things together. Our mission at Opendoor is to tilt the world towards homeowners and those working hard to become homeowners. And I love that Robinhood does some of the same things, this whole thing of taking power away from fancy people and giving to average person. Now to answer your question, look, I have a habit of not announcing products before they're launched. That's because I build products, not spreadsheets. And I think it's important that we ship things before we talk about them. And I don't want to say we're going to do this next week, but I generally can't imagine a future where real estate is not tokenized. And I also can't imagine a future where Opendoor isn't leading innovation in real estate. Look, asset tokenization is not a side quest for us. Tokenization allows us to increase the speed of transactions, decrease the cost of transaction and broaden base of homeownership. That's our job. Today, we talked about how we can now accept USDC. This week, I bought Bitcoin on my own laptop so we can start developing. And we've begun talking with partners about how we can work across stablecoins and tokenization. The work is active. We're very serious about it, and we'll tell you more when we launch something. Michael Judd: Great. Our next question comes to us also via video submission from Eric Jackson. Eric Jackson: Eric Jackson, welcome. On behalf of the entire $OPEN Army, we are thrilled to have you here leading the charge. I have two questions. Can you say specifically what the headcount is now at the company? I believe it was 1,407 over the summer. And second, can you say more about the revenue opportunities that you see around iBuying? Do you expect to add mortgage and title and other ancillary services? Zillow experimented with doing this a few years ago by acquiring a legacy company, and that didn't really take. So what is the Kaz approach to revenue? And how do you expect to grow this in the coming quarters? Thank you, again. Kasra Nejatian: Thanks, Eric. Look, to start with, I think Opendoor has had far too complicated structure for a company of this size. To give you a sense, we've had 11 different HR software products. We're going to go down to one. As of this morning, there were 1,100 people working at Opendoor. And the most important thing isn't the number of people, but how aggressive and efficient those people are. I believe every single Opendoor employee needs to be 2 to 3x more aggressive and more efficient than the average employee in tech. We will have the most aggressive software company in the public market because our mission is incredibly important. And like I said in the prepared remarks, our job is to be incredibly mindful of OpEx and to reduce our fixed OpEx over time so that it becomes a smaller and smaller part of our income statement. On the second question, look, I'm incredibly bullish on what I call services. When I joined Shopify, Shopify was 50-50 in its revenue between SaaS and services. Today, services are 75% of Shopify's revenue. And while I didn't have everything to do with it, I had something to do with it and was the services guy at Shopify. The reason why these embedded fintech things typically don't work is because they're usually designed by some dude in a Boardroom trying to figure out how can I make more money from my users. That's what it typically work. And that's just not how users interact with products. We will build excellent products. They will feel whole, and you will buy a home from Opendoor the same way you buy a car from Tesla or something from Amazon. They will feel like one product, and there won't be a different -- bunch of different cross-sell motions that you have to keep feeling that you're talking to different companies. I hope that answers your question. Michael Judd: Great. Our next question comes from Zach H, who asks, when will we see a dramatic change in profitability? Kasra Nejatian: Next year. The answer is next year, we're going to see a dramatic change in profitability. Christy Schwartz: Zach, let me walk you through some of the details. So as we shared in the prepared remarks, we are driving the company to adjusted net income profitability exiting 2026 on a 12-month go-forward basis. The framework to achieve that goal requires us to rescale acquisitions. We guided to rescaling acquisitions, growing them by 35% quarter-over-quarter for Q4 2025, and we are driving to exit Q4 2026 by buying somewhere around 6,000 homes. You can track that -- our progress against that goal and hold us accountable to that goal at accountable.opendoor.com, which will be updated weekly. On the margin side, we expect to get contribution margin of 5% to 7% as we approach the acquisitions with renewed rigor, decreasing tail homes, improving days in possession and therefore, holding costs. In addition, as we get more shots on goal and buy more homes, we get the opportunity to attach more products and drive margin from ancillary services. We expect financing costs of 2% to 3% of revenue. These costs are highly sensitive to our turns and will benefit from our faster resale velocity. We're targeting adjusted OpEx of 3% to 4% of revenue. We expect to leverage our existing fixed OpEx structure, as Kaz mentioned, to invest slightly more in marketing, but with the discipline that Kaz discussed earlier, and we expect to scale operations marginally as we rescale volumes. That's a framework. It's not new guidance. But it's -- yes, go ahead. Kasra Nejatian: I'm going to add a little to this, if you don't mind. Look, I spent the last few years of my career at Shopify, and I think folks would say that I had something, though obviously not everything to do with Shopify's profitability and growth. In late 2022, when I became Shopify's Chief Operating Officer, I'm going to read this because it was a quote. There was an analyst that said, "Shopify will lose money every year through 2025. Profitability is nowhere to be seen." Well, Shopify became profitable 2 quarters after I became COO, and it has been profitable ever since and have hit the Rule of 40 every quarter. Companies don't become profitable in Excel sheets. The way this works pragmatically is what [indiscernible] and I did at Shopify. You create a list of projects, you put odds -- adjusted odds of success against each of them and you execute every single day. At Shopify, we had a few dozen of these, 3 or 4 of them ended up really mattering. And we have the same list here. We have a list of projects. And the reason I say we're going to drive to profitability is because this is not a passive thing. It's not just going to happen to us. We know what we are going to do. We're going to take those actions, and we're going to exit 2026 profitable on a go-forward basis. Sorry, I cut you off. Michael Judd: Our next question comes to us from Victoria B. Short sellers keep attacking Opendoor, spreading negativity and driving the stock down despite strong progress. What’'s your strategy as CEO to fight these daily short-selling pressures, protect shareholders, and make sure the market sees Opendoor's true strength? Kasra Nejatian: Look, I care a great deal about our average shareholder. And you've seen us do some things today to help align us to our average shareholder. Having said that, I don't spend that much of my time thinking about short sellers. I never worked on Wall Street, and I generally don't understand why these people do what they do. It just seems deeply boring and like just bad for the soul. I mostly just pity them. They don't really build anything. Look, we run the company for long-term owners, not for people that bet against us every week. And what matters to us is execution week in, week out, how fast we buy and sell homes, how operationally excellent we are, how we turn over inventory. And I think the best way to deal with short sellers is just prove them wrong through numbers. Every quarter, we're going to improve unit economics. Every quarter, we're going to get better. Every week, we're going to show you the numbers. We're going to do all the right things. And I think when you do that, the score takes care of itself. Michael Judd: Great. Our next question comes from Dae Lee from JPMorgan. How do you define Open's identity? What do you see as its biggest strength? And how will you leverage that to achieve sustainable growth and profitability as Open navigates the currently depressed housing market and longer term? Kasra Nejatian: That's a great question. I'll take it first, if you don't mind. Look, Opendoor is a software company. We're not a hedge fund waiting for macro to turn around. That's our job. Our job is to help people sell, buy and own homes. And our leverage comes from building excellent products. And you do that by writing excellent code. So that's the largest source of our leverage, right? Codes written by our engineers, data on our databases and the models we have and we're improving the value not just the valuation of home, but dispersion on them and days in possession. And I firmly believe that the best software companies are built in hard times because the times forces you to be disciplined, right? You end up having to care about your user more. You end up building deeper integrations that solve more of the problem. So when times get good, you end up having abnormally large profits. I'm very bullish on the company. Just in the last couple of weeks, we've shown that we can grow acquisitions relatively quickly. I think we grew 60% on acquisitions just this past week. We'll see how much we grow next week. And we've shown that we have relatively good levers in this company. And when you decide that you're going to do that, you have the good levers, you have great software and you have the balance sheet that we do, you get the chance to go on offense. And I really like our odds, and I think things are starting to work for us. Michael Judd: Great. Our next question comes to us from Ryan Tomasello from KBW. Does management intend to continue to emphasize the Cash offer as Opendoor's primary product? Or do you envision moving the business more capital light? Will the Key Agent program be the primary distribution channel for the cash offer? And if so, how should we think about potential bottlenecks on growth given this high-touch approach tied to agents? Kasra Nejatian: That's just not how I think of the business, to be honest. Let me answer your question first. Look, I think companies fail when they think of themselves first and their users second. Like our job is to serve our users and people come to us to sell or buy a home. That's why they come to us. And our job is to meet them where they are. Some of them want to use an expert, some of them don't. And the question is, how do we answer? I think Cash is a great product. I think Cash Plus is a great product. We're going to have different products along both the risk and the ownership axis because I think that's just not the final two products we're going to have. And I like our D2C model. I think we talked about how in our tests early on, it has been converting 6x better. So I think the question isn't really one of which channel are you going to pick. We're going to pick the channels that allow us to have the maximum impact on behalf of our users. And I firmly believe in our DTC channels are going to be the future of the company. And if there are users that want to use experts, we want to serve them where they are. Michael Judd: Great. We have a few questions on sustainable acquisition growth, so I'll read for you those out. One from Ygal at Citi. How are you expecting to manage guardrails and acquisitions as you pick up pace? Another from Andrew at Citizens. Can you talk about controlling the long tail and how those purchases have outsized losses? And Nick McAndrew at Zelman. How do you balance near-term transaction growth with your stated goal of evolving into a platform business? Kasra Nejatian: Okay. I'll try to take these one at a time. I think the tail question is actually the best question. Let me take that one first. So what you actually want to have is a lot of dispersion in your model, right? Opendoor historically have not had that, where it has kind of like just had a peanut butter spread across its space. We now have significant dispersion, and this is basically all we talk about is how we can have excellent offer on good homes where we know days in possession is going to be low and be more careful on longer days in possession homes. And we have a new process for inspecting every home to make sure that we don't get caught by surprise. This is a trust but verify approach that I talked about, which will be great because it will both, a, variable cost and b, more importantly, allows us to have lots of data on our servers. Last question second. I don't think these two things are at conflict. Look, at Shopify, we had high growth and high free cash flow. I think these two things actually go together because when you buy lots of homes, you get opportunities to sell lots of homes. And when you sell lots of homes, you get opportunity to attach additional services to them. And I think these two things go hand-in-hand. And to answer your first question last. Look, I think we have shown that we have really good levers at our disposal. Morgan and the growth team have been working only for a couple of weeks now. But every single day, we're seeing improvement on buying the types of home we want to buy, and we really like our top of funnel. We have cut marketing and have seen acquisition go up, which is always a good sign. Am I missing something? Michael Judd: That's great. We have another question from Ben Black with DB. There's a few in there, but his last question was, in what ways can AI be an accelerant to growth? Kasra Nejatian: I mean, look, in all the ways, and basically all the ways. Look, I don't spend that much of my time worrying about like the problems Opendoor has traditionally had on this area because there have been different types of problems. I spend a lot of time about what the problems are today. Let me give you one example. I talked about this a bit. We would have up to 11 people touch a home before we had a sales contract go out for it. Today, in many of our flows, that's down to 1. And the job of that one person is to watch the machine, right? This significantly reduces OpEx per home that we acquire, far, far, far fewer human beings, far more machines. This is better speed, better user experience, lower OpEx, win, win and win. And then secondly, on the -- just the top of funnel part, you've seen us cut marketing and we cut marketing when I came in and increase acquisition. We're able to do this because we can optimize our funnels and put more of the experience in the hand of the user. And by the way, AI is also able to help us explain to our users the valuation of each home. So across top of funnel, middle of funnel, bottom of funnel, already, we are seeing the impact of AI. And we're also seeing the impact on closing, which is the last step, where we've had machines do much of their work for closing these days, and that's just going to continue. Michael Judd: Great. We had one more question from Margarita M, who asks, how can you guys make homeownership easier for younger generations? Kasra Nejatian: I mean this is like the fundamental goal of the company. Look, home prices have increased by something like 50% since 2020. Mortgage rates are much higher than they used to be. Housing inventory is far too low. Typical sale is taking like 60-plus days and like 1 in 7 deals are falling through. And the average time for a person to buy a home is almost 40 now. This is just terrible because it's harming our communities, harming our families and people who want to own are facing real barriers. People feel trapped in their homes because of mortgage rates. This is why we announced our partnership with Roam today. But the enemy really isn't any one group of people or any one company. That's just not how it works. The enemy is the process. There are so many people involved in the process of you buying and selling a home that the costs are just out of hand. And one of the things I'm super excited about is the fact that we can underwrite a home gives us excellent power to underwrite mortgages and the fact that we can do things that allow you to buy a home earlier, buy a better home earlier and know that you have the peace of mind to buy it, is going to be a key part of the company's future. But that's the mission, right, tilt the world towards homeowners and people who are working hard to become homeowners. Michael Judd: Great. We're getting close to the top of the hour. So that was our last question. So Kaz, if you have any closing remarks? Kasra Nejatian: Yes. Let me -- thanks. I appreciate it. Thanks for your question, folks. Look, I spend most of my day in Cursor and GitHub. I don't spend much of my time in spreadsheets. I started writing code on my Commodore 64 when I was 6. And I'm opinionated about what Opendoor's product should look like. We are a product company building software to enable homeownership. And you've seen us launch many products, like dozens of products just in the past few weeks, and you should expect us to do the same. And you should expect us to be operationally excellent and incredibly mindful of your dollars as our shareholders. You're going to see us be accountable. We're going to make mistakes along the way, but at every single step, you're going to see us care deeply about our mission and be transparent as we build. I'm incredibly bullish. I am more bullish today than I was when I took this job. And I think we're going to actually make a change and make a real difference in the future of homeownership in this country. Michael Judd: Great. With that, we'll conclude our third quarter open house.
Operator: Good morning, and welcome to the Alamo Group Inc. Third Quarter 2025 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Edward Rizzuti, Executive Vice President, Corporate Development and Investor Relations. Please go ahead. Edward Rizzuti: Thank you. By now, you should have all received a copy of the press release. However, if anyone is missing a copy and would like to receive one, please contact us at (212) 827-3746, and we will send you a release and make sure you are on the company's distribution list. There will be a replay of the call, which will begin 1 hour after the call and run for 1 week. The replay can be accessed by dialing 1 (877) 344-7529 with the passcode 5234040. Additionally, the call is being webcast on the company's website at www.alamo-group.com, and a replay will be available for 60 days. On the line with me today are Robert Hureau, President and Chief Executive Officer; and Agnes Kamps, Executive Vice President and Chief Financial Officer. Management will make some opening remarks, and then we will open up the line for your questions. During the call today, management may reference certain non-GAAP numbers in their remarks. Reconciliations of these non-GAAP results to applicable GAAP numbers are included in the attachments to our earnings release. Before turning the call over to Robert, I would like to make a few comments about forward-looking statements. We will be making forward-looking statements today that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties and which may cause the company's actual results in future periods to differ materially from forecasted results. Among those factors which could cause actual results to differ materially are the following: adverse economic conditions, which could lead to a reduction in overall market demand, supply chain disruptions, labor constraints, competition, weather, seasonality, currency-related issues, geopolitical events and other risk factors listed from time to time in the company's SEC reports. The company does not undertake any obligation to update the information contained herein, which speaks only as of this date. I would now like to introduce Robert Hureau. Robert, please go ahead. Robert Hureau: Thank you, Ed. I'd like to thank everyone for joining our third quarter earnings conference call. We appreciate your continued interest in the Alamo Group. Before we get started, I'd like to take a moment to say how excited I am to be part of such a great company to have the opportunity to lead it through our next chapter of growth. The Alamo Group has some of the most talented and passionate employees, a portfolio of high-quality, purpose-built products that are loved by its operators, brands that are leaders in their respective markets and a business model that is highly cash generative. In addition, A key pillar of the company's business model is its strategic positioning in attractive end markets, including reliable, municipal and contractor spending on infrastructure maintenance in public works with additional upside in other end markets such as tree care and land management. In my view, it's a really exciting time to join and be part of the Alamo Group as we shape its future and continue to create value for investors, employees, our customers and our operators. Overall, the results for the third quarter were mixed with continued strong performance in our Industrial Equipment division and continued weakness in the Vegetation Management division. Let me start by sharing a few highlights for the quarter. Net sales were $420 million, up 5% from the third quarter of 2024. Adjusted net income was $28 million, down 3% compared to adjusted net income of $29 million in the third quarter of 2024. Adjusted EBITDA was $55 million or 13% of net sales compared to $55 million or 14% of net sales in the third quarter of 2024 and operating cash flow for the 9 months ended September 30, 2025, was $102 million or 116% of net income. While I'm not pleased with the results, I am optimistic and confident in the future performance of the company and the opportunities ahead. I'll turn the call over to Agnes to review our financial results in detail. When she's finished, I'll come back and share thoughts on a number of items, including a deeper look into the performance of each of our divisions, our go-forward strategy and some thoughts on capital allocation. Agnes? Agnes Kamps: Thank you, Robert. Good morning, everyone. Net sales for the third quarter of 2025 were $420 million, up 4.7%, including organic growth of 3.4% compared to the third quarter of 2024. Gross profit for the third quarter of 2025 was $101.7 million, up 0.8% compared to the third quarter of 2024. Gross margin for the third quarter of 2025 was 24.2%, down 90 basis points compared to the third quarter of 2024. The degradation in gross margin was primarily due to unforeseen production inefficiencies related to the consolidation of manufacturing facilities in the Vegetation Management division and due to tariff costs in both divisions. Regarding the production inefficiencies in the Vegetation Management division we expect this to continue through the fourth quarter and into the first quarter before we start to realize the expected benefit. Regarding tariff costs, during the third quarter, we raised prices further to mitigate the impact of tariffs going forward. In addition, we are continuing to focus on a variety of supply chain initiatives to reduce costs and manage our supplier base. Selling, general and administrative expense or SG&A expense for the third quarter was $59.9 million, up 5.6% from the third quarter of 2024. SG&A expense in the third quarter of 2025 included $3.3 million related to the CEO transition, acquisition and integration costs. Excluding these items, our SG&A expense as a percentage of net sales in the third quarter of 2025 would have been slightly lower than the third quarter in 2024. Interest expense for the third quarter of 2025 were $3.9 million, down from $4.9 million in the third quarter of 2024. The reduction in interest expense was due to lower average outstanding debt. Interest income for third quarter was $1.5 million, up from $0.6 million in the third quarter of 2024 due to higher average cash balances. For the 9-month period ended September 30, 2025, our effective income tax rate was 25.3% which was higher than the effective income tax rate for the 9-month period ended September 30, 2024, and the full year 2024. However, the 2025 effective tax rate of 25.3% is in line with our current and long-term expectations. Adjusted net income for the third quarter of 2025 was $28.2 million, down slightly from adjusted net income of $28.6 million for the third quarter of 2024. Adjusted earnings per share on a fully diluted basis for the third quarter of 2025 was $2.34 compared to $2.38 for the third quarter. Now I'll share some comments regarding the results for each of the divisions. Net sales in the Industrial Equipment division for the third quarter of 2025 were $247 million, representing an increase of 17% or 14.5% organic growth compared to the third quarter of 2024. This performance reflects another record quarter for the Industrial Equipment division with strong sales across all groups. Adjusted EBITDA as a percentage of net sales for the third quarter of 2025 was 15.5% compared to 15.7% for the third quarter of 2024. Net sales in Vegetation Management division for the third quarter of 2025 were $173.1 million, a decrease of 9% compared to the third quarter of 2024. The decrease in net sales reflected persistent weakness in certain end markets such as tree care and agriculture and some production challenges associated with our consolidation activities, as previously noted. Adjusted EBITDA as a percentage of net sales for the third quarter of 2025 was 9.7% compared to 11.5% for the third quarter of 2024. Moving on to the balance sheet. We maintained a strong financial position and flexibility to support ongoing initiatives and future investments. At September 30, 2025, total assets were $1.595 billion, up $113.6 million from the third quarter of 2024 driven primarily by higher cash and cash equivalents. Accounts receivable decreased $21.4 million to $335.2 million, reflecting an improvement in days sales outstanding versus prior year third quarter. Inventory increased slightly by $6.2 million to $378.2 million to support growth in the Industrial Equipment division. However, days inventory on hand improved year-over-year. Accounts payable increased $32 million to $129.3 million at quarter end. As a result, cash provided by operating activity for the 9 months ended September 30, 2025, was $102.4 million, a healthy conversion of 116% of net income. Cash used in investing activities for the 9-month period ended September 30, 2025, was $41.9 million and reflects cash used in acquisition of Ring-O-Matic and $25.4 million used for capital expenditures. The increase in capital expenditure compared to the same period in prior year was primarily due to expansion of one of our manufacturing activities in the industrial management division. Cash used in financing activities for the 9-month period ended September 30, 2025, were $23.6 million reflecting repayments of principal on our long-term debt and dividends paid. As of September 30, 2025, our total debt was $209.4 million. In addition, as of September 30, 2025, we had $244.8 million in cash on the balance sheet and $397 million available on the revolver facility. To conclude, I would like to emphasize our commitment to delivering long-term value to our shareholders. We are pleased that our Board has approved a quarterly dividend of $0.30 per share. As we move forward, we will remain focused on driving growth and optimization of our operation. Thank you. I'll turn it back over to Robert. Robert Hureau: Thank you, Agnes. Let me start by providing a little more color on the operating performance for each of our divisions. First, the Industrial Equipment division. As Agnes mentioned, the performance in the division continued to be quite strong with net sales up 17% compared to the third quarter of 2024. The third quarter was the seventh consecutive quarter of year-over-year double-digit net sales growth for the Industrial division. Net sales in each of our excavators and vacuum trucks, snow and sweepers and safety groups performed well during the quarter. The net sales growth of 17% was due to several factors, including price, market growth, market share gains and the acquisition of Ring-O-Matic. I'd like to share some thoughts on each. Regarding price, during the year, many of the business groups executed fairly typical annual price increases. In addition, many of our businesses took price again more recently, as Agnes mentioned, to mitigate the impact of tariffs. As it relates to tariffs, our aim in both divisions will be to pass these costs along to customers and to continue availing ourselves of applicable tariff exemptions. In tandem with price increases, we continue to focus on local sourcing and supplier diversification where appropriate. Regarding our core end markets, they continue to be resilient. Our municipal and contractor exposure to end markets such as infrastructure, public works and utilities generates good, solid long-term growth. To help put this in perspective, state and local spending over the past nearly 20 quarters has grown at a healthy compound annual rate of approximately 5%. Regarding market share, we continue to demonstrate our leadership position in win share in certain businesses. Our teams have been doing great work, innovating our products and partnering with good dealers and customers. Let me share a quick example of what we mean related to product innovation. We recently showcased our new non-CDL vacuum truck at the Utility Expo in Louisville. This product was intentionally designed to accomplish several goals with a high level of standardization. The product can be built either as a hydro excavator or as a sewer combo cleaner. Additionally, both modules will fit into a container for economic international shipping, where we can -- where they can be updated on a chassis in country. This is a great example of how we can attract new customers and penetrate deeper with existing customers through product innovation. You'll continue to hear more about product innovation as a theme going forward. Lastly, as you know, we completed the acquisition of Ring-O-Matic in the second quarter of this year. While small, it contributed to the year-over-year growth in net sales. As a reminder, Ring-O-Matic produces trailer-mounted vacuum equipment. The addition of this type of product nicely rounds out our product offering in this attractive end market and continues to strengthen our leadership position. As I mentioned, the Industrial Equipment division has delivered double-digit growth for 7 consecutive quarters. Looking forward, however, we don't expect that double-digit pace of growth to continue. We expect it on an organic basis to return to more moderate but still attractive levels. During the third quarter, net orders were down year-over-year, resulting in a book-to-bill of less than 1. That book-to-bill reflects some lumpiness in the sequential order pattern, some intentional reduction in our lead times through improvement, improved manufacturing throughput and a little bit of cooling in the end markets. The early order pattern in the fourth quarter has started off in a reasonable position, and we have a healthy level of backlog in the division. Overall, we're pleased with the Industrial Equipment division's performance. Now let's discuss Vegetation Management division. As Agnes mentioned, the performance in our Vegetation Management division continued to experience weakness. Net sales were down 9% compared to the third quarter of 2024. Specifically, net sales in each of our tree care, government mowing and agricultural groups were down. The net sales decline of 9% was due to several factors, including the end markets and challenges with the consolidation of 2 of our facilities, partly offset by pricing. Regarding pricing similar to the Industrial Equipment division, many of the Vegetation Management businesses increased price during the year and more recently increased price again to mitigate the impact of tariffs. Regarding our core end markets like land management, agriculture and tree care, they continue to show weakness. And as a result, sales volumes were lower. Regarding the consolidation of our manufacturing facilities, I'd like to highlight a few items. Recall, we launched an initiative in the second half of 2024 to consolidate various facilities. The objective of the consolidation is simply to remove fixed costs, make them more productive, particularly given where we are in the end market cycle. These are absolutely the right initiatives. We made some progress in prior quarters. That progress was primarily centered around the winding down of operations in the originating facilities and a reduction in workforce. The progress during the third quarter was a bit more challenging. Those challenges centered around production activities in the manufacturing locations to which the operations were moved. These are complex products and complex processes. These types of consolidation simply take time. In addition, these activities were occurring while the end markets continued to decline. Both our net sales and operating margins were impacted in the quarter. As we sit today, we expect to make progress on these initiatives going forward, but it will take 1 or 2 more quarters before operations in those specific facilities will normalize and yield the full operating efficiencies we anticipate. Now at the same time, net orders in the Vegetation Management division in the third quarter of 2025 increased double digits on a percentage basis compared to the same quarter in 2024, and the book-to-bill was a solid one. The early order pattern in the fourth quarter is also off to a reasonable start. In addition, if the Fed continues to reduce interest rates, it's possible we'll see stabilization or improvement in the end markets in 2026. Overall, we're not pleased with the Vegetation Management division's performance in the quarter, but are confident we'll finish the consolidation activity and drive margin improvement as originally planned. I'd now like to share some comments regarding the broad framework of our long-term strategy. There are 4 pillars of the strategy in which we'll focus and devote resources: one, people and culture; two, commercial excellence, three, operational excellence; and four, acquisitions. Let me share some color on each. First, as it relates to people and culture, we intend to continue building on the good work that's been done around developing a safe and engaging work environment, investing in our future leaders and developing a mindset of continuous improvement with a truly engaged workforce, we believe we can outperform over the long run. Second, as it relates to commercial excellence, our emphasis will be on winning through product innovation and catering to the needs of our customers and the users of our products. In addition, expect emphasis on higher-margin profit pools, such as parts and service. And third, as it relates to operational excellence, we intend to drive margin improvement through a more efficient, lean-oriented manufacturing platform and a more cost-effective, high-quality focused supply chain. Lastly, acquisitions. Let me address this and share some thoughts in the context of a broader capital allocation framework. First, our primary use of cash will be aimed at acquisitions. In general, our interest will be more focused on tuck-in type acquisitions that can be accretive to organic revenue growth and EBITDA margins. Executed at attractive multiples in end markets that are nondiscretionary, less cyclical and close to our core, have good management teams and are market leaders. This doesn't rule out larger transactions, there may be unique opportunities for larger deals that have a great strategic fit. As Agnes highlighted, we have cash on the balance sheet and capacity to use leverage in a responsible manner. Our pipeline of targets is growing. We're working to continue the flow of good opportunities and are spending our time prioritizing them. Simultaneously, we'll continue to invest in capital projects allocating these dollars between revenue-generating projects, cost reduction projects, back office areas to support long-term growth, which will be needed in various maintenance items. Capital expenditures in some years may be more or less than others, but on average, we should be running around 2% of sales. In addition, we expect to continue with the dividend, which today is running around $15 million annually or $0.30 per share per quarter. And lastly, recall that in 2024, the Board approved a $50 million share buyback program. While this program is still authorized, we are very mindful of a growing and exciting M&A pipeline and the limited float of stock we have today. Before I conclude, I'd like to share with you a few thoughts on our financial targets. It's important to understand these are long-term through-the-cycle targets. First, sales growth of 10% plus, including the effects of acquisitions. Second, adjusted operating income margins of around 15%. Third, adjusted EBITDA margins of around 18% to 20%. And finally, fourth, free cash flow as a percentage of net income of 100%. We believe these targets are achievable and will demonstrate our leadership within the markets we compete. We look forward to updating you on our progress in the future. In summary, I'd like to say that I'm incredibly excited about the road ahead, confident in our ability to unlock the full potential of the Alamo Group. This concludes our prepared remarks. Operator, please open the lines. Operator: [Operator Instructions] The first question comes from Chris Moore with CGS Securities. Christopher Moore: Maybe we can start on the vegetation margin. So it sounds like we'll be improving, but still challenged Q4 into Q1. I guess my question is, can you get back above 10% operating margins on vegetation without meaningful revenue growth at this stage. Robert Hureau: Yes. We definitely can. Let me emphasize a few points that we made in the prepared remarks, and then I'll provide a little additional color. So first thing I would say is that we believe we can get to operating margins -- adjusted operating margins of 15%, adjusted EBITDA margins of 20%. I think there's a couple of steps along the way. First is as we get the production efficiencies improved over the next quarter or 2, we should see a 200, 300, 400 basis point improvement on that basis alone. In addition, we'll pick up some volume leverage as those markets stabilize and/or recover, hopefully towards the back half of 2026. And then in addition, I think there's 200 to 300 basis points of improved opportunity on both sides of the house with respect to procurement savings, improved parts and service as a percentage of the total business and overall lean efficiencies. So that was a little bit of a long-winded way of saying, definitely, yes, we can get those margins back. I'm confident it will take us 1 or 2 quarters to drive those efficiencies in the vegetation business in those specific facilities that are undergoing the consolidations. Christopher Moore: Got it. Very helpful. And maybe for my follow-up, just industrial orders seem okay but moderating a bit. Within the segment, are there specific areas that are a little more challenged than others that are staying strong? Or just kind of any insight or color you could give to the industrial kind of segment outlook? Robert Hureau: Definitely. First thing I'd say is on a year-to-date basis, industrial orders are still up. They're up single digits. We're generally pretty pleased with that in the quarter. As you noted, they were down. I would point to a couple of the groups. First, within excavators and vacuum, net orders down in the quarter, but they are lumpy. If you recall and you go back to the second quarter of this year, you would see a fairly significant robust order pattern. It came off of those highs in the third quarter. But again, on a year-to-date basis, that group is up double digits. Snow was also down in the quarter. But here, not only are the -- is the order pattern -- can the order pattern be lumpy. It's lumpy on an annual basis take, for example, parts of the Canadian market, certain regions in the Canadian market issue contracts to service providers on an annual basis every several years in 2025, only one of those contracts was given out in this particular region. We have several contracts being awarded in the fourth -- between the fourth and the first. And so I give that color to demonstrate that not only is it lumpy from quarter-to-quarter, but it can be lumpy from year-to-year in the snow division. Sweepers and safety were up and are up substantially on a year-to-date basis. So in the aggregate, they're down. There's a little bit of lumpiness going on here. There's some improved manufacturing throughput, which is bringing our lead times back into healthy states. That's something we feel good about. And sure, in some parts of the industrial business, there's a little bit of cooling in the end markets. We reported 17% growth in sales in the industrial segment. That's really robust growth that just over the long-term, probably will be hard to do, and you'll see those end markets cooling a bit in 2026, still healthy, still attractive, still less cyclical, but cooling a bit. Operator: The next question comes from Greg Burns with Sidoti & Company. Gregory Burns: Can you just talk about the state of the -- some of the channels within your Vegetation Management segment particularly Ag and forestry and tree care, how do the inventory level sit? And are you seeing any slowdown or headwinds in the ag market, given some of the trade headwinds that we're seeing lately? Robert Hureau: Yes. So a couple of comments. First, I would say we're pretty pleased with the order pattern. On a year-to-date basis, we're up 11%. In the quarter, we were up 12%. A lot of that is coming from North America ag. So at the highest level, pleased with the order pattern. When you then break it down into some of the segments, I would say that tree care is a space that we saw a little bit of weakness in the quarter. Recall that within tree care, there are subsegments. It's really the industrial subsegment within tree care that has experienced some softness. In this space, think about these products being really large, very expensive products. These are products that would cost $1 million or thereabouts. And we're seeing some of the customers just being hesitant at this time, placing those orders still looking out given the uncertainty in 2026 with respect to tariffs and generally the macroeconomic situation. So there's a little bit of softness there. There's a little bit of softness in the government mowing, some of those customers, DOT customers, et cetera, are a little bit hesitant on placing orders. But in the aggregate, we feel pretty good about the order pattern. When we talk to customers -- customer sentiment generally as we look forward to 2026 is somewhat neutral to still a little bit cautious. Inventory levels generally across the division are in a reasonable spot. So there's nothing unusual there and order cancellations are in line with historic averages. So generally speaking, we feel pretty good, recognizing, it feels like we're certainly during the year have continued to cycle down with the end markets, but hoping that we're at the bottom here with some stabilization and maybe some growth later in 2026. Gregory Burns: Okay. And then the margins on the Industrial segment, down a little bit year-over-year, but lower than where they were in the first half of the year. Maybe tariffs are a little bit of that. But what was the -- what are the primary drivers behind the decline in margin on the industrial side of the business? Robert Hureau: Yes. There's a little bit of noise, but it really is mostly margin -- sorry, mostly tariffs. Recall, none in the first quarter, a little in the second quarter and they picked up in the third quarter. So when we think about tariffs, particularly as we look forward to 2026, you should think about tariffs as somewhere in the order of magnitude of a little less than 1% of sales. I'll give you an approximate level of what we think tariffs will be going forward. A little bit less than that in 2025, they spiked up a little bit in 20 -- in the third quarter outside of that, nothing really unusual. That figure that I just gave you excludes any impact from the recent news around tariffs on truck chassis. We're still looking to work with our chassis suppliers to understand what that impact might be. But hopefully, that gives you a good sense as to where tariffs will trend. I think the other thing that's important is, as we mentioned, as Agnes mentioned, we did pass price along in the quarter, not enough to cover those tariffs completely. We'll continue to work to do so along with managing our supply base, et cetera. But that really was the noise in the Industrial division in the quarter. Operator: The next question comes from Mike Shlisky with D.A. Davidson. Michael Shlisky: The margin goals that you outlined, Robert, I think they're a bit of a step-up from the previous CEO's goals, which were also reasonably good goals. Do you have any sense, Robert, as to how long it might take for you to get to the 18% EBITDA? And are there any truly major transformations that have to take place to get there either a large M&A deal that has very high margins or something that we are thinking of that might help close that gap there? Robert Hureau: Yes. So good question, Mike. I think about it in steps and in phases. The first phase here is we want to return the Vegetation division margins to where they were working through some of these challenges around the consolidations. We think that will take 1 or 2 quarters. So that alone will return a couple of hundred basis points to that particular division. Secondly, I think a little bit of tailwind on the sales side, particularly in that division will be helpful and should generate another couple of hundred basis points of margin improvement. So as we look through the cycle with a little bit of tailwind, I can see 400, 500 basis points of improvement in the Vegetation business alone, which on a weighted average basis, will contribute a couple of hundred basis points to the consolidated operating margins. From there, I think there are 200 or 300 or 400 basis points of margin improvement that will come from procurement savings we had several major initiatives underway right now to drive those savings. It will come from just a bit improvement in our parts and service as a percentage of the total mix of the company think that has probably fallen off just a bit over the last year or 2. It's something we expect to put resources behind. And then a little bit another 100 or so basis points of margin improvement from really driving and shaping this continuous improvement mindset, this lean manufacturing culture, if you will. So I think we can get to 15% operating 18% to 20% EBITDA margins over the next couple of years. We do need a little bit of tailwind on the vegetation side to get there, though, perhaps not to the extent of a full recovery that we saw back in, I think it was '21, early part of '22, but we need a little bit of tailwind to get there. Does that help? Michael Shlisky: Absolutely. And maybe to follow up on that, in a few months that you've been at Alamo. Have you -- I guess, what have you done so far to push the company towards those goals? And maybe more broadly, what has -- have you changed anything major, just more in general about how Alamo runs on a day-to-day basis? Or is that still to come here? Robert Hureau: Well, it's been a busy first couple of months for sure. As I said in my opening remarks, I couldn't be more proud to be working with the team that we have here. We've got a great, great leadership team. We've got great brands products. I've talked to a lot of our customers. They really love our product. The #1 thing that our customers say that are important to them is the trust and the relationship and the partnership that they have with OEMs, and that is really strong with the company. So I'm super excited about that. A lot of the first 60 days or thereabout so far has been getting to know the team and understanding the business and the rhythm and getting to speak with our customers. In terms of changes, I would say one thing that was underway that we are pushing further, maybe we're accelerating it is to move from a bit more decentralization to centralization in certain key areas like procurement, supply chain, IT. We're shifting that to a much stronger centralization mode, if you will. That's critical in order for us to be able to deliver the procurement savings that Agnes and I and the other leaders in the organization see. There's a significant amount of opportunity that we're pretty excited to go after. We've engaged with some advisers to help us in that to accelerate that. And then I think the other area that I'm not sure if it's a change or not, but it's definitively an emphasis is around M&A, as Agnes highlighted, we've got significant cash on the balance sheet. We've got a significant amount available to us in our revolver, and we could go up in terms of our leverage to 2x, 2.5x or something thereabout would be very reasonable. So we've got a significant amount of dry powder. Ed and the team have been building this pipeline of really rich targets that we're pretty excited about, nothing we can share right now. But super excited around the M&A opportunity. I think if we can do 1 or 2 deals a year, as I said, they're more likely to be tuck-in type acquisitions. So let's say you're talking $100 million, $150 million of revenue a year. You're talking somewhere around $20 million to $30 million of EBITDA that we could acquire. That's pretty significant earnings growth that we can generate. And of course, we've got the cash to pay down the debt and keep it within a reasonable zone. So one, getting to know the team and getting to a good feel for the rhythm of the business; two, working to centralize some things, moving away from the decentralization mode that we've had in the past and then three, a really big emphasis around exciting M&A. Michael Shlisky: Great. And maybe my last question. That's on the growth rate on the top line that you outlined, the 10% growth. It sounds like if you got tuck-ins kind of in mind and maybe you're thinking about a few percent there of the overall 10% top line. But then I guess that kind of leads mid-single digit or even a little bit higher than that on the organic side. What can happen there? Obviously, besides some end markets that have been down coming back, but what can really drive that after everything is kind of back to normal again? Could innovation really mean 5% organic growth that you didn't have before? How much opportunity do you think there is to innovate in a lot of these end markets these days? Robert Hureau: Yes. I'm really, really excited about what we can do with product innovation. We just showcased a lot of our products to our Board. We just came off a number of ex positions. Really, really excited about it. Let me outline how I think about that 10% plus figure that I just shared in the prepared remarks. And keep in mind, we just printed 4.7% growth. We've had Vegetation business down for 2 to 3 years running. So that 10% plus maybe a little bit conservative, but we're going to start there for the next couple of years. I break it down loosely into 2 buckets. On an organic basis, I think about it in terms of 1% to 2% growth from pricing, maybe a little bit more depending on which way inflation goes. I think about it as maybe 2% to 3% from end markets. Certainly, that's conservative from where we've been in the industrial space today, but that would be aggressive compared to where we've been on the vegetation space. So 2% to 3% there. And then maybe another 1% to 2% in terms of market share growth from market share. That growth from market share is going to be driven through product innovation, and really catering to our customers and winning by loving our customers. Now that may add up to a slightly a bit more than 5%, but that's how I think about that organic piece today. Then I think about 5% plus from M&A. It doesn't take much to get there. It takes 1 deal, roughly at $100 million of sales to hit that number. I think that's roughly 6% growth. If I break it down somewhat equally between those 2 parts and I think you got a healthy 10% growth. If we can deliver 10% growth constant over the next 4 or 5 years, I think that's fantastic. I'd like to think we'll do better, particularly when we get that M&A engine really humming. If we can get to the point where we're doing 1 or 2 deals of that size of a year, then you're really cooking with gasoline. Operator: The next question comes from Mig Dobre with Baird. Mircea Dobre: Appreciate all the detail that's been covered already. Just to maybe put a finer point when we're thinking about the fourth quarter, can you give us directionally a sense for how things are supposed to be trending relative to what you've done in Q3 revenue and margin? Robert Hureau: Yes, definitely. So I think if you look at the company's performance historically over the last 10 years or thereabouts, and you kick out some of the extraordinary growth periods around COVID. You would typically see that the first and the fourth quarter are seasonally the lower quarters. And I think you'll see that this year. So as you move from the third quarter to the fourth quarter, I would expect sales to decline somewhere in the order of magnitude of about 4% to 5% sequentially. That's seasonally driven. That would be point one. Point 2 is when you look at that or you run that math on the sales decline from third to fourth, I would expect that decrement to drop through to gross profit somewhere around 30% or thereabouts, a little bit north of what the gross margins are today. And I think that will put you in a good spot as to where the fourth quarter is likely to shape. I would not expect improvement in the Vegetation business moving from third to fourth, just yet. I think those improvements will start to come in the later parts of the fourth quarter. So seasonal adjustment down from third to fourth, with a roughly 30% drop-through through gross profit with constant or with no dramatic improvements in vegetation margins. That's how I'd characterize the fourth quarter. Mircea Dobre: Yes. That's helpful. When we're thinking about industrial, I guess the way I'm reading your comment here is that you should not be thinking improvement in margin sequentially. If anything, it might actually be down relative to Q3. That's correct? Robert Hureau: Well, I think you got to -- first of all, those comments I just gave were for the consolidated Alamo. I made some comments with respect to vegetation, but I was leaving that in to describe what I thought the consolidated, what we think the consolidated results will be for the fourth quarter or the direction that we would head. To your question within Industrial, I think there are a lot of moving parts. One is you might see a slight sequential decline. And with a sequential decline, you're going to see inverse leverage on the fixed cost. So you'll see compression there. But at the same time, you might see a little bit of offset as we launched price increases late in the third quarter to impact tariffs. So we'll have a full effect of that in the fourth quarter, whereas we only had a partial effect in the third quarter. Some of these things may offset, but from a long-term kind of run rate, I wouldn't expect major movements in industrial margins from third to fourth in either direction. Mircea Dobre: No, I understand that. Really, the reason why I'm asking the question, the margin in Industrial was different than I think all of us were modeling. And you did explain that tariffs had a role to play here. It's just not clear to me in terms of the -- from a near-term perspective as to what the impact of some of the offsets pricing that you talked about are going to be. I mean we used to talk about the exit run rate for this segment to be 15% operating margin. And that clearly seems to be off the table, but the question is, are we really looking at 12%, 13% operating margin in the fourth quarter? Or can we actually get something that's a little bit better than that. Robert Hureau: Yes. I think we're in that ZIP code in the fourth quarter. I think as we look to 2026, we'll start to drive those improvements in operating margin that I highlighted. But I think in the very near-term, as we move from third to fourth, we're in that ZIP code that you described. Mircea Dobre: Very well. And then maybe a clarification. When you mentioned the hundred basis points of sales as impact from tariffs into 2026. Presumably, that is a gross number, so that is before any mitigation or offsets. Help us maybe understand that. Also the way I'm kind of thinking about it is that the year-over-year impact is going to be disproportionately tilted towards the first half of the year. And as far as offsets, how do you think that's going to start flowing through? Is this -- again, is this something that can be done relatively quickly? Or do we need to adjust our expectations for the full year '26 and then maybe hope that things get better in '27? Robert Hureau: Yes. So good question. Let me try to frame it a little bit and then just keep me in the fairway. So A little bit less than 1% of sales would be the expectation, the gross expectation for tariffs in 2026 before considering any impact from the recently announced tariffs on truck chassis. We're still working through suppliers on that. As you move from the third to the fourth quarter of this year, I think it will be largely neutral. We saw a bump or a spike in the third quarter. I think that was just ramping up. We then launched price increases late in the quarter to mitigate that. So I think going forward, we should probably be a little less than covering the tariffs moving into 2026. So a smidge of a major margin degradation from tariffs as we look forward. But I can say, at the same time, we're doing some pretty significant work around procurement and the supply chain making sure we get our fair share of the ag exemptions that are available to us. We continue to work those. We continue to work with suppliers. We've got a significant team ramping up to drive procurement savings. So I would not expect from '25 to '26 any significant margin degradation from tariffs alone. Yes, in the first part of the year, you're going to see a little bit more of that because there was none in the first quarter of 2025. Does that help? Mircea Dobre: That's very helpful. My final question is more conceptual. Again, sticking with industrial. Look, it's pretty clear that the vegetation portion of the business is at a cycle bottom. Orders are already getting better, and that's probably going to pick up in 2026. We're seeing that with small tractors, maybe lower rates are going to have to help your forestry business. So that part of the business seems to have reasonable visibility. But in industrial, this is where, at least to me, things are a little bit trickier because we have seen very good demand over the past few years. And there is a question as to the sustainability of this demand in the context that a lot of the stimulus dollars that have been allocated post-COVID have been frankly spend. And now we sort of have to ponder where we are in terms of the needs or the various replacement cycles that these municipalities have for various types of products that you sell in the segment. So kind of a complicated question, I guess, but what is your perspective on the sustainability of demand in this segment. And as you think about your goals that you have outlined, which are reasonably ambitious, what are some of the levers that you feel are within your control to be able to get this segment to perform in the kind at the sort of level that you have outlined? Robert Hureau: Yes. So big broad question there. Good question. We're thinking a lot about it. The first thing that I would say is I think you're spot on with respect to the way you're reading the end markets and the way we think about it. We've had tremendous amount of money inserted into certainly the U.S. economy coming out of COVID around the infrastructure or from the Infrastructure Act, Job Reduction Act, et cetera. That has poured a lot of money into the economy and boosted it. And you can see it in the results, we've grown, I think we said 7 consecutive quarters of double-digit growth, 17% print in Q3. That's extraordinary performance. I think that as we look forward, that will slow. I think those end markets are still really, really attractive end markets. They're less cyclical. They're longer cycle in nature. So we certainly love those end markets. I think the really interesting thing is, there are pockets within that business that also are really exciting that may surprise on the upside. So take hydro excavation as an example. This is something where there are state and local mandates driving the demand for the need for these types of products, which we sell. The penetration in that market is still fairly low, but the acceptance is growing quite rapidly. It's supported federally by OSHA. You see a lot of movement you see from an environmental perspective, those types of products are desired and demand. So you take that submarket within the, let's call it, excavation of vacuum group section within the Industrial division. You're going to see outsized performance there. I think a lot of the third-party data would suggest that's got 6%, 7% annual growth rate demand behind it. That's really exciting stuff. That's one pocket within this. I think the second thing other than the drumbeat around product innovation that we're going to have is M&A, right? I think we can target very attractive companies that have above-average EBITDA margins that will be accretive to our profile. So all of those things really -- we're really excited about even if the broader industrial end markets cool a bit as we roll off some of this heavy infrastructure spend. It's still really an exciting time to be part of Alamo. Mircea Dobre: That's super helpful. I look forward to seeing you in Chicago next week. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Robert Hureau: Thank you all for participating, and it's a great time to be part of the Alamo Group. We look forward to speaking with you again. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Definity Financial Corporation Third Quarter of 2025 Financial Results Conference Call and Webcast Conference Call. [Operator Instructions] This call is being recorded on Friday, November 7, 2025. I would now like to turn the call over to Vice President of Investor Relations, Dennis Westfall. Please go ahead. Dennis Westfall: Thank you. Good morning, everyone. Thank you for joining us on the call today. A link to our live webcast and background information for the call is posted on our website at definity.com under the Investors tab. As a reminder, the slide presentation contains a disclaimer on forward-looking statements, which also applies to our discussion on the conference call. Joining me on the call today are Rowan Saunders, President and CEO; Philip Mather, EVP and CFO; Paul MacDonald, EVP of Personal Insurance and Digital Channels; and Fabian Richenberger, EVP of Commercial Insurance and Insurance Operations. We'll start with formal remarks from Rowan and Phil, followed by a Q&A session, during which Paul and Fabi will also be available to answer your questions. With that, I will ask Rowan to begin his remarks. Rowan Saunders: Thanks, Dennis, and good morning. Last night, we reported record third quarter results that continue the momentum for Definity in what has truly been an exciting year for the company. During the quarter, we made further progress towards the closing of the announced Travelers transaction, including finalizing the required financing via our inaugural $1 billion bond offering, while maintaining our focus on delivering the targeted performance of our existing business, as you can see on Slide 5. Our strong underwriting performance, higher net investment income and continued momentum in our insurance broker platform combined to produce third quarter operating net income of $125.2 million or $1.03 per share. We delivered a sub-90 combined ratio in the quarter, well ahead of our expectations as our reported core of 89.4% reflected ongoing actions to improve our operational efficiency and included only 1.9 points of cat losses. From a top line perspective, we continued to deliver growth in line with our expectations. as gross written premiums increased 7.5% in the quarter to exceed $4.7 billion over the last 12 months. We ended the third quarter with book value per share of $33.43, 24% higher than a year ago, inclusive of strong financial results as well as our private placements of common shares to fund part of the Travelers transaction. We generated an operating return on equity of 12.5% over the past 12 months, reflective of the continued delivery against our organic levers. Sonnet continues to generate a profit for the year, while we remain on track to deliver the targeted improvements from expenses by the end of 2026. Early experience from our claims transformation is encouraging, and we are well positioned to achieve the targeted claims improvements by the end of 2027. I'd note that the improvement in our operating ROE has come along with a 17% increase in our average adjusted equity over the past year. Moving to Slide 6. Our industry outlook is largely unchanged. We expect conditions in auto lines to remain firm as insurers aim to keep pace with the combined impact of loss cost trends, ongoing regulatory constraints in Alberta and uncertainty related to the extent and impact of potential U.S. tariffs and retaliatory actions. We expect market conditions in personal property to also remain firm over the next 12 months, particularly following last year's record level of industry catastrophe losses and the structural move to higher reinsurance attachment points. In commercial insurance, while we expect overall market conditions to remain attractive, we are continuing to see that some commercial segments have become more competitive. We expect overall pricing in commercial insurance to keep pace with loss cost trends, which have normalized to low to mid-single digits. Slide 7 shows our key financial targets for 2025. As you can see, both top line growth and underlying profitability are at or better than target through nine months, while our operating ROE of 12.5% puts us at the upper end of our target range. We remain confident in our ability to reach a sustainable mid-teens operating ROE post integration of the Travelers transaction. Slide 8 illustrates the composition of our national broker platform. We've made great progress with M&A activity and solid organic growth, which has us ahead of where we thought we'd be as we close in on our target for at least $1.5 billion of managed premiums by the end of next year. We continue to view our national broker platform as a vehicle to diversify and strengthen the earnings profile of the business. Year-to-date, this platform has delivered more than $73 million in aggregate contribution to operating results, well ahead of our objective to increase it by 20% for 2025. And with that, I'll turn the call over to our CFO, Phil Mather. Philip Mather: Thanks, Rowan. I'll begin on Slide 10 with personal auto. Gross written premiums were up 6.2% in the third quarter, in line with our mid-single-digit growth guidance for the second half of 2025 that we provided on our Q2 call. This result reflects our proactive approach to rates and unit growth, partially offset by the outsized impacts of portfolio transfers in the prior year. Early indications for growth in the fourth quarter suggest the slowdown may prove to be more short-lived than expected. The combined ratio for personal auto improved to 94% in the third quarter from 98.3% last year, driven by earned rate increases, improved Sonic profitability and lower catastrophe losses. We continue to expect Personal Auto will generate a mid-90s combined ratio for the full year. While tariff-related policy changes have not materially impacted performance to date, we remain diligent and are ready to take additional actions where necessary to protect our profitability. Turning to Slide 11. Personal property continues to show momentum with Q3 premium growth of 9.3% benefiting from increases in average written premiums and improved unit growth. Past efforts to proactively address regions with cat exposure have proven successful from an underwriting perspective. And now that they are largely complete, we have begun to see a return to unit growth. We believe we are well positioned to maintain our growth momentum in the fourth quarter given the conditions prevalent in our industry. The combined ratio for personal property was robust at 83.6% in Q3 2025 compared to 124.9% in Q3 2024, driven by lower catastrophe losses. Though the most recent quarter experienced a benign level of catastrophe losses, the 9.2 points of cat year-to-date is only a couple of points less than expected for this line of business. As such, we are very pleased with our year-to-date combined ratio of 90.5% and believe we are well positioned to outperform our sub 95% combined ratio target for the personal property line of business in 2025. Slide 12 outlines the highlights in the quarter for our commercial business with premium growth of 7.5% in Q3 and 9.2% year-to-date, driven by strong retention and rate achievement and continued expansion in small business and specialty. Industry growth is trending to the low to mid-single digits, driven by normalized loss trends. We continue to expect that we can deliver growth at roughly twice the pace of the industry or better, which should translate into high single-digit growth for the remainder of 2025 due to our strong broker support, digital capabilities and specialty expansion. Commercial lines continued to benefit from our focus on underwriting execution and discipline with a strong combined ratio of 88.1% in Q3 2025 compared to 89.9% in Q3 2024. The improvement in the combined ratio was driven by lower catastrophe losses, partially offset by an increase in the core accident year claims ratio. The decrease in catastrophe losses and the corresponding increase in the core accident year claims ratio was impacted by the change in definition for a single claim catastrophe loss in 2025. We continue to run our commercial insurance business with the intent to operate at an annual combined ratio in the low 90s through the cycle. Putting it all together on Slide 13, consolidated premiums grew 7.5% in Q3 and 8.7% year-to-date adjusted for exited lines. At the same time, underwriting results were well ahead of expectations with an overall combined ratio of 89.4% in Q3, a substantial improvement from Q3 of last year, reflecting the strength of underlying improvements in our business, supported by a much lower level of cat losses. As you can see on Slide 14, operating results in the quarter were strong with net investment income of $54.1 million, supported by higher interest income from continued growth in our portfolio size. Given the contribution from proceeds of our private placements of common shares and senior unsecured notes, we now expect net investment income to exceed $210 million in 2025. Distribution income of $18.2 million reflected another impressive quarter from our broker distribution platform, which continues to deliver both organic growth and strategic expansion. The aggregate contribution from our national broker platform, including distribution income and the beneficial impact of the commission offset has increased by approximately 26% so far in 2025 and positions us well to achieve our financial target of delivering an increase of approximately 20% in 2025. These results, combined with healthy underwriting income contributed to an operating return on equity of 12.5% over the past 12 months, a clear step forward on our path to sustainable mid-teen operating ROE post integration of Travelers. As you can see on Slide 15, we ended the third quarter with shareholders' equity above $4 billion for the first time, a significant milestone for Definity and a testament to our continued strong performance and the capital-generative nature of our business. On a per share basis, this represents a 24% increase year-over-year, reflecting both robust operating results and the impact of our private placements of common shares. We successfully completed a $1 billion private placement of senior unsecured notes in September, marking our inaugural bond offering and the final piece of our financing strategy for the Travelers transaction. The issuance was well received by the market at better than our modeled interest rates and further enhances our financial flexibility as we prepare for closing in the first half of Q1 2026. We currently expect a leverage ratio of approximately 30% upon close of the Travelers transaction with a plan to get that back to our target level of 25% within 24 months. Turning to Slide 16. Our financial position remains strong with ample capacity to support both organic and inorganic growth initiatives. We continue to deploy capital in a disciplined manner, prioritizing ongoing broker acquisitions and investments that enhance long-term shareholder value. With that, I will turn the call back over to Rowan. Rowan Saunders: Thanks, Phil. Let me end with an update on the Travelers transaction on Slide 17. As I mentioned last quarter, I believe this is a concrete demonstration of our commitment to build a Canadian champion in the P&C insurance industry. Integration planning is nearing completion as our joint transition planning team has made tremendous progress. Employee and broker sentiment has been and remains overwhelmingly positive. Employees are excited at the prospect of our scaled capabilities and the expanded opportunities that they will bring. Our brokers are enthusiastic and are showing a clear interest in our enhanced product offering post close. We now expect the transaction to close in the first half of Q1 2026 following a receipt of customary regulatory approvals ahead of our initial expectations. An important deliverable to ease the integration process was to finalize our claims transformation. Just last month, we successfully implemented the Guidewire Property and Casualty module, marking the completion of the Guidewire ClaimCenter rollout. We are now on Guidewire Cloud for the majority of claims administered by Definity. The implementation of ClaimCenter is part of a broader effort to reduce friction by modernizing and digitizing key steps in the claims journey. This enhances our ability to deliver on our commitment of providing up to 2 points of operating ROE contribution by having a robust platform for scalable growth, ongoing innovation and a seamless end-to-end customer experience. As a proof point, since implementation of ClaimCenter for auto claims in April of 2024, our cycle time has improved by 19% driving better operational efficiency, enhanced indemnity outcomes and higher Net Promoter Scores. We look forward to seeing similar benefits on the property and casualty side. As we approach the end of 2025, the company is performing strongly and is in a great position to begin the process of integrating our upcoming acquisition. And with that, I'll turn the call back over to Dennis to begin the Q&A session. Dennis Westfall: Thanks, Rowan. With that, we are now ready to take questions. Operator: [Operator Instructions] First question comes from Stephen Boland of Raymond James. Stephen Boland: I guess, Jeff Kwan is not here anymore. So I guess it goes to the next person. So could you just break down -- you're usually pretty good at breaking down in personal auto inflation between the different buckets that are causing that. Maybe just your outlook for inflation over the next 12 months. Rowan Saunders: Stephen, thanks very much for the question. Happy to take that and have Paul give you the flavor. I think the big picture for us would be we like where the market is at this stage, and we've got to a position where it's pretty stable. And when we see stable loss cost trends, we're able to underwrite, we're able to get our pricing points at the right level. And then that gives us a pretty favorable outlook. And I think when we go back to the market is still pushing significant prices through as they strive to get to profitability. we're in a good position because we're very adequate, and we are profitable. We have the Vine scalable platform. And so as we think forward, we're quite bullish on this line of business. But Paul, could you give more color on to the cost trends and the breakouts? Paul MacDonald: Absolutely, yes. So, Stephen, as I've previously shown, there are components of it between the property damage and the casualty. The casualty, we've been fairly consistent throughout the last few quarters in that mid-single digit, and we're not really seeing any changes in that. AB is a bit more stable. BI is a little bit more volatile. But overall, still that mid-single-digit range. The one that we've spoken about consistently is on the property damage side, which includes obviously comprehensive and collision. We also include theft in that element. And there, we've seen a more stabilization of the trends around that mid-single-digit range. This is fairly consistent with pre-pandemic levels, and it really represents the natural cost inflation of vehicles that have more higher content in the vehicles, more expensive vehicles, cost of repairing them. The good news is, as I said, that, that's stabilized to that mid-single-digit range. I mentioned theft, theft has come down quarter-over-quarter. Pre-pandemic, it was about 2 points of loss ratio. At its peak, it went up to almost 7 points of loss ratio, and it's down to about 2.6%, 2.7%. So still a little elevated, but certainly much improved over the last year. And really, when you take all those things together, we're really talking about a mid-single-digit trend. The good news is we believe that we are well placed to cover that trend with our natural rate filings, and we've essentially caught that trend over the last while. So we're in a good position to be at a stable place. We do believe the industry as a whole isn't there yet. And so the industry as a whole will have to continue to take rate to cover that trend, but we're well positioned in that. Stephen Boland: Okay. That's really helpful. And the second question is still on personal auto. You mentioned in the MD&A just about the Ontario reforms coming in. Is that going to put pressure on premium growth? I mean there's lots of articles going around about that. I'm just wondering what your thoughts are. Paul MacDonald: We are certainly very involved in getting ourselves ready for the auto reforms. There's extensive activity in this space. These are things that the industry has gone through. So this isn't new to the industry and certainly not new to us, and we have reforms going in Alberta as well. But we believe that this is a good place for the industry to go. And really, what we're talking about, most of these reforms focus on the casualty side of the equation. They don't really have a lot of focus on the property damage side of the equation, which, as I just mentioned, has over the last few quarters been the one that's put pressure on the results. But the reforms are a good way for the industry to reset. Every few years, you will see a slight increase in trends, reforms come in, the industry responds and then there's a period of onboarding the benefits from those reforms for the couple of years thereafter. In terms of your question around overall pressure on premiums, we don't believe it's going to be a significant pressure on premiums. What these things will do is offset increases. So instead of seeing a pressure or a decrease in premiums, what you're going to see is less need for additional rate beyond that to cover the trends that I disclosed. It does give some clients a bit more ability to control their overall premiums, but we believe it's going to end up still maintaining a well-balanced portfolio. So it doesn't cause us any concern from a top line perspective. Operator: Next question comes from Alex Scott of Barclays. Taylor Scott: First one I had is on the Travelers acquisition. And just now that you've had some more time with it and so forth and it closing reasonably soon. Can you talk about just the influence it would have on your combined ratios initially, Appreciating that there'll be some repricing and remediation over time. But I just want to make sure I understand sort of the starting point that we should expect next year. Rowan Saunders: Thanks for that. So, firstly, a quick update on the progress. I mean, I think as we said in the materials, this is proceeding very well. We do think that it will close a little earlier than originally anticipated. So that's exciting for us. We've also made great progress on things like getting the financing complete with our inaugural bond offering, which again went very, very well. And I will say that the teams are working very well together and we're at the very advanced stages of the integration planning. So we're pretty excited about that. I think when it comes to the impact that it will have on us next year, what we've kind of said is, look, we have a good sense of the size of business that's coming. We know that it's very complementary to our portfolio. Of course, it moves us from the sixth largest to the fourth largest performer. So, clearly, it will have a significant impact on our revenue going into next year. We also said that this is essentially a breakeven business. And we have a plan that to integrate this and to get cost synergies of $100 million. That takes a couple of years to work its way into the portfolio. So as we roll through the year-end, as we close the transaction, when we update our guidance for 2026, we'll be able to kind of give more color in that. But clearly, I think from our perspective, this business is something we're pretty excited to get. We know more about it now that we are getting closer to the transaction date. And we're as excited about it as we were before. We're getting exactly what we think we expected. And I think more to come in the new year. Taylor Scott: That's really helpful. Next, I wanted to see if you could dig a little deeper into the distribution income trajectory. I mean it sounds like you expect a continued strong growth rate there, but just interested in where you're seeing the opportunities, what the M&A environment is like there for the bolt-ons? Rowan Saunders: Yes. Look, I think this is something that we're very pleased about. And I think that it's worked extremely well for us over the last couple of years, and it's becoming quite a meaningful number. The way we look at this is that the broker platform, these are high-quality brokers. They're doing really well in the marketplace. As they've got kind of scale, they've got more capability, and that's allowed them to increase their growth rate. So this is a strong organic growth platform. And then on top of that, you had a pretty active M&A market where there is a significant amount of consolidation that has occurred and we still believe will occur going forward. So when we looked at this year, originally, we said that we had a 15% guidance in the National Broker platform operating earnings. They were doing well and they accelerated some acquisitions. And so we upped our guidance. And actually, they're even -- they're outperforming that at this stage. So the latest guidance that we had left in place is a 20% year-on-year. That's a combination of strong organic growth and a healthy pipeline. And as far as we could see out, we don't see a change in that environment for the next number of quarters. There is still a pretty healthy pipeline available. Operator: Next question comes from Paul Holden of CIBC. Paul Holden: I want to follow up on a comment that Phil made regarding personal auto. So, Phil, you said that a slowdown in personal auto may be more short-lived than expected. So maybe you can drill down on that simply asking why -- what are the indicators that make you believe it's potentially more short-lived? Rowan Saunders: Yes. Go ahead, Paul. Paul MacDonald: Thank you, Paul. It's Paul here. I'll take you back to comments I made in previous quarters. This is very much deliberate. We had indicated at the beginning of the year that we'd be pushing hard on gaining unit growth and rate growth at the beginning of the year on auto, but we did expect to see that slow down a bit in the back half of the year. And the reason is quite simple is that we knew we were taking significant rate in the back half of the year. And you may recall in previous years, when we took rate in the back half of the year, that was followed by a little bit of a period of lack of competitiveness or reduced competitiveness and then that came back to us. So the exact same thing happened this year, very deliberate. We took 5% rate -- additional rate in our Ontario portfolio, which is our largest. That was on top of an existing 7.5% that was already flowing through that portfolio. And in effect, what that meant was a 12.5% increase on customers in that jurisdiction. We knew that, that would reduce competitiveness very deliberately, and it has, in fact, done so. But what we're pleased to see is unlike the previous two years where it took a couple of quarters for some of the growth to come back, it's actually come back faster. So even within that quarter, what we saw is July and August, the -- the top line was reduced a little. And then in September, it's come back quite healthily. So we expect that trajectory of healthy growth to maintain into Q4. And so we really managed this portfolio to the full year. The full year growth is at 8.6%, which is exactly in line with our guidance, and we expect to close the year close to that. That upper single year guidance is what we expect. And I will say at the same time, remember that the inverse is true for property. We indicated at the beginning of the year that we were taking extensive actions to improve the concentration and accumulation in our property portfolio, and we were redesigning our property wordings. And what we did not want to do is accumulate a lot of units in advance of a cat season until that work had been completed. That work has, in fact, completed. And so as I indicated in previous quarters, we expected healthy growth in the property portfolio in the back half of the year to offset that slight reduction on the auto, and that's exactly what we're seeing. We're seeing very healthy growth in Q3 and even the months within the quarter, steady improvement month-over-month in our property earnings. So really, what we're looking for is a full year high single-digit result, both auto, both property combined, we're very pleased with the performance of these portfolios. Paul Holden: Got it. That all makes sense. And I know you haven't given 2026 guidance or outlook yet officially, but I kind of want to follow up particularly on auto, how to think about '26. So I hear you on the -- you taken more recently rate of 5% in Ontario, which is in line with the mid-single digits claims inflation you highlighted earlier. So that makes sense, and that projects stable margins. If we extend that 5% out to 2026 and then combine that with the indication you said industry is still catching up, does that mean premium growth could be in excess of 5% next year because you get the 5% on rates plus picking up a little bit of market share? Is that a reasonable way to think about it? Paul MacDonald: Yes, it's Paul again. I think that's a reasonable way. Just remember that when we have written rate, not all of that flows directly to the results because there's natural drift that occurs in the portfolios. But really, what we're talking about is mid-single-digit rate, probably take an extra point or 2 above that to maintain parity with the trend. So it's reasonable to assume that the industry as a whole will be growing at that from a rate perspective. And then, of course, on top of that, you add unit growth depending on the market. So, in our case, we still feel confident about the rate achievement and also the unit growth and targeting that high single-digit range. Paul Holden: Okay. That's helpful. And then I'll ask one more if that's okay. So I want to drill down a little bit more on the -- on commercial and sort of same line of questioning, right? So saw a slowdown to 7.5% growth this quarter, which is consistent with the guidance you gave last quarter, so maybe no surprise there. How -- like how should we think about that just in terms of rate versus market share gain? That's what I'm trying to get a better sense of. Fabian Richenberger: Thank you, Paul. This is Fabi Richenberger answering your question. So maybe I'll give you a little bit of a big picture assessment of how we view the marketplace overall. So while we've seen more competition this year, especially in the large account segment, I would say that the commercial insurance overall remains a very attractive segment for us overall. And we are very pleased with the results that we have achieved in Q3 and year-to-date as well. Maybe what I do, I share two or three data points with you that illustrate why we are so confident about our commercial business. The first one, and I think that's the most important one, is that in our core business, which, as you know, is small business and lower-end commercial business and which makes up actually the vast majority of our portfolio, we don't view market conditions in that segment being soft. Across our core business, we are achieving mid-single-digit rate increases, which we are happy with. Our retention numbers, both in terms of policy count and premium are in the high 80s. And we're actually writing new business at adequate margins and gaining market share, which is very much in line with our strategic aspirations. Our core business is also benefiting from strong portfolio management capabilities and our digital enablement of that business allows us to renew that business in an automated manner, and that is protecting our margin as well. I know that there's a concern about what's happening in the large account segment. And for sure, that large account segment has been more competitive, but we are guiding our underwriters to make the adequate decisions. And if the margin equation doesn't make sense, we are quite happy to let those larger accounts go. And again, because that large account is the smallest portion of our commercial business overall, we don't really see those decisions to have a material impact on our business. I think the other thing that is important to draw out is that the cycle that we are in today is happening in a different structural context than any cycle before. And what I mean by that is that what we've seen over the last 10 years, we've seen a lot of consolidation happening. And in that core business, in our core business, again, small business, lower and middle market business that makes up the majority of our portfolio. That business now is concentrated on four or five large domestic carriers and all of them are very disciplined as well. So, overall, we like the underlying profitability trends. As you've seen from our Q3 reporting, the rate achieved is 7.5% that continues to cover the loss trend that we have in our portfolio. Our profitability remains stable. If you look at our combined ratio on a year-to-date basis, it was 89.4%. That same number last year was 89.5%, which means that our frontline underwriters are doing a really good job sustaining our margin position overall. So I would say that in relation to your question, we are confident that we'll be able to sustain our combined ratios in the low 90s and sustain the growth rate that we have posted in Q3. Paul Holden: I have to ask one follow-up question on that because the point on the consolidation of the market was really interesting. That's specific to SME. Does the large account market look different, i.e., far more competitors than the four to five? Fabian Richenberger: Yes, very different dozens, dozens of large account underwriters and what we have seen in past cycles as well is that a lot of new capacity, foreign capacity, reinsurance capacity is coming into that large account segment. And obviously, having been in that business for over 25 years now, we know that dynamic happening at every cycle. So what we've done in the last five, six years, we have been very deliberate in terms of how we've been constructing our portfolio -- and as I mentioned before, the vast amount of our portfolio is in that lower end of the commercial marketplace in terms of account size and premium levels, and that just gives us a much better opportunity to sustain the profitability in our commercial segment. And what we do as experienced operators in that large segment when market conditions are firm, we are going to be quite opportunistic and we are going to generate growth rates in the 25%, 30% range. But then when the market turns, which is the case this year, we're going to switch from driving profit growth more into margin preservation mode. And what this means, as I mentioned, is that we're guiding our underwriters to let accounts go if the margin equation doesn't make sense. And then the growth rate is more flat. And again, because that large account segment is the smallest portion of our portfolio overall -- we don't see those having a material impact on our portfolio. But over the cycle, over a 10-year period, we are quite happy that we can drive profitable growth and good margins in that large account segment as well. Operator: Next question comes from Jaeme Gloyn of National Bank Capital Markets. Jaeme Gloyn: Yes. Just wanted to dig in on the property accelerated this quarter. It sounds like some of those initiatives to remove some of the concentration risk are done. Is the view that we should continue to see this acceleration through Q4 and into 2026. Or do you anticipate maybe some more competition or pricing adjustments as you're picking up that unit growth in the coming quarters? Rowan Saunders: Jaeme, I think that for us, as you see Paul's initial kind of comment, we're pretty confident that this kind of growth is going to continue. If you think about the last couple of years, it was still high single digit, but it was all rate. And what we would do is effectively churning the portfolio by shifting new business to less cat exposed areas and reducing concentration in those areas at the higher cat peril scores. That will continue, but the vast majority of that is one. That's just ongoing good portfolio management. So, I think, that we feel with that heavy lifting behind us, we now benefit from a hard market continued rate increases, but also unit count. And we've seen a pickup in the unit count as we're gaining share. So this line of business should continue to perform very strongly for us, both rate, which will continue, and that protects and adds to the margin, but also now taking share. Jaeme Gloyn: Okay. Great. And then just to go back to auto for a bit. It does sound a little bit like you're expecting rates to sort of just align with loss cost trends as we get into 2026. There's obviously a lot of rate written in '25 that will end up earned in '26, and so that will support premiums. at the top line, but it does seem like rates are now kind of going to move more towards flat with loss cost trends. And so margin expansion may be a little more challenging to get in '26 and '27. Is that fair? Do I kind of understand that correctly? And then I guess there's probably some other things that are going to help on the margin expansion side specific to Definity you can outline? Paul MacDonald: Yes. So, Jaeme, it's Paul. I just want to highlight the nuances of that. So a couple of things. First, I said that the trends are stabilizing around that mid-single-digit range overall. I also indicated that the market as a whole hasn't quite caught that trend. So many insurers will have to take rate ahead of that to help them get back to a rate adequate position. We're in a favorable position relative to that. So, for Definity specifically, we believe we're at rate adequacy on the whole. And what that means for us moving forward is that we will be taking sufficient rate to cover trend, as you mentioned, and then maybe some to maintain -- to focus on avoiding volatility. However, your second question around margin expansion is that we believe there's still significant opportunities in the marketplace for margin improvement. We mentioned reforms earlier. There are other elements around segmentation, and we believe we have a strength in our ability to segment and chase the right customers. So there's still -- we're still going to maintain our focus on that. There's also the volatility aspect of tariffs. Right now, we are -- we have a fairly muted response to tariffs. We're not seeing a significant impact rolling through the portfolio yet. We believe our current rate trajectory is sufficient to cover the current tariff impact, but we remain diligent. If this changes significantly, to your question around '26 and '27, there may be a commensurate increase. If tariffs jump up, insurers like us will then file for tariff-specific rate increases, and that can change the trajectory of the rate environment quite significantly. Jaeme Gloyn: Yes. Understood. That's clear. And then last, just wanted to get more details on Sonnet. I think it's in the MD&A talking about driving profitability for the auto portfolio. Can you give us a little bit more detail as to how well it's growing and that profit contribution and what you see in '26 for that platform? Rowan Saunders: Yes, Jaeme, if you call, what we were trying to do there is make sure that Sonnet could break even. So remember that we had the target of can it be sub-100% combined ratio and can it do that sustainably. And so that's really been our focus for this year. And Sonnet once again produced an underlying profit in the quarter, and that makes four consecutive quarters in a row. So the task we set ourselves is can we scale this business and can it run at a contribute of underwriting results? And the answer is yes. And so that's very good news for us because we are able to now have confidence that we can retain the right customers. We're going to attract the right customers. And then the next step for us is to return to growth. So there isn't any growth in the portfolio this year. That really was our intention that this would be more of a flat year as we made sure we were comfortable with the quality and the operating model itself. Now we have. We'll look to return that portfolio to growth, but that really will only occur as we get into 2026. Operator: Next question comes from Mario Mendonca out of TD Securities. Mario Mendonca: I have two broad questions, one for Phil, one for Rowan. First, Phil, I'm not going to hold you to something you said a year ago, but you did offer in the Q3 '24 call that you thought ROE could reach 12% in 2026. So much has changed since then, not the least of which is the 17% increase in capital that I don't think anyone could have anticipated. And Travelers, as you said, is breakeven in the early going. But a lot of other things have gone well like Guidewire, Sonnet turning somewhat profitable, expense saves. So that's a lot of moving parts. Could you revisit your 12% ROE in 2026 outlook in the context of all those changes? Philip Mather: Yes. Thanks, Mario. I think the first comment I'd make is, you're right, there are a lot of moving parts. If we look at those that are driving continued expansion of the operating earnings, we're really pleased with the progress that we've made. So obviously, the core business is doing very well. We're below our sub-95% objective for the current year. And if we look at the three operating levers that we've talked about in the past, we're making really good progress against all of them. As Rowan has said, Sonnet is now there, I would say. If you look at the past quarter, the year-to-date and the past 12 months, it's made a positive contribution across all of those periods. So that is performing well and reflected in the numbers. On OpEx, we've still got some benefit ahead of us. So if you look at the overall goal, we wanted to get to 11.5% this year. We're up 11.4% year-to-date. So gliding very nicely. We still think on our core Definity business, there's still about 0.5 point of opportunity ahead of us in 2026. There's no change in view on that. And then if we look at the Claims Guidewire implementation, as you mentioned, there's -- we're probably about halfway into that. We've just had a successful launch of the property casualty side of that platform a couple of weeks ago ahead of plan. So that's good news that it's coming in earlier. But we've not upped any benefits on that side of the business yet, and there's probably a couple of years until you get to full run rate. So I'd say on all of those contributed levers, really pleased with the progress that we've made. You rightly point out that we've had very significant book value expansion at the same time. So that's a lovely problem to have. We've been really able to grow the scale of the business and that denominator, some of that is still ahead of us next year. And you're right also on the Travelers transaction, we've raised the capital this year. We'll only take ownership in the -- our expectation is the first half of 2026. And then there'll be a period of time until you actually get the synergies actions taken and then earned in. So a lot of moving parts. What I would say, though, is without talking to next year specifically, we're really pleased with the progress that's being made on that journey into the mid-teens on a sustainable basis. We do need the Travelers transaction to optimize that position and break us into the teen criteria. And as I say on that one, what you'll see next year is you'll see the levers being pulled to untap the synergies, but there'll be more of a lag on an earning pattern. So more of that contribution to driving the operating ROE up and into the teens is more likely to come in '27 than it is in '26. Mario Mendonca: So the reference of 12% last year, you'd have us think of that as more of a maybe exit 2026 or into 2027. Is that more appropriate? Like is it no longer appropriate for us to rely on the 12% for 2026 that you offered last year? Philip Mather: I think I'd say, look, our current range is in that 10% to below teen prior to the deployment into Travelers and getting the accretive benefit of those synergies coming through. There's no change in our view on that. The underlying business continues to track forward comfortably. But we don't see a breakthrough into the teen period until you get the earnings pattern of the synergies. What you'll see next year is we'll be able to pull levers on the synergies from a run rate basis, but they won't turn in until you get the insurance math behind them. So I would tell you, we're very happy with the progress we're making on the core business. We wouldn't change our outlook on operating ROEs for the core business. but we just have to recognize that. The great news is we've generated a lot of capital. We've deployed that capital or we expect to do so in the first half of Q1. And it will just be a bit of a lag impact until you can get the synergies earned in and then get us to cross into that team period. But we're very positive, Mario, in terms of where the business is going. Mario Mendonca: Yes. I certainly wouldn't question the fundamentals. I think things have changed, and I think your comments reflect that change in how much the book has grown. But Rowan, can we go to another broad topic here. From the middle of this year onward, all the P&C names in the U.S. and Canada really lost a lot of momentum in terms of their share price. And the concern, of course, was that the cycle was changing, it was softening and things were going to be much worse. What I'm hopeful you can do is address the notion that in Canada, the sort of the large high-quality P&C companies that put your company in that category can cope with a moderating -- a softer cycle. Like what makes the large high-quality P&C companies in Canada different and capable of coping with a softer cycle? Is there a reasonable argument to be made there? Rowan Saunders: Yes. Thank you for that, Mario. I mean, I think a couple of points I would kind of offer on that topic. Number one would be this isn't a surprise that P&C industry goes through a couple of cycles from time to time. And so I think that good operators anticipate that and structure their business to be resilient through -- and able to operate well through the cycle. And so we thought about that in terms of our mix of business, which segments we play in, what propositions we bring to the marketplace. The other part that I would make is that there isn't just one cycle. And so if you think about periods of more competitiveness, we have now some parts of commercial that are definitely more competitive but not all verticals, not all parts of commercial. And as Fabi said on the call earlier, the market is structurally different in commercial than it was many years ago. And that's why our portfolio, particularly that is heavily skewed to the smaller accounts, there isn't a soft market. We're actually getting rate on the portfolio, and that's ahead of trend. So we're actually increasing some margin on that part of the portfolio. There are some other areas even in the specialty areas that we continue to grow in, we're rate adequate, there's good opportunities. And what you see us doing in commercial lines is that where there are segments that are more competitive, we just slow down a bit of putting new business capital at forward. And so what you therefore see is us maybe not growing at 10%, but growing at high single -- 10% plus like we did, but more high single digit. that's still good growth, and it still protects the margin. And I think that's, to me, the main point that we can take out of this. Could there be a period of time where we're not growing commercial at double digit? Yes, there could be, but we will still be holding our margins, and it will still be outperforming the industry. It will still be growing at twice the rate of the industry. And particularly in that small business segment, it's not just a price play. This is a product. It's an experience. It's an automation play. It's digital. It's the wine -- so I think that's an important piece. If I just flip quickly to the other part of the business, 70% of our business is personal lines. You heard Paul talk, it's hard. We're getting higher rate on personal property and actually adding margin to that business. In personal auto, we're in a good position. We're sub-95. We plan on being sub-95%, even including the Sonnet business, and we'll start to get some growth in that story up there. And then the final thing, which is, I think, a strategic differentiator for us in the business is we've also built a top 10 insurance broker. So now we had stable, repeatable distribution income. And so Mario, that's why I think we feel very confident that we can manage the cycle. I go back to our big picture. Our big picture is we wanted to be a top 5 player. We will pro forma with Travelers now be in that top 5 -- top 4 player. Of course, we'll set a new target, top 3 or something like that. We are an operating ROE expansion. You had a discussion with Phil there. We're very confident about all of those levers. Some of them are already reflected like Sonnet. The others are still earning in and particularly the claims transformation, which we're really confident about. There's another couple of points that really has just started to come into the business. And then the Traveler story is a good one because even if the market and the cycle gets a bit more difficult, this is a good time for us to pick up a large portfolio and embed a significant amount of premium on our platforms and our terms and our conditions. So I do think in aggregate, it would be silly to say when you shift from one cycle to another part of the cycle, there's no impact. But what I can say is we absolutely think we can do a very good job of managing it. We're structured resiliently. And we will continue to -- we'll update our guidance next year. But it's still going to be -- we think we can grow at twice the rate of the industry. We think we could run this business into the low 90s. And we're very confident that as we integrate the Travelers business, we end up in the mid-teens operating ROE in the next few years. So that's, I guess, a level of confidence we're expressing today. Mario Mendonca: So barring some kind of meltdown, and I don't think anyone is calling for a meltdown like a really bad cycle. You're saying things like getting ahead on pricing, addressing it through mix, managing expenses, building distribution, being conservatively reserved, allocating capital, you're saying all those things, you put them all together, high-quality companies can grow and thrive in a somewhat softer cycle. Rowan Saunders: I do. Yes. Operator: Next question comes from Bart Dziarski out of RBC. Bart Dziarski: I wanted to follow up on Mario's questioning around the ROE. So when we look at your operating ROE last 12 months, 12.5%, there's probably some benefit there from benign cats and Q3 '24 cats coming off. But I guess my question is, why couldn't that reach the 13% just organically in the sense that you still have 1 to 2 points coming of benefit from claims and OpEx. Are there other factors that may slow down that trajectory? And I'm asking because you're unique in the sense that you have an ROE expansion story organically. So I just wanted to understand that a little bit better. Philip Mather: Yes. Yes, no problem. So yes, I'd say if you break it into the two components, you've got the operating contribution and then you've got the equity story. So on the operating contribution, you're absolutely right. We still have several levers that are not fully reflected in the operating results. We're helped a little bit by cat losses. It looks pretty dramatic on the quarter. If you look at the year-to-date, we're about 3.6 points of cat losses. It's just under 1 point less than we'd expect for a full year. So it helps us, but it's not the whole story by any stretch. And really, the big part of the contribution towards that 12.5% we're seeing in this quarter is those operating levers coming through. And so I'd agree with you that we still have progress to be made on that, and that should drive the operating contribution. I think what are the factors that we're looking at on the other side of the equation, net investment income, we know yields have drifted down a little bit. We've done a very good job of sustaining book yields. But as we reinvest, there's some natural dynamic there. Where we're going to get upside opportunity is the cash flow coming into the portfolio as opposed to yield. So we still are positive about our ability to manage those funds and the capital and profitable nature of the organization is helping us deploy more funds in there. But it's not as much of a tailwind as it had been in the past. I think the thing that we do have to recognize is the equity expansion, which is great, let's be clear. We've been really able to expand that book value through this period of outperformance. That's a lovely challenge to have, if you like, from a denominator perspective. But as we average in that book value, that number is going to climb next year. And so that would be the denominator challenge. It's not an operating earnings story. It would be the denominator. So that would be the fact about that just from a math standpoint is the headwind. That eases because we're now deploying our capital accretively. We believe we are through the Travelers transaction. But in year one, it's -- we expect it to be about a breakeven business. We will start making progress on the synergy capture. But with insurance math, showing that up in earnings takes a little bit of time because you're deferring cost amortizing it in and getting to a run rate view is a little different. So that's why when we talked about the transaction, and we'll do this next year as we start giving updates on progress, we'll give you a lens of the actions taken on the synergies and what is a run rate view versus what is in the distinct quarter. I think that's important because that's the pathway into that kind of team expansion. Bart Dziarski: Great. That's very helpful. And then I had a question around sort of data insights and market share, if you will. So last year, we had, call it, three or four outsized cat events, maybe 1 in 50, 1 in 100 years. So have the cat loss kind of probability models, pricing models that you guys use, have they caught up to that in terms of normalizing for those events? And to the extent they have it, like is there an ability to kind of leverage some of the insights you're seeing on the ground to take advantage of that and gain some more market share? Paul MacDonald: Bart, it's Paul. Yes, I think the answer to that -- to both of your questions is yes. What we've seen, obviously, over the course of the last few years is an increase in severe weather and cat severity. And so we've increased our modeling to reflect that, and we've increased our pricing to reflect that. Last year's hopefully and clearly an outlier in terms of the worst one on record. But even outside of that, as we were still profitable last year in that, I think that reflects the second part of your question, which is, is there an opportunity to gain a benefit from that? And I think, yes, we need to have increasingly sophisticated modeling and segmentation. We need to consistently update things like flood maps and wildfire maps, and we do that. And I think our performance has shown over the last few quarters in terms of we are significantly below our natural market share in terms of our cat costs. So this is really an area where we believe we excel in terms of being able to utilize that capability to then take share. I used an example previously, and I'll highlight it again, Bart. There are times where you would imagine a less sophisticated insurer might be using a large geographic area like FSAs, which are the first three digits of a postal code to do their rating. So if you have a large area like that and one part of it is exposed to water, you may treat that entire area as a high-risk zone. We have improved our fidelity. We've been able to get from an FSA to a postal code and then down to 100 square meter and the ability is even to get more refined than that. And if you think about my example, what that means is if we're in a large postal code, we can actually write risks that are not close to that water body source that previously would have been considered to be high risk. And vice versa, we can get much more sophisticated at making sure that if it's very close to a risk exposure, we can then charge an appropriate premium or not write it. So it does, over time, really start to show the benefits of those investments in analytics and capability and the AI capabilities that are coming through to then target particular segments and particular risks and then gain share. Operator: Last question today comes from Tom MacKinnon out of BMO. Tom MacKinnon: Yes. Just a question with respect to distribution income growth and what you're seeing really in terms of further acquisition opportunities at McDougall. How much of growth really inorganically augmenting some of the organic growth that you're talking about there? Rowan Saunders: Thanks, Tom. I think that the organic growth generally is high single digits. And I think that this is a business that has a superb sales culture, very entrepreneurial, great products. And so I think that the benefit is as they make acquisitions, there are some obvious cost synergies that you get from a bigger platform, which improve their EBITDA, but they also help the acquired businesses improve their ability to win and compete in the marketplace. And so what you get is acquisition earnings that come in and then those businesses tend to operate better than they even did before. And that's why I think when we think about the trajectory here, we expect high single-digit organic growth and then that's supplemented with inorganic activity. That really is what's been kind of driving some pretty impressive year-on-year growth rates to date. And overall, we think that the -- we've done eight transactions this year and the pipeline still looks pretty full. Operator: There are no further questions at this time. I'd now like to turn the call back over to Dennis Westfall, Vice President of Investor Relations for final closing comments. Please go ahead. Dennis Westfall: Great. Thank you, everyone, for participating today. The webcast will be archived on our website for one year. A telephone replay will be available at 2:00 p.m. today until November 14, and a transcript will be made available on our website. Please note that our fourth quarter and full year results for 2025 will be released on February 12. That concludes our conference call for today. Thank you, and have a great one. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask you that you please disconnect your lines. Have a great day.
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.
Agus Aris Gunandar: Good afternoon, everyone. Thank you for joining today's earnings call for PT Lippo Karawaci Tbk. My name is Agus Aris Gunandar, Head of Investor Relations, and I'll be your moderator for today's session. With me is Pak Fendi Santoso, our CFO, who will give you a presentation of the company's results for the 9 months ending September 2025, which will then be followed by a Q&A session. [Operator Instructions] Pak Fendi, can you please proceed with the presentation. Fendi Santoso: All right. Thank you, Pak Agus. Good afternoon, everyone. Thank you for attending this earnings call that will discuss 9 months performance of PT Lippo Karawaci Tbk. So let me just go straight jump into the performance for the 9 months. Probably before we start with the results, let me just give you -- give everyone a context to what we see from the macro point of view. We still see that demand is relatively a bit soft in this quarter. And the overall economy still remains pretty relatively soft with the Indonesian consumer buying power also remain subdued. That being said, we are starting to see that on a quarter-on-quarter basis, third quarter compared to the first quarter and second quarter of this year has improved a lot. And we are also seeing that's happening across our businesses, both in real estate, lifestyle and health care. So for the first 9 months of 2025, our marketing sales for the real estate reached IDR 4 trillion, and this is compared to -- this is 64% compared to our full year target of about IDR 6.25 trillion that we've guided everyone earlier this year. Our revenue continued to post a very strong year-on-year growth, 74%, registering IDR 5.51 trillion of revenue and EBITDA increased by 4% at about IDR 843 billion. And our product launches for the first 9 months includes the premium series as well as the more affordable housing. We'll touch base on real estate performance later on the next few slides. But moving on to the lifestyle. Overall, relatively stable. Lifestyle revenue hit IDR 994 billion with EBITDA increased by about 21%. So our mall is actually doing relatively well with growth of about 6%, 7% on the visitors side, occupancy also improved by about 5 percentage points to 84%. This is higher than the average occupancy rate of mall in Indonesia. But our hotel revenue continued to see headwinds, and this is driven by the government budget cut spending that happened earlier this year. That being said, on a quarter-on-quarter basis, we are actually seeing improvements on our hotel business where occupancy rate improved quite substantially from the second quarter of this year. On health care revenue, Siloam’ performed extremely well for the third quarter. The first 9 months, it recorded about IDR 7.29 trillion, which is 3% increase year-on-year and EBITDA at about IDR 2.08 trillion with margins standing at about 29%. So that's overall on -- I'll spend a little bit more time on each segment later on the next few slides. But just on the statutory level, we will be posting about IDR 6.5 trillion of revenue for the first 9 months of 2025, slight lower compared to what we published last year, but this is because of Siloam’ still was consolidated in the first 6 months of 2024. And as such, the occupancy sits obviously higher. But then if we remove Siloam’ from the first half of 2024, we're actually seeing that the revenue grew by about 52% compared to last year on a pro forma on a like-for-like basis. Similar on EBITDA, we posted about IDR 997 billion for the first 9 months of 2025 compared to last year, lower because of the consolidation of Siloam’ in the first half of 2024. And if we remove this, our EBITDA actually grew by about 4% this year. This is the P&L that we will -- that we published in the 9 months 2025. We will touch base on revenue and EBITDA. Income from associates obviously increased, and this is because 9 months 2025 already fully deconsolidated and assumes and classify Siloam’ as our associate company and as such, contributions from its profits goes to the income from associates. So that's up by about 230%. I think additionally, we have also seen improvements from our [indiscernible] performance and contribution is actually quite positive this first 9 months of 2025. Net interest expense come down and is driven by our liability management as we've reduced our debt quite substantially over the last 12 months. And amortization and depreciation and taxes also reduced because of -- mostly because of the deconsolidation of Siloam that happened last year. And that resulted in our underlying NPAT of about IDR 442 billion, higher by about 8% compared to last year and NPAT of IDR 368 billion, substantially lower from last year, given that last year, we've enjoyed quite a lot of nonoperational and one-off items, including the gain from our deconsolidations of Siloam last year as well as the sale that we did on our Siloam stake last year. This is the cash flow for LPKR. I think relatively, we remain -- our liquidity remains strong. The focus of this year was to complete a lot of our projects that we sold in the previous years. And as such, the payments of about IDR 4.6 trillion that we had in the first 9 months of the year, this is offset obviously by the collection that we've gotten from consumers, from our customers from marketing sales. Net interest expenses, IDR 175 billion. This is substantially lower compared to last year where we spent about IDR 765 billion, and this is reflecting a successful deleveraging initiative and commitment to ensure that we have a stronger balance sheet moving forward. This is also in the cash from financing activity, IDR 1.8 trillion outflow given that we've settled all our U.S. dollar bonds in the beginning of the year as well as continue to repay our loans with the banks. On the financing side, I'm pleased to announce, I think we've shared this in the last -- in the previous earnings call that we've successfully secured a loan from BTN to refinance our syndicated loans. So I'm pleased to announce that we've now successfully reduced our cost of funds by about 60 basis points. So today, we are paying about BI rate plus 1.4%, which translates to about 6.15%. And then this is on [ ideal ] loans, which I think will continue to support our liquidity moving forward. As I mentioned, we fully paid all our U.S. dollar bonds. Now our liabilities are all in rupiah denominated. So and as such, we managed to remove the FX risk that's inherent in our business in the past. So now the revenue and cost and liabilities are matched. And we landed in September 2025 at about $2.75 trillion net debt and an improved debt maturity profile following our refinancing of the syndicated loans. So I'll move on to segment by segment. I'll touch on the real estate first. So on the property development projects sold in the first 9 months, we've sold 22 projects of landed residentials, around 9 projects of low-rise to high-rise residentials and then 16 shop houses projects. We spoke about marketing sales in the previous slides, but 70% of our landed housings -- 70% of our total marketing sales are contributed by our landed housings. We've done about 11 launches in the first 9 months. Lippo Karawaci, we've done 5 launches: Park Serpong 4 and 5, Bentley Homes and Bentley -- Belmont and Bentley Homes in Central and Marq in the heart of [indiscernible] cities. Lippo Cikarang, we've launched 3 launches, The Allegra at Casa De Lago, The Hive Tanamera and The Hive Neo Patio, which is shop houses and also 3 launches in Tanjung Bunga. Financial performance, I think we've touched base on this. But moving forward, we continue to focus on the affordable homes designed for young families as well as moving -- focusing more to the premium residents that meet lifestyle aspirations of the affluent market. Marketing sales, IDR 4 trillion for the first 9 months, 64%, as I mentioned, compared to what we've targeted for this year at IDR 6.25 trillion. I think the majority of the marketing sales are coming from [indiscernible] residentials at about IDR 2.1 trillion, followed by Lippo Cikarang at about IDR 1.2 trillion. We still have plenty of land bank that we can develop and which translate about 25-plus years of remaining land bank that we can develop at the current run rate. Highlights of marketing sales for the first 9 months, Lippo Karawaci is still dominated by landed housing at 77% in terms of value and 84% in terms of number of units. Lippo Cikarang, I think it's more balanced between landed housing, which contributed about 55% of the total marketing sales and commercial area, which is about 34%. In terms of the payment method, mortgage is still dominating the way our customers are buying our property at about 65%, which is lower compared to last year because a lot of people are opted for installments this year. In terms of the ticket size, still dominated by product with price less than IDR 1 billion that contributed about 66% and with -- and then the product that priced at IDR 1 billion to IDR 2 billion accounts for about 25% of total marketing sales. This is the project handover highlights. I think in totality for the first 9 months, we've handed over around 8,000 units. And obviously, predominantly from -- the Park Serpong is just an example of the cluster of Park Serpongs that we've completed and handed over, Cityzen Park East, Citizen Park North and Park West. In Lippo Village, we've also done quite a bit of handed over in the first 9 months, Cendana Essence, Site A Area 1 and 2, Cendana Cove Verdant and Cendana Cove also in Lippo Karawaci and also the handovers that we've done in [ Makassar ]. This is just to give you the highlights of the product innovations. There are a bunch of products that we introduced in the third quarter of this year from a building area of about 35 square meters at price at about IDR 397 million, up to close to 100 square meter property with price at about IDR 897 million in rupiah. I think 2 products that I would just give you a context to what the customers are liking is Treetops Alpha Livin and Goldtops, which is a 3-story homes that we've recently introduced in the first half of the year. This is just a picture of the grand launching of Park Serpong Phase 5. It was done on 30th August 2025, pretty successful at 87% takeup rate. We've sold about -- we've made about IDR 200-plus billion of marketing sales from the launching only. We continue to enhance our offering in Park Serpong. We will be introducing Lentera National, which is a K1 to 12 education school campus supported by Pelita Harapan Group. So this is part of the [indiscernible] Pelita Harapan education offerings. So this is, I think, going to enhance our propositions to -- and our service to the residents of Park Serpong. We've also introduced minimart, some sports facilities just to support the communities. We've also introduced shuttle bus that connects Park Serpong with some key establishment within the areas. And also, we are developing a modern market. We're going to introduce this very soon, situated in Park Serpong. And we've secured about 1.5 hectares for this modern market that will actually enhance our shop houses' marketing sales as when this product launches. So that's on the real estate segment. I'll move on to lifestyle. Just to recap for everyone, we've managed about 59 malls nationwide across 39 cities with net leasable area comprises of about 2.5 million square meters with very well diverse tenant mix comprising of grocery retailing, department store, F&B, leisure, fashions, casual leasings and all that from -- and then supported by well-known tenants, both locally as well as internationally. Performance continued to show a pretty strong growth. Revenue increased by about 7% and EBITDA increased by 15%, given the operating leverage that we enjoyed for this business. The mall visitors also continued to grow year-on-year by about 7% and occupancy rates also improving from 80% last year to 84.4% this year. We continue to do a lot of activities. This is just to give you some highlights to activities that we had in our mall properties. The Lippo Mall Kemang celebrated its 13th anniversary. And then we've held an event of fashion show, live music and community tenants in the month of September and October. Cibubur Junction is undergoing an upgrade. We are repositioning our tenant mix and going to renovate the program starting Q4 2025. So there's going to be more exciting tenants coming in. I believe that once this project is completed, I think it will drive more traffic into Cibubur Junctions. We also done a tenant gathering of Lippo Mall Indonesia and Plangi Nusantara, which received a lot of support from our tenants, too. On our hotel business, we've operated about 10 hotels and 2 leisure facilities across 9 cities in Indonesia. The performance is still facing headwinds with revenue comes down by 6%. And this is, as I mentioned earlier, this is driven by the challenges that we had for hotels that have been enjoying a lot of [ government ] events as the government cut spending and hold budgets of spending in the first half of the year and EBITDA coming down by 24%. Occupancy is lower compared to last year by 7% to 60%. However, just wanted to highlight that in the third quarter of this year, occupancy actually stands at about 71%. And compared to the second quarter of this year, so Q-on-Q, it's actually improving by 10 percentage points. So it was 61%, increased to 71% in the third quarter. So we have started to see things are recovering pretty nicely from our hotel business, but yet still not where we want it to be compared to last year's. Average room rates also improved by about 2% to IDR 635,000 per night. Now moving on to our third segment, which is health care. I think overall, we are starting to see that our health care business in the third quarter improved compared to the soft demand in the first half of the year with revenue actually improved by 7.8%. And then this is despite of a few unfavorable external events happening in the third quarter of 2025. If you recall, in early August, there was demonstrations happening across Indonesia, especially in Jakarta, where it affected our hospital operations as well as in earlier September or late August, there was a flooding also happening in Bali that impacted our hospital operations in Bali, where we had to shut down for 1 week. So those 2 incidents actually contributed to a lower revenue of about IDR 49 billion. So if we added up that loss of revenue to the third quarter of 2025, our revenue actually on a quarter-on-quarter basis improved by about 11%. So hopefully, in the fourth quarter, there's no more unforeseeable external events that's impacting our business, and we'll continue to see the recovery trends happening on the next few quarters. EBITDA, up by 19% also. On the operating metrics, I think overall, it's pretty positive on a quarter-on-quarter basis. Our outpatient visit improved by about 8.5% to 1.1 million in the third quarter of 2025. Our OPD to IPD conversions quite -- remains quite stable at 2.9%. Inpatient admissions also increased by 8.2% compared to the previous quarter. Inpatient days also improved by about 9% with ALOS stands pretty stable at about 3.1% compared to the last quarter. And occupancy rates improved by about 3.6 percentage points to 65.8%. So that's contributing to a relatively strong performance in the third quarter of this year. I think that's all I have for today's 9-month performance of Lippo Karawaci. I'll pause there to see if there's anyone have questions. Agus Aris Gunandar: Thank you, Pak Fendi, for the presentation. We do have received several questions in the Q&A box. Let me read the question as follows. The first one is from [indiscernible]. He's asking for an update on the MSU or [indiscernible] handovers and how much is left as of 9 months of 2025? Fendi Santoso: Yes. So I think mostly we've done all our obligation for the MSUs units that we need to hand over this year. I think in terms of the units already available, I think we are in the process of completing that handover, which the team is going to complete this by end of the month or early December. So I think we've done about 4,600, if I recall correctly, 4,500 to 4,600 for this year. Yes. So I think there's another question here. What is the occupancy rate of Lippo Malls as of current? I think I've mentioned this earlier. In the third quarter of this year, we had about 71%. So that's improving actually from the previous quarter of 61%. Overall, for the first 9 months on average, it's about 60% -- sorry, the Lippo Malls, 84%, sorry. I think we had that 84%, sorry, for the mall. So there's another question on the presales forming 64%. What will be the driving factor for the fourth quarter to reach this target? So we are actually doing a few more launches this year. We just had one launch that happens in Manado, which is getting quite a bit of good traction. And there are a few launches that we are going to do this year. So I think we are still -- the team is still aiming to hit that IDR 6.25 trillion marketing sales target for the year. So yes. Agus Aris Gunandar: Okay. I see there's no more questions on the chat box. So I think we have reached a conclusion of our discussion today. We'll be sharing the presentation material shortly after the session. And once again, thank you for joining Lippo Karawaci's 9-month 2025 Earnings Call. And we do look forward to meeting you again for our full year 2025 earnings call. And we wish everyone a very, very good afternoon. Thank you. Fendi Santoso: Thank you.
John Silas: Good morning. This is John Silas, a member of the Investor Relations team for Goldman Sachs BDC, Inc. I would like to welcome everyone to the Goldman Sachs BDC, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Before we begin today's call, I would like to remind our listeners that today's remarks may include forward-looking statements. These statements represent the company's belief regarding future events that, by their nature, are uncertain and outside of the company's control. The company's actual results and financial condition may differ possibly materially from what is indicated in those forward-looking statements as a result of a number of factors, including those described from time to time in the company's SEC filings. This audiocast is copyrighted material of Goldman Sachs BDC, Inc. and may not be duplicated, reproduced or rebroadcasted without our consent. Yesterday, after the market closed, the company issued an earnings press release and posted a supplemental earnings presentation, both of which can be found on the homepage of our website at www.goldmansachsbdc.com, under the Investor Resources section and which includes reconciliations of non-GAAP measures to the most directly comparable GAAP measures. These documents should be reviewed in conjunction with the company's quarterly report on Form 10-Q filed yesterday with the SEC. This conference call is being recorded today, Friday, November 7, 2025 for replay purposes. I will now hand over the call to Vivek Bantwal, Co-CEO of Goldman Sachs BDC, Inc. Vivek Bantwal: Thank you, John. We will begin the call with our perspective on recent performance in light of a gradually improving macro environment. Next, we will discuss our investing activity and outline GSBD's positioning heading into the fourth quarter. Shortly after, David Miller and Tucker Greene will provide a detailed review of portfolio activity and performance before handing it over to Stan Matuszewski to take us through the financial results. We will conclude by opening the line for Q&A. The M&A market has continued to remain resilient despite uncertainty that persisted in the first half of the year as total M&A dollar volumes in Q3 2025 were 40.9% higher year-over-year compared to Q3 2024. This surge is attributed mainly to a renewed risk-on sentiment among investors, lower borrowing costs, greater market clarity and a reset on valuation expectations between buyers and sellers in the market. As David will discuss later in the call, this pickup in activity has directly benefited GSBD as our new investment commitments and repayments during the quarter reached the highest level since the integration of the platform in 2022. Recent base rate cuts with additional expected through year-end into 2026 should accelerate deal activity, albeit spreads remain tight across the middle market and large cap juxtaposed against a tight spread environment in the public markets. Our proactive decision earlier this year to adjust our dividend policy and cut the base dividend positions us well in what will be a lower yield environment, where emphasis on credit selection will be paramount. Additionally, during times of increased competition for deal flow and high-quality deals, our proximity to our investment banking franchise serves as a competitive advantage for our platform to remain highly selective in evaluating opportunities. Broader credit dynamics remain top of mind for investors and made recent headlines concerning what we believe to be idiosyncratic issues versus a broader systematic concern. We remain comfortable with the risk dynamics in the private credit space given the overall health of portfolio fundamentals. We continue to evaluate the impacts of tariffs, ability for companies to service debt, and risks involved with software investing, particularly with the recent growth of AI investing. We recognize the transformative potential of AI, but our primary focus remains on downside risk mitigation. We have developed a proprietary framework to assess both software and AI disruption risk that we had implemented in our underwriting for over 2 years. We remain focused on mission-critical, market-leading companies with core systems of record across all our software deals. Now turning to our third quarter results. Our net income -- our net investment income per share for the quarter was $0.40 and net asset value per share was $12.75 as of quarter end, a decrease of 2.1% relative to the second quarter NAV, which was partially due to the $0.16 per share special dividend with some markdowns to previously underperforming names. This quarter marks the last of 3 special dividends that were announced earlier this year, along with changes to our dividend policy. The Board declared a third quarter 2025 supplemental dividend of $0.04 per share payable on or about December 15, 2025, to shareholders of record as of November 28, 2025. Adjusted for the impact of the supplemental dividend related to the third quarter's earnings, the company's third quarter adjusted NAV per share is $12.71 which I would note is a non-GAAP financial measure introduced as a result of the dividend policy change. The Board also declared a fourth quarter base dividend per share of $0.32 to shareholders of record as of December 31, 2025. We ended the quarter with a net debt-to-equity ratio of 1.17x as of September 30, 2025, as compared to 1.12x as of June 30, 2025. With that, let me turn it over to my co-CEO, David. David Miller: Thanks, Vivek. During the quarter, we made new investment commitments of approximately $470.6 million across 27 portfolio companies, comprised of 13 new and 14 existing portfolio companies. This marks the highest level of new investment commitments since Q4 of 2021, which demonstrates our unique position in a competitive deal environment, where we can be selective on credit quality and exhibit discipline where we want to lean in. 100% of our originations during the quarter were in first lien loans, reflecting our continued bias in maintaining exposure to the top of the capital structure. Of the 13 new portfolio companies, we served as lead on 7 which is a tangible indication of the power of the GS platform. The impact of the GS franchise was on full display through our financing of the acquisition of Shields Health Solutions. This was part of the broader take private of Walgreens, of which 4 silos were financed uniquely with GS Private Credit participating only in the Shields transaction. This is a deal where investment banking colleagues advise the sponsor. Shields Health Solutions is one of the largest specialty pharmacy operators in the U.S. At the time of the investment, the transaction represented one of the largest take privates of all time. Another notable investment this past quarter was to support Newtek Merchant Solutions, a wholly owned subsidiary of the publicly traded bank holding company, Newtek, which offers a range of financial service products to small and medium-sized businesses. Our financing package was used to support the refinancing of existing debt and to fund a payment to increase the bank holding capital base. Due to continued relationship with the CEO, GS Private Credit was able to secure the role of admin agent and sole lender to the company. The integration of our platform in 2022 allowed us to evaluate and invest in more high-quality opportunities that span from the middle market to large cap. And these 2 examples shine a light on our continued ability to do so at attractive pricing. We believe our platform is well positioned by the unique opportunities that channels Goldman Sachs ecosystem to take advantage of an active environment. With that, let me turn it over to our President and Chief Operating Officer, Tucker to discuss portfolio repayments fundamentals and credit quality. Tucker Greene: Thanks, David. For our portfolio companies as of September 30, 2025, total investments at fair value were $3.2 billion, comprising of 98.2% in senior secured loans, 1.5% in a combination of preferred and common stock and a negligible amount in warrants. We continue to see increased repayment activity with $374.4 million for the quarter. 86% of these repayments in the quarter were from pre-2022 investments, leaving less than 50% of our current portfolio at fair value and legacy assets. This rotation remains a key focus for the GSBD portfolio as it recycles into new credits. One notable payoff during the quarter was total vision. GS first invested in the company in 2021 and finance an acquisition in 2022. Total Vision owns and operates optometry practices across California, which provide professional and retail services to patients. We received full repayment of the credit facility and equity co-investment. This illustrates the power of our platform and our team's enhanced management capabilities in the health care space. Throughout this past quarter, we utilized our 10b5-1 stock repurchase plan during the quarter. We repurchased north of 2.1 million shares for $25.1 million, which was NAV accretive. At the end of the quarter, total investments at fair value and unfunded commitments in our portfolio were $3.8 billion in 171 portfolio companies operating across 40 different industries. The weighted average yield of our debt and income-producing investments at amortized cost at the end of the third quarter was 10.3% as compared to 10.7% at the end of the second quarter. Despite a modest tightening in portfolio yield quarter-over-quarter, our portfolio companies have both top line growth and EBITDA growth quarter-over-quarter and year-over-year on a weighted average basis. Our weighted average net debt to EBITDA remained flat quarter-over-quarter at 5.8x, and our interest coverage increased quarter-over-quarter at 1.9x from 1.8x. As of September 30, 2025, we placed one position from an existing portfolio company on nonaccrual status. However, our overall investments on nonaccrual status decreased to 1.5% of fair value from 1.6% as of the end of the second quarter. I will now turn the call over to Stan to walk through our financial results. Stanley Matuszewski: Thank you, Tucker. We ended the third quarter of 2025 with total portfolio investments at fair value and commitments of $3.8 billion, outstanding debt of $1.8 billion and net assets of $1.5 billion. Our ending net debt to equity ratio at the end of the third quarter was 1.17x, which continues to be below our target leverage of 1.25x. At quarter end, approximately 70% of our total principal amount of debt outstanding was in unsecured debt. As of September 30, 2025, the company had approximately $1.143 billion of borrowing capacity remaining under the revolving credit facility. Given the tightening of credit spreads we've observed in the market, we continue to look for ways to optimize the pricing of our financing sources. During the quarter, we issued $400 million of a 5-year investment grade unsecured note with a coupon of 5.65%. We also hedged the issuance by swapping the coupon from fixed to floating to match GSBD's floating rate investments. Over 50 investors participated in the company's day of live marketing, which resulted in the peak order book being 4x oversubscribed. Before continuing to the income statement, as a reminder, in addition to GAAP financial measures, we also reference certain non-GAAP or adjusted measures. This is intended to make our financial results easier to compare to results prior to our October 2020 merger with Goldman Sachs Middle Market Lending Corp., or MMLC. These non-GAAP measures remove the purchase discount amortization impact from our financial results. For the third quarter, GAAP and adjusted after-tax net investment income was $45.3 million and $44.8 million, respectively, as compared to $44.5 million and $43.5 million, respectively, in the prior quarter. On a per share basis, GAAP net investment income was $0.40. Adjusted net investment income for the quarter in connection with the merger with MMLC was unchanged at $0.40 per share, equating to an annualized net investment income yield on book value of 12.5%. Total investment income for the 3 months ended September 30, 2025, and June 30, 2025, was $91.6 million and $91 million, respectively. We observed PIK as a percent of total investment income decreased marginally to 8.2% for the third quarter from 8.3% in the second quarter of 2025. With that, I'll turn it back to David for closing remarks. David Miller: Thanks, Stan, and thanks, everyone, for joining our earnings call. Although the perception of risk embedded within the credit market has changed, we continue to apply our staunch underwriting philosophy and remain focused around the maintenance of our dividend that we proactively addressed. In light of a lower-yielding environment, we believe fund managers will be rewarded for their credit selection. With that, let's open the line for Q&A. Operator: [Operator Instructions] We'll go first to Arren Cyganovich with Truist Securities. Arren Cyganovich: In your comments, you had mentioned that the M&A activity to a level that you had not seen for a few years. Maybe you could just talk to us about your thoughts about sustaining into next year and whether or not this is kind of more of a shorter term or maybe start of a longer-term trend here? Vivek Bantwal: Thank you for the question. Yes. Listen, we think this is the start of a longer-term trend. This was, in our minds, really a question of when, not, if. Because when you look at a, the sort of cumulate amount of sort of dry powder in the private equity community, and you juxtapose that with the capital that's invested in existing investments that have now been kind of sort of in portfolio for a period of time. And then you think about the fact that these more recent private equity vintages from a DPI perspective is really behind historical vintages. And so there's kind of a growing kind of need for private equity firms to, a, exit existing portfolios; and then b, given the dry powder sort of investing in new portfolios. So when you sort of look at all of those metrics it speaks to the need for kind of more M&A on the forward. The question then became sort of when. We started to see some signs that early this year, obviously, as you kind of got into April, there was sort of a pullback as you saw kind of broader volatility and focus on tariffs and the like. And what we've seen more recently is really kind of back to that risk-on sentiment where people are looking to kind of do things strategically. And so we're seeing that in the sponsor community, but we're also seeing that in the corporate community in terms of M&A activity. And so we think we're in the early stages of that, and we think that as we get into 2026, we'll see more of that. Arren Cyganovich: Okay. And I guess with -- how much of the increase in activity, would you have to see for spreads maybe to start to widen out a little bit, basically with supply -- enough supply essentially to offset some of the high demand? David Miller: Look, that's a little hard question to say. We're not really anticipating spreads to widen much. We're hopeful that, that might happen with the pick up M&A. But given the dry powder, we're not planning on that in the near term. I think what we like about our platform as we continue to see a bunch of just unique originations that we can get higher spreads because of that unique origination platform that being tied to Goldman Sachs. But your regular way A+ credit, we don't think it's going to have meaningful spread widening anytime soon. Arren Cyganovich: And then on credit, you had one new investment on nonaccrual at Dental Brands. I think that's been kind of a watch list for a bit. Is -- maybe you just talk a little bit about the performance there and nonaccruals were relatively stable, and you had some unrealized and realized losses in the quarter. Were there any impacts from some of your prior nonaccruals in there? David Miller: Look, I mean, as you mentioned, this has been in the portfolio for some time. We have had some more junior securities that were already risk rated 4 as a result of underperformance in a previous restructuring. The company continues to underperform our expectations. So we put a more senior tranche on nonaccrual now. So it's not a new name. It's been risk rated 4 for some time. But the good news is this is a tiny position in this fund. I think it's sub $800,000 of exposure. So it doesn't meaningfully move the needle for us from an overall nonaccruals. And as Tucker mentioned in his prepared comments, it did tick down slightly from 1.6% to 1.5% as a percentage of fair value. So we feel overall portfolio quality has been stable where we've seen continued write-downs is on the more legacy names where we're not seeing a big turnaround. So we took additional markdowns there on those names. But other than outside of those legacy names, we feel pretty good about the portfolio. Operator: [Operator Instructions] The question-and-answer portion has concluded. I would now like to turn the call back over to Vivek for any closing comments. Vivek Bantwal: Thanks, everyone, for their time this morning. And if more questions come up, feel free to contact our team. Thank you, everyone, and have a great weekend.
Operator: Greetings, and welcome to the Conduent's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Joshua Overholt, Vice President of Investor Relations. Thank you. You may begin. Joshua Overholt: Thank you, operator, and thank you for everyone joining us today to discuss Conduent's third quarter 2025 earnings. I'm joined today by Cliff Skelton, our President and CEO; and Giles Goodburn, our CFO. We hope you had a chance to review our press release issued earlier this morning. This call is being webcast, and a copy of the slides used during this call as well as the press release were filed with the SEC this morning on a Form 8-K. This information as well as the detailed financial metrics package are available on the Investor Relations section of the Conduent website. During this call, we may make statements that are forward-looking. These forward-looking statements reflect management's current beliefs, assumptions and expectations and are subject to a number of factors that may cause actual results to vary materially from these statements. Information concerning these factors is included in Conduent's annual report on Form 10-K filed with the SEC. We do not intend to update these forward-looking statements as a result of new information or future events or developments, except as required by law. The information presented today includes non-GAAP financial measures. Because these measures are not calculated in accordance with U.S. GAAP, they should be viewed in addition to and not as a substitute for the company's reported results. For more information regarding definitions of our non-GAAP measures and how we use them as well as the limitations to their usefulness for comparative purposes, please see our press release. And now I would like to turn the call over to Cliff. Clifford Skelton: Thank you, Josh, and thank you, everyone, for joining Conduent's Q3 2025 earnings presentation. As you can tell, Josh Overholt is now our new Head of Investor Relations. We've been waiting for Josh to arrive from the other side, if you will, where Josh was part of an investment team we periodically communicated with. It's great to now have Josh's advice as our new Head of FP&A and Investor Relations. Let me start by saying, wow, it's been kind of an uncertain ride in our federal government lately, as you all know, with the shutdown. I've often said that the bulk of our business in the public sector is at the state and local level, even though some of the funds the states distribute come from the federal government, obviously. We're lucky enough that most of these funds are entitlements unaffected by shutdowns, although SNAP, for example, can come with some concern. We were told as recently as yesterday that the emergency fund allotment is now at 65% and includes our administrative fees. So that's good. So far, we haven't seen an impact due to unfunded programs, but we have seen an occasional wait-and-see perspective from time to time on new deals and milestones. Regarding the quarter from a financial perspective, it was a good quarter as it relates to adjusted revenue, EBITDA and margin. We're proud of our performance given the current environment, and we're equally proud to see consistent sales performance and an expanding sales pipeline. Revenue was in line with guidance, slightly up sequentially to $767 million and directly in line with our pursuit of positive year-over-year growth objectives. Giles will talk about the puts and takes in revenue in a few minutes. EBITDA also came in as per guidance with both year-over-year and sequential improvement at $40 million and a margin of 5.2%, up from 4.9% last quarter and 4.1% in Q3 of 2024 and exactly where we said it would land in our Q2 narrative. Regarding sales, performance was consistent and steady year-over-year amidst some reticent buyers who were a bit preoccupied with the government shutdown in the public space specifically. Meanwhile, Commercial sales is a bit behind performance expectations as we focus on changes to our go-to-market approach and look to upgrade business development leadership. Still, there is pent-up demand in the Commercial space, and the pipeline has expanded and will expand further. As mentioned previously, the opportunities and momentum in our Transportation business specifically remains strong, and the Government pipeline indicates some very strong buying signals and go-forward opportunities. Once the shutdown concerns are behind us, cash and milestone achievement hurdles will also open up and manifest. In previous earnings, I stated that our portfolio rationalization efforts were underway, and those efforts continue in a manner that we hope to discuss no later than Q4 earnings as we continue our strategy work. Meanwhile, as you know, we've refinanced our revolving credit facility, allowing us to pay off our Term Loan A balance, further simplifying the balance sheet. Again, the timing of milestone payments in the shutdown influenced environment should soon free up cash payments and improve the free cash flow metrics and cash on the balance sheet. As we look to rightsize our Board and further populate it with folks that have been in our industry, we added a new Board member the last week of October, who is the former Chair of Deloitte U.S., Mike Fucci. We're confident that Mike will add new perspective and new support across both the Commercial and Government businesses based on his background and leadership experience. Now I'll talk in my closing remarks about our AI initiatives and some of our recent wins. This will be important because one of the topics we need to focus on is our technology strength versus our operational peers. We need to showcase our significant capabilities and the resident AI initiatives more forcefully. A recent proof point is that we're now beginning to actually license some of our software with built-in AI to our clients, proving that we aren't strictly a services company, but a service technology integrated business that has proprietary intellectual property far and away more impressive than our BPaaS competition. One example of how we're showcasing our capabilities is our recently developed AI experience center in New Jersey, which we're beginning to socialize with some of our biggest clients in the health care and auto manufacturing businesses. Meanwhile, Giles will take you through the detailed financials. We are still directly on course despite some of that lumpiness that happens, especially in the Government space. Finally, with patience, you'll soon see that our portfolio rationalization plan is clearly underway and working. With that, let me turn it over to Giles. Giles? Giles Goodburn: Thanks, Cliff. As we've done in the past, we are reporting both GAAP and non-GAAP numbers. The reconciliations are in our filings and in the appendix of the presentation. Let's discuss the key sales metrics on Slides 5 and 6. We signed $111 million of new business ACV in the quarter, consistent with prior year. Year-to-date 2025, new business ACV is up 5% versus the same period in 2024. While we have line of sight to achieve stronger sales this year than in 2024, the uncertainty surrounding the speed to execute agreements within the government agencies could push some deals into 2026. Within the quarter, we signed 10 new logos and 25 new capabilities, both sequentially up versus Q2 and on a combined basis, up 7% year-to-date versus the prior year, with the strength coming from supporting our existing client base with new capabilities. New business TCV was up 5% versus the prior year at $246 million. This was another strong quarter of sales execution in our Transportation business, which includes the Richmond Metropolitan Authority new logo win and puts that segment up 320% year-to-date versus 2024. Our qualified ACV pipeline remains strong at $3.4 billion, which is up 9% year-over-year. The strength here is driven by our Government segment as we pursue opportunities in the federal space. Let's turn to Slide 7 and review the Q3 2025 P&L metrics. Adjusted revenue for Q3 2025 was $767 million compared to $781 million in Q3 2024, down 1.8% year-over-year, but within the range that I guided last quarter. Transportation generated another quarter of strong growth. However, the decline was driven by our Commercial and Government segments, which I'll discuss in more detail in a moment. While still down year-over-year, we continue to narrow the gap towards positive revenue growth. Adjusted EBITDA for the quarter was $40 million as compared to $32 million in Q3 2024, and our adjusted EBITDA margin of 5.2% is up 110 basis points year-over-year, again, right in line with where we guided and a sequential step-up versus last quarter. Let's turn to Slide 8 and review the segment results. For Q3 2025, Commercial segment adjusted revenue was $367 million, down 4.7% as compared to Q3 2024. We continue to experience volume declines in our largest Commercial client, which is a significant contributor to the lower revenues. Excluding this largest client, our top 25 Commercial accounts grew year-over-year, most notably from within our health care vertical. We also signed another software license agreement in the quarter to a large public health plan, but these positives only partially offset the lost business. Commercial adjusted EBITDA was $37 million, and the adjusted EBITDA margin of 10.1% was up 100 basis points year-over-year. The drivers here were the software license agreement I just mentioned and cost efficiency programs more than offsetting margin from lost business. Government segment adjusted revenue for the quarter was down 6.7% at $238 million. This decline is attributed to the impacts associated with completing several implementations in the prior periods and extending several implementations in the current period as well as a client canceling an implementation to perform the work in-house. Adjusted EBITDA was $61 million, slightly higher than prior year, with adjusted EBITDA margin of 25.6%, up 210 basis points versus Q3 2024. The drivers here resulted from our AI initiatives and efficiency programs, resulting in lower fraud, labor and telecom expenses, offsetting the negative implementation impacts. Transportation segment adjusted revenue was $162 million for the quarter, an increase of 14.9% year-over-year, while adjusted EBITDA was $4 million and adjusted EBITDA margin was 2.5% for the quarter, up 250 basis points versus Q3 2024. Both revenue and EBITDA improvements were driven by strong equipment sales in our international transit business. Unallocated costs were $62 million for the quarter versus $63 million in Q3 2024. The improvement here is driven by our cost efficiency programs in the corporate functions, which more than offset significantly higher employee health care claims activity we experienced in the quarter. Let's turn to Slide 9 and discuss the balance sheet and cash flow. During the quarter, we completed the refinancing of our revolving credit facilities by amending the credit agreement, allowing us to prepay in full the Term Loan A, reduce the revolving credit facility to $357 million, of which $187 million extends to 2028 and $170 million continues to mature in 2026. We also added a $93 million performance line of credit facility maturing in 2028. We utilized the revolving credit facility to prepay the Term Loan A and at the end of the quarter, had $198 million unused. We ended the quarter with approximately $264 million of total cash on balance sheet and adjusted free cash flow for the quarter was negative $54 million. Free cash flow in the quarter was impacted by a number of timing items. Firstly, we are still awaiting a number of contract amendments being approved by federal government agencies, which given the current environment is taking longer than usual and is a prerequisite for us billing clients for work already performed. Secondly, we are in the post-implementation phase for a couple of contracts in the Government and Transportation segments, which once stabilized, will allow us to routinely bill and collect for steady-state operations and maintenance activity as well as bill the final milestones. The combination of these 2 factors are the reason for the increase in both our contract assets and accounts receivable balances compared to last quarter. Of the $168 million contract asset balance at the end of Q3, we expect to bill over $100 million by the end of Q1 2026, assuming the federal government resumes a more normal level of operations. Our net leverage ratio increased to 3.2x this quarter, which was a result of the cash flow items I just referenced. Capital expenditure for the quarter was 3.8% of revenue, and we repurchased approximately 4.7 million shares in the quarter at an average price of $2.70. Let's turn to Slide 10 and look at the 2025 outlook. At the beginning of 2025, we guided the year under the assumption of broad stable macroeconomic conditions. During the third quarter and entering into Q4, we are starting to feel the impact of a reduced federal government workforce in certain agencies, delaying the progression of RFPs and contract approvals, compounded by the current extensive government shutdown, which in combination creates greater ranges of variability and predictability in where we will finish the year financially. The good news is we still believe we will achieve the adjusted EBITDA margin range of between 5% and 5.5%. However, we now believe adjusted revenue for the year will be between $3.05 billion and $3.1 billion, and adjusted free cash flow will be dependent on the timing items I referenced earlier. As we enter the final stages of 2025 and the 3-year exit rate targets established back in 2023, we feel we are making good progress with the business and we'll lay out 2026 expectations when we deliver Q4 earnings in February next year. Turning to Slide 11. We continue to make progress with Phase 2 of our portfolio rationalization strategy. And as Cliff stated, we will provide further updates no later than our Q4 earnings. We incrementally increased the number of shares repurchased to approximately $70 million and are confident in achieving the $1 billion of capital deployment we committed to in early 2023. That concludes the financial review of third quarter 2025. And if you now turn to Slide 12, I'll hand it back to Cliff for his broader view on the business. Cliff? Clifford Skelton: Thank you, Giles. As always, a couple of closing comments prior to taking questions. Our revenue continues to reflect the puts and takes of our transformational journey, while, as you can see, adjusted EBITDA and margin are meeting expectations on the high end and continue to be predictable. You can now tell that we remain on track for the 2024 to 2025 EBITDA expansion we've been talking about, where we said you should expect a significant increase and then continued year-over-year increases in adjusted EBITDA and margin. Meanwhile, we're focused on revenue and conversion of working capital to cash for the remainder of 2025 as areas somewhat inhibited by a weaker start in Commercial sales and as mentioned, some deal pushes in the Government space associated with the timing of milestone recognition and what was in anticipated government shutdown in late Q3. But again, much demand remains pent up and on the horizon. Some tactics we have underway are as follows: we revised our Commercial go-to-market and leadership model to take out layers and produce increased opportunities to penetrate our current client base. We're enhancing sales and revenue generation talent to open new doors with proven leaders in the BPO and BPaaS technology industries. Not only have we embedded our solutions with more Gen AI, but we've begun to do a better job telling our digitization and AI story, including the as mentioned launch of our AI experience center in New Jersey and the deployment of numerous AI initiatives, not pilots, but real production solutions in areas like agent assist, language smoothing, language translation tools, automated indexing in our digital platforms and automated detection of pharmaceutical reportable events, all of which will drive margin expansion and open new revenue generation opportunities. We've seen significant fraud reduction in our electronic payment card platforms as well due to AI deployment. The bottom line is we will tell these stories more often as our clients continue to ask for innovation and examples of where we can help them do their jobs better. Conduent solutions, unlike many of our competitors, are based on technology platforms infused with AI and automation that enable better outcomes for our clients. And we deploy our CapEx to continue to evolve these solutions with new innovation to solve client challenges. We've also seen some new software license wins with our HSP claims adjudication platform, which now opens up new pathways for not only more software licensing of that product, but potentially simplifying the claims process for even larger health care insurance payers. A couple of other proof points for our quarterly progress. We refinanced our revolving credit facility, as mentioned. The sales pipeline is growing, and there are definitely deals in the waiting. Our transportation business has seen an expected uptick in sales with some recent wins in Richmond Pay-by-Plate processing, as Giles mentioned, additional work in the Bay Area tolling space, additional transit work in Abu Dhabi in Israel as well as a recent transit win in Greece, among others. As mentioned in the past, the journey clearly has twists and turns, evidenced by phenomena like government shutdowns and natural disasters, which we certainly have contingency plans for. But we're continuing that progressive path toward year-over-year growth and have already seen the pitch up, if you will, from the EBITDA trough we described in 2024 to growth. The plan is working. As mentioned, more rationalization is on the horizon as is continued margin expansion from the cost coming out of the center and less capital intensity associated with future expected transactions. Thanks for listening today, and thanks to our 55,000 strong team for their hard work. Finally, I'd be remiss if I didn't send best wishes to our folks in Jamaica, but also in Cebu, Philippines, where hurricane activities have done serious damage to those environments and the necessary ingredients of everyday life. So far, our business continuity efforts have held our operations in good stead, but many have real personal hardship to deal with. As I stated, we're optimistic about our future and see sunny skies ahead. Thanks, and I'll open up to the operator for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Gowshi Sri with Singular Research. Gowshihan Sriharan: Can you hear me? Clifford Skelton: Yes. We got you, Gowshi. Gowshihan Sriharan: Just -- you flagged that you had near closes in Q2 that was -- that was expected to close in Q3. How much of that pipeline actually closed this quarter given that the closings were kind of flattish year-on-year? And would that be -- would we be seeing some acceleration if the government shutdown eases up? And when would that be? Clifford Skelton: It's sort of like the small animal through a snake. It's coming through. I think it's exacerbated, Gowshi, in Q3 because of the government shutdown due to timing in the federal government releasing some deals in places like the CMS where approval is needed in order to get states to be able to approve health care deals, Medicaid deals. I don't see any massive change from Q3 to 2 to 3 to 4 other than in that Government space that we just talked about. Gowshihan Sriharan: Got you. I know you highlighted Gen AI deployment in both Government and Commercial space. How are you measuring productivity or quality gains that will concretely boost the client stickiness or cross-sell opportunity? Any solutions that might be in the public sector win? What is your expectation on the contract size and the margin uplift from the Gen AI pilot? Clifford Skelton: Yes, it's a great question. The primary pilot in the Government space is in our fraud category, specifically in our Direct Express program where address validation is really important. We've used Gen AI to expedite that and create a faster determination from our associates. We see that spreading throughout the Medicaid and the SNAP environments as well, where we can reduce fraud quickly, and that's been a big mission of the federal government as well. In the Commercial space, it's more around customer experience where everybody is deploying fraud, things like language translation, smoothing, agent assist, those kinds of things as well as where we see a real opportunity in scanning and indexing where we can use Gen AI to automate the indexing to create a claims adjudication-ready platform for our clients. So that's a big space. That's going to create both revenue and expense opportunities. The fraud space is more about expense reduction opportunities. What's still outline is how do we pass those capabilities on to the client. In other words, where do we share in both those expense reductions and those revenue increases. Those are contract by contract, to be honest with you, and it's going to depend on exactly what the endeavor is. Giles Goodburn: And just to add to that, Gowshi, we're seeing the expense -- positive expense impact from the fraud initiatives in the Government space turn up in the P&L now and in the last quarter as well. So we're seeing the fruits. Clifford Skelton: And we're seeing in Commercial as well. Yes. Giles Goodburn: Yes. Gowshihan Sriharan: Got you. Given that there's a negative operating cash flow, I know you said 87% of that -- the divestitures done. Are there any specific cost out of stranded cost areas left to tackle? What's the internal time line for fully realizing those benefits? Giles Goodburn: Yes. So I think we're through the initial phase of stranded costs related to the divestitures we did last year. Clearly, we're in the process of Phase 2 of the portfolio rationalization, and there'll be a little bit that we act on in 2026. One thing I will say is we do have a very strong cost discipline in the organization, and we're continually looking to optimize areas, whether it's in spans and layers in the organization or our real estate portfolio. So it's a continual effort, and we'll keep on that journey. Gowshihan Sriharan: Okay. And just my last question. As you -- given the environment as it is, are you changing the contract clauses or structural changes, especially given the recent Government or Commercial deals to reduce churn risk or exposure to budget delays? Clifford Skelton: No, we're not, Gowshi. I mean the thing to remember here, given the government shutdown is it hasn't affected our revenue stream. It's affecting the timing of milestones and the release of sales opportunities that all are going to get through the end of the snake, as I mentioned earlier. But the revenue stream and the revenue deployment is not affected, and we're primarily a state and local government business in the public sector. So we see no reason to change the model as we speak today. Operator: Our next question comes from the line of Marc Riddick with Sidoti & Company, LLC. Marc Riddick: I was wondering if you could talk a little bit about the client mix that you're seeing, particularly on AI endeavors. You made mention of the fraud focus. I was wondering maybe you could talk a little bit about maybe what the industry verticals look like and maybe if there's sort of a first movers, if you will, that are engaging and maybe what you're learning from them? Clifford Skelton: Yes. It's two different questions really depending on whether it's Commercial or in the Government space. In the Commercial space, we're in the neighborhood of 30% to 40% in health care. And a lot of the opportunity from an AI perspective and efficiency perspective and potentially even the fraud reduction perspective, although not yet, is in that health care space. In the Government space, it's a different kind of health care. It's Medicaid processing primarily and Medicaid eligibility, where there's a lot more fraud and a lot more opportunities to reduce expense and drive fraud reduction. So I mean, it's 2 different opportunities, but most of those opportunities from an early mover perspective are centered around health care. Marc Riddick: Great. And then as we sort of think about the opportunities on the Commercial side. I was wondering if you could talk a little bit about as we sort of look into next year, I can understand some delays with activity and the like. But do you get the sense that there's any particular areas that you would like to shore up bandwidth or sort of maybe the level of comfort that you have as far as being able to meet opportunities -- growth opportunities on the Commercial side? Clifford Skelton: On the Commercial side, I mean, if you think about our product sort of penetration, we're less than 2 products per client, which for a company that has as many products and opportunities as we have is too low. We're very focused on that client penetration, especially in our top 60, top 80 clients. And we're putting some new processes in place to deploy against that. Again, health care is a big play there. But the continuum -- for example, the continuum of service and claims adjudication from -- all the way from the beginning of a claim through the servicing of a claim as opportunities end, we're intently focused on that. And we're also focused on some software deployment and software licensing opportunities that we've never really deployed in the Commercial space. We just had our first one with our HSP license to a midsized client in California. We've always done it to a lesser degree in public health medicine in the public sector with our Maven platform, but we're now starting to do the same thing in Commercial. So we see real upside here in technology deployment. We see real upside in further penetration of our current client base. We're putting a new business development team together to feed the top end of that pipeline better, which we think is the Achilles' heel for us in Commercial. It's really not sales execution. It's feeding the top of the pipeline. So we're all over that, and then we're all over the penetration of our current client base. Giles Goodburn: And I think, Marc, we're seeing some of the results in that, right? As I said in my remarks, on a year-to-date basis, we're up year-over-year as far as new capability sales are in the Commercial and overall in the Conduent organization, and that's selling new product into the existing client base. And specifically, as it relates to Commercial, put aside the largest client that we've got, the other '24 of '25 clients are growing year-over-year as well. So we're seeing some of that actually flow through into the financials. Clifford Skelton: I mean that's a great point. While we're not satisfied with our Commercial sales in 2025 just yet, I mean, absent that one client, it's already growing. So there's real opportunity. We're seeing growth already. We just need to outrun that one client. Marc Riddick: Got you. And then so do you potentially see -- I think there was a mention made as far as adding talent, sales talent. Is there sort of a general time frame or sort of runway that you see there? I guess that's kind of a '26 question. I know we're not doing '26 guidance, but I guess maybe I'm sort of thinking about the time frame of how some of that might roll out. Clifford Skelton: Well, it necessarily will affect '26 performance, but it necessarily needs to happen in Q4 2025. Operator: And we have reached the end of the question-and-answer session, and this also does conclude today's conference, and you may disconnect your lines at this time. We thank you for your participation. Have a great day.
Operator: Greetings, and welcome to indie's Q3 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ashish Gupta, Investor Relations. Thank you. You may begin. Ashish Gupta: Thank you, operator. Good afternoon. Welcome to indie's Third Quarter 2025 Earnings Call. Joining me today are Donald McClymont, indie's CEO and Co-Founder; Mark Tyndall, EVP of Corporate Development and Investor Relations; and Naixi Wu, indie's new CFO, whose appointment was announced earlier today. Donald will provide opening remarks and discuss business highlights. Mark will then provide a review of indie's Q3 results and Q4 outlook. Please note that we'll be making forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties. These statements reflect our views only as of today and should not be relied upon as representative of views as of any subsequent date. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For material risks and other important factors that could affect our financial results, please review our risk factors in our annual report on Form 10-K for the fiscal year ended December 31, 2024, as supplemented by our quarterly reports on Form 10-Q as well as other public reports with the SEC. Finally, the results and guidance discussed today are based on consolidated non-GAAP financial measures such as non-GAAP gross margin, non-GAAP operating loss, non-GAAP net loss and non-GAAP net loss per share. For a complete reconciliation to GAAP and the definition of the non-GAAP reconciling items, please see our Q3 earnings press release, which was issued in advance of this call, can be found on our website at www.indie.inc. I'll now turn the call over to Donald. Donald McClymont: Thanks, Ashish, and welcome, everybody. Firstly, I'm very pleased to announce that Naixi Wu has been appointed Chief Financial Officer for indie effective immediately. Naixi has been with indie for the past 4.5 years and has demonstrated exceptional leadership, integrity and execution skills within our finance organization, especially during the past months in a period where we successfully executed on multiple complex transactions. Beginning her career in PwC's assurance practice, Naixi has built an exemplary track record in finance, holding various senior leadership roles in financial and SEC reporting at CalAmp, Westfield and RealD. Indie's finance team consistently demonstrates seamless collaboration and strong performance, combining expertise and focus to achieve desired business results and goals. Naixi's elevation to Chief Financial Officer is a natural progression in her leadership journey at indie, working alongside our capable and dedicated finance team, indie's financial foundation will continue to strengthen. During the next months, you will have the opportunity to meet Naixi at roadshows and investor events. Let me now review our financial performance within the context of the overall automotive market before discussing indie's key business achievements. Starting with market dynamics, we see an automotive market trending slightly better than feared across almost all regions, with China representing indie's strongest performance during the quarter. Automotive market analysts are also maintaining a positive outlook for growth trends with 2026 production now expected to increase by 0.46% from 2025 levels to approximately 91 million vehicles. This is further underpinned by the continued increase of semiconductor devices and sensor content per vehicle to support the upsurge in ADAS and automated driver safety and feature adoption, which we increasingly see across our customer base. For indie, we achieved third quarter total revenue of $53.7 million, in line with our outlook, but representing solid quarter-over-quarter performance with growth above the market. We have also just completed an annual review of our strategic backlog, which remains a very important and strong indicator for the future potential of our business looking out over the next 10 years. Recall, last year's backlog was $7.1 billion. This year, we have expanded into several adjacent markets, including quantum compute and quantum communications and also into humanoid robotics where several of our products are relevant, particularly and initially our vision processors. We now have content at leading robotics providers, figure.ai and Unitree, who seamlessly use our automotive products for their application. During the last 12 months, due entirely to industry turbulence, we suffered some program cancellations, particularly and although we are still heavily engaged with the customer, we made the decision to remove Ficosa business from the calculation as upheaval at the OEM end customer has made the timing of revenue realization less clear. However, these cancellations were more than offset by new business wins that we achieved in the same period. The strategic backlog is now at $7.4 billion compared to $7.1 billion as of a year ago. However, if we exclude Wuxi, which represented $1.3 billion, the resulting strategic backlog will be $6.1 billion. The composition of our backlog has strengthened materially due to the higher gross margin product mix following the divestment of Wuxi. ADAS and optical products will drive significantly higher gross margin profile going forward. Let me now turn to our recent business progress and key achievements. Beginning with radar, in late October, our Tier 1 radar partner, a leader in the market for whom we developed our 77 gigahertz chipset, publicly launched the next-generation Gen8 radar solution to power the future of ADAS for their global OEM customers. The Gen8 radar is their primary offering on a go-forward basis. This represents a momentous milestone in the program. Our differentiated chipset enables the Tier 1 to deliver industry-leading performance across multiple dimensions, long-range detection beyond 300 meters with ultrafine 4D angular resolution, enhanced capability in close range scenarios for applications such as automated parking, front automatic emergency braking and significantly expanded field of view, enabling new driving scenarios like autopilot in complex urban environments. The solution demonstrates superior object detection and classification across a broad range of parking and driving scenarios, with the Tier 1 noting a 30% performance improvement over their prior generation. Final validation in real-world environments is concluding as we prepare for production shipments. Computer vision capabilities within the automotive market continue to be a differentiator for ADAS and automated safety and a key driver for indie. We are seeing additional penetration of our vision solutions among key customers with our industry-leading iND880 advanced camera processor. During the quarter, we secured a design win for image signal processing for multi-camera operation in a leading self-driving Robotaxi OEM in North America for deployment in 2026. Additionally, we have captured multiple new design wins with leading electric vehicle manufacturers in China, spanning multiple applications. According to S&P Global Mobility, China's automotive market continues to lead the global market in terms of growth contribution and regional dominance. China now represents more than 1/3 of the worldwide motor vehicle production, where indie's advanced ADAS solutions are rapidly gaining adoption. From our power group, our 10-watt G2.0 wireless charging platform continues to gain broader market adoption. Highlights include start of production scheduled at Ford for Q1 2026 on the first platform with multiple subsequent vehicles expected to follow. We secured design wins at India's largest car manufacturer initially for 3 vehicle models with additional awards also expected to be forthcoming. In addition, we saw production start at an Indian joint venture of one of Europe's top OEMs. Looking further out and rounding out the portfolio, we are now actively promoting our G2.0 15- and 25-watt solutions, which are gaining very positive market traction. We have also provided the first custom samples of the connectivity IC to a leading electric vehicle manufacturer in North America, where production is expected to start in the first half of 2026. Our momentum with photonics continues with several highlights, including a design win, which will include an NRE payment for our LiDAR application and a design win in the drone segment for our [ SLG ] product. The operational alignment establishing the new photonic business unit has resulted in meaningful impact on our sales funnel. For applications outside of automotive, while the revenue is not reflected in our short-term results, we are expecting strong growth with minimal additional impact on operating expenses. Last quarter, indie announced 2 additional new distributed feedback or DFB laser products, complementing our LXM-U laser launched earlier this year. The market response has been compelling with exceptional stability for quantum key distribution and quantum computing applications. This technology leadership in photonics generated through automotive LiDAR development is exposing indie to exciting new customers across quantum and industrial sensing markets. I'll now turn the call over to Mark for a review of our Q3 results and Q4 outlook. Mark Tyndall: Thank you, Donald, and good afternoon, everyone. Indie's third quarter revenue was $53.7 million with non-GAAP gross margin of 49.6%, in line with our outlook. Non-GAAP operating expenses totaled $37.9 million, consistent with our outlook. As a result, our third quarter non-GAAP operating loss was $11.3 million compared to $14.5 million last quarter and $16.8 million a year ago, demonstrating our continued progress towards achieving profitability. With net interest expense of $2 million, our net loss was $13.3 million and loss per share was $0.07 on a base of 217.4 million shares. Turning to the balance sheet. We exited the quarter with total cash, including restricted cash of $171.2 million, down $31.7 million from $202.9 million in the second quarter. The reduction in cash includes $17.7 million paid in connection with a recent M&A transaction. Turning to the M&A transaction. On September 26, 2025, ahead of the original schedule, indie closed the acquisition of emotion3D, a company based in Vienna, Austria, specializing in advanced AI perception software algorithms for automotive in-cabin sensing and ADAS. Their expertise in software combines perfectly with our vision processor SoC portfolio, adding a software royalty to the offering. Together, we are already engaging with major Tier 1 and OEM customers where we expect we can secure and announce the first awards in the coming months. Additionally, on October 28, we announced that Indie entered into an asset purchase agreement with United Faith Auto-Engineering, a publicly listed company in China to sell our entire outstanding equity interest in Wuxi indie micro for gross proceeds of approximately $135 million, payable in cash, net of applicable local taxes of roughly 10% upon closing. However, I do want to set realistic expectations regarding the closing time line. The transaction is subject to customary closing conditions for a transaction of this type, including shareholder approval from United Faith and receipt of all required regulatory approvals in China, including both Shenzhen Stock Exchange and CSRC. Based on precedent transactions and discussions with our advisers, we expect closing in late 2026, though the exact timing will be determined by the regulatory approval process. Between now and closing, once it is determined that the transaction meets the requisite criteria under applicable accounting guidance, the Wuxi operation will be reported as discontinued operations within our consolidated financial statements. Further, the sale of Wuxi will improve our margin profile and lower our quarterly breakeven threshold while simultaneously strengthening our balance sheet. While we exit our equity position in Wuxi, China remains an important market for indie, supported by our strong independent and well-established sales channel, including local regional support. Moving to the outlook for the fourth quarter of 2025. With ever-increasing demand in the semiconductor market driven by AI, we are beginning to see some short-term disruptions to the back end of our manufacturing flow. Specifically, there are shortages in the supply of packaged substrates, which will impact our ability to deliver the full demand for Q4. In spite of that, we expect to continue to grow and deliver revenue within the range of $54 million to $60 million or $57 million at the midpoint, with an estimated shortfall of about $5 million due to the substrate shortage. We expect this supply issue to be resolved during Q1 2026. Based on the anticipated product mix, we expect our non-GAAP gross margin to be in the range of 47%, driven by unfavorable product mix and margin pressure on the Wuxi business. We continue the execution of certain targeted initiatives aimed at reducing operating expenses and accelerating our path to profitability. I'm pleased to report that we remain on track. Progress in Q3 has been encouraging and is consistent with our communicated targets. We continue to expect to achieve our stated objectives within the anticipated time frame. This reflects strong execution across the organization and continued commitment to operational discipline and long-term value creation. However, as we now move closer to the production ramp of Radar and some of our large and vision design wins, our customers are demanding an enhanced second sourcing strategy with requirements for production localization. This is requiring additional OpEx investment in the next quarters to qualify these products in fabs and test houses outside of Taiwan and China. Taking these into account, for Q4, we now expect our non-GAAP OpEx to be $36.5 million, down $1.5 million from Q3. Below the line, we expect net interest expense of approximately $2.2 million with no tax expenses. Assuming the midpoint of the revenue ranges and with a base of 220 million shares, we expect a $0.07 net loss per share. From a financial perspective, with our strong focus on operating expenses, further optimization of our capital structure and our solid balance sheet, including anticipated proceeds from the sale of Wuxi, indie is well positioned to continue developing differentiated products for the automotive, ADAS and adjacent industrial markets. This balanced approach will support our return to strong and profitable growth as design wins ramp as we enter 2026. With that, I'll turn the call back to Donald for closing remarks. Donald McClymont: Thanks, Mark. Our core business is solid and growing as evidenced by our third quarter results and positive outlook. Radar and vision programs remain on track as evidenced by our Tier 1 partners' recent release of their advanced Gen8 radar product and the fundamental trend of increasing semiconductor content in vehicles continues unabated. With the addition of new high-growth markets such as Quantum and robotics, indie's technology leadership and expanding product portfolio ensure we are well positioned to drive continued growth. No other semiconductor company has a product portfolio as advanced as indie's to meet the diverse needs of these markets. That concludes our prepared remarks. Operator, please open the line for questions. Operator: [Operator Instructions] First question we have is from Cody Acree of The Benchmark Company. Cody Grant Acree: Maybe if we can, Donald, dig into your supply shortages a bit. Can you maybe just explain how this happened, when this happened, when you started to see this? And when does this unwind? And do you get this revenue back as supply starts to become available? Donald McClymont: I mean going in reverse order, for sure, we get the revenue back. It's just an inconvenience at the moment because of the short-term shortage. It's something that came fairly suddenly to the market. It wasn't something that we were able to anticipate. It was kind of a shock to the market there. Several other companies out there who have been placed in the same situation. If you look at the reports of some of the other companies, Intel, in particular, they called this out a few weeks ago. So it's something that we expect will resolve in Q1, and it's just basically a short-term thing that we've got to work through. Cody Grant Acree: And can you talk about your gross margin declines into Q4? You mentioned Wuxi. What's happening there sequentially? Donald McClymont: It's just mix really. The products that we sell that use this particular kind of package are very high margin. And so because we have a small shortfall in the market that we can't deliver to, that's the biggest impact on the margin mix. And then because of that, Wuxi is a larger percentage of the roll-up and causes the margin percentage decay. Cody Grant Acree: Excellent. And then lastly, on the Radar side. Can you just talk about what's happened in the last 90 days? And what's your visibility? And what does this ramp look like as we look into next year? Donald McClymont: Yes. I mean it's been a world win for us. We've had so much activity in the last 90 days. It caused us to accelerate our plans to bring up the second sourcing procedures for what we're bringing into play here. It costs us a little bit of short-term OpEx in the short run, but it's a great problem to have. We're having to prepare to deploy into multiple geographical regions with multiple different supply chain requirements, basically China for China, not China for not China. And the sort of level of support and effort that we're having to put into this now is enormous the fact that the customer also announced the product is a ringing endorsement of where we are in the process. These things don't go public unless there's a high degree of certainty that stuff is going to happen. So it's been a crazy 90 days, I would say, Cody, as we've gone through the process of launching now. Cody Grant Acree: Any thoughts on next year's contribution? Donald McClymont: I mean I think we're not really going to make any change to our outlook on life for '26. We still feel that there could be a very aggressive ramp in '26. That together, coupled with our vision processors, we're preparing, again, as I said, because of the supply chain issues that we're having to address. We're having -- we're preparing to prepare for a big ramp. We're already in the manufacturing process. So we feel that we've got a lot of good stuff coming for '26. Operator: The next question we have is from Suji Desilva of ROTH Capital Partners. Sujeeva De Silva: Best of luck in the new role, Naixi. So the products you've been talking about for the quantum laser market, can you talk about if there's any visibility to design wins? Or is that still in the kind of development phase? Any comment there on timing of when that... Donald McClymont: No, I mean we've actually been shipping production already. I mean the year-to-date or the projection for the whole year is probably a little bit less than $1 million worth of business. Given that it didn't start at the beginning of the year, it started late Q2, really, it's accelerating very rapidly. And I think if you look at the reports of the public quantum guys, you're seeing them raising their numbers. So it's a new market for us. We're learning as we go, but it does seem very exciting, very dynamic. It's quite a fragmented market. So we have to cover quite a lot of bases and customers and so forth. But certainly, the deployments can go quite very quickly to ship parts off the shelf basically off the rack. Sujeeva De Silva: Okay. Great. And then the backlog growth you saw year-over-year, can you talk about what programs are driving the increases in backlog? Is it more Radar vision opportunity or expansion of scope of programs? Or any thoughts there? Donald McClymont: I mean, expansion of scope of the Radar program for sure, and then some heavier vision programs, which we added to the portfolio. Sujeeva De Silva: Okay. And lastly, on the Vision programs, can you talk about the timing of when those would start to contribute to revenue? I think there are ones coming on very quickly, but comments on the. Donald McClymont: Yes. I mean Vision is also ramping now, and we have some fairly significant volume in it already. We've added a bunch of new wins in China, which ramped very quickly. And there are certain sort of dynamics in the market that, in many cases, the programs that are new to us should ramp actually pretty quickly through '26. So we've -- again, it's been a one quarter. Operator: The next question we have is from Craig Ellis of B. Riley Securities. Craig Ellis: Donald, congratulations on the growth in the backlog year-on-year. I wanted to start there and just see if you could give us some color on what some of the primary contributors are to backlog Radar versus ADAS? And then I think you mentioned that there's some non-auto stuff in there, maybe photonics and quantum. Help us understand how big that is. Donald McClymont: Yes. So primarily, it is centered around our ADAS products, both Radar and Vision. We had some bigger discrete wins at Vision, which we'll talk about in the fullness of time once we're able to. There is -- we have added a little bit for the quantum-related optics products, still small. But now that we have running revenue, of course, we're kind of compelled to anyway. we're still quite conservative on the market growth and the amount of money that we have in there or assumed in there. It's very small compared to what we're committing to on the ADAS products. But we are excited about the market. It's moving extremely quickly. And that coupled with the fact that we're now seeing a lot of interest from the humanoid robotics market for our product base means that there are some dynamic market growth factors there, which we hadn't anticipated and are unexpected positives, I would say. Craig Ellis: Coming back to Radar and just going a little bit deeper on where Wuxi was. It's nice to hear that your primary customer has identified that the product will ramp. Can you help us understand beyond just color on multi-geography ramp potential, what type of customers they may be engaged with that could give us a sense of the type of volume we would be talking about when this starts going out in volume? Donald McClymont: I mean they are one of the largest vendors on the planet in the space. And so their product portfolio addresses everything from the highest volume passenger cars through commercial vehicles through high-end vehicles and heavy industry. So it's a very, very high-volume market indeed. We expect to get a very significant market share of the entire radar market through this program. And again, that's why we're preparing our supply chain and really had to double down during the last quarter in terms of bringing up second sources earlier than we thought we would. Craig Ellis: Got it. And then if I could squeeze in one more for Mark, the software acquisition, any visibility on the degree to which that could contribute in either fourth quarter or through the year next year and benefit gross margin? Mark Tyndall: Yes. So yes, so the acquisition is off to a very good start, Craig, integration ongoing. We've already engaged with the customers -- with the main Tier 1 customers for camera, OMS, BMS, combining our device with their software. So it's probably too early to have a synergy, revenue in Q4. But certainly, next year, we will see some sales synergy there. It's already running in the order of approximately $1 million a quarter for 2025, and that should increase going through 2026. Operator: The next question we have is from Anthony Stoss of Craig-Hallum. Anthony Stoss: I wanted to focus in on your comments about the North American Robotaxi partner for a 2026 launch. Is that Radar, LiDAR? Anything you can give there? And then I have a couple of follow-ups. Donald McClymont: It's our new vision processor. Anthony Stoss: Got it. And then I think in the last quarterly call, you talked about expanding relationship with BYD, and I think there's a Vision program that was supposed to launch this quarter, Q4. Maybe you can just update us. I know you made some comments about Chinese wins on the call, but love to hear more. Donald McClymont: Yes. I mean we're engaged with all of the name brand Chinese OEMs. We have wins with many of them, and we're making the prescribed progress that we expected through this quarter. So I mean, we're generally pretty happy with the way the market is. And I mean, the sales channel that remains in China, net of Wuxi is doing a phenomenal job of deploying our new products into that space. And so we do expect significant revenue from that geography as time progresses. Anthony Stoss: Got it. And then my last question also related to the Radar ramp. you talked about bringing up a second supplier earlier than anticipated. Is your partner, are the automakers moving more towards intermodal changes out and putting in [ ADAS NAV ] solution? Or why do you need to bring out a second supplier so quickly? Donald McClymont: I mean, heavily, it's been driven by geographical compatibility. So we do need and for certain OEMs to ensure that we have a supply chain that is not including China and Taiwan. And we were well positioned to do that, but we had to accelerate some of our plans and spend some of the manufacturing tooling during this quarter and next quarter in order to make that happen. Operator: The next question we have is from Jonathan Tanwanteng of CJS Securities. Jonathan Tanwanteng: I was wondering what gives you confidence that the substrate and packaging issue will be resolved by Q1, number one? And number two, have you thought about the indirect impacts of shortages across the industry and if that might impact auto numbers overall and not just including substrates, but also like the aluminum plant outage. We've heard third things about Xperia and China. Are those considered in the outlook and if those might flow through you in some way? Donald McClymont: Well, taking the first part. I mean we -- I mean, we're in the process of bringing up several second sources. As I mentioned before, just as a matter of form, we have to accelerate our procedure, particularly for these organic substrates that are used in the flip chip packages that we use. So the discussions and ongoing engagement with the new vendors has been going well. I would say this is, let's say, a corner of the industry specific, where the vendors who are heavily exposed to large language model ICs from NVIDIA and Co are redirecting capacity over there. Even some very large brand names are struggling to get what they want. So it was just a kind of a fallout of that. So you're right, it's an indirect impact. I don't necessarily see that we have a long-term impact from anything that is out there right now, the [ Nia ] thing aside with Volkswagen, particular, of course, that was public. But I do expect that, that will rectify itself in short order. It doesn't feel like a general industry shortage like we saw post pandemic. Jonathan Tanwanteng: Okay. Great. That's helpful. And then just to dig a little deeper there. Is the pricing in ramping more sources for chip substrate going to be an issue, especially if your volumes next year are going to be better than maybe you thought with these -- your customers requiring second sources for your production? Donald McClymont: Yes. I mean the second source helps us give price leverage into our supply chain. So I mean, it was something we would have done in the fullness of time anyway. We were -- our hand was forced really by some unexpected positive news really to do it earlier. And it really should give us leverage as we go forward as we're able to play wafer foundry suppliers off against each other and likewise with packaging and test houses that make up the back end of the product. Jonathan Tanwanteng: Okay. Great. If I could sneak in one more. What is the margin and OpEx without Wuxi look like? And what does the breakeven level look like in revenue? Donald McClymont: I mean we don't really segment it out. I mean we did give directionally indication that the Wuxi business was significantly lower margin than the rest. As we go forward and deploy our ADAS products, we're still committed to getting to the 60% gross margin level of the target model that we set ourselves. Operator: At this time, there are no further questions. And I would like to turn the floor back over to management for closing remarks. Donald McClymont: Well, thanks, everybody. Thanks for attending the call and looking forward to seeing you at the conferences over the coming week, where you'll meet myself and Mark and Naixi. Operator: Ladies and gentlemen, that concludes this conference. Thank you for joining us. You may now disconnect your lines.
Operator: Good day, everyone. My name is Sabrina, and I will be your conference operator today. I would like to welcome you to the First Advantage Third Quarter 2025 Earnings Conference Call and Webcast. Hosting the call today from First Advantage is Stephanie Gorman, Vice President of Investor Relations. [Operator Instructions] Please note, today's event is being recorded. It is now my pleasure to turn the call over to Stephanie Gorman. You may begin. Stephanie Gorman: Thank you, Sabrina. Good morning, everyone, and welcome to First Advantage's Third Quarter 2025 Earnings Conference Call. In the Investors Section of our website, you will find the earnings press release and slide presentation to accompany today's discussion. This webcast is being recorded and will be available for replay on our Investor Relations website. Before we begin our prepared remarks, I would like to remind everyone that our discussion today will include forward-looking statements. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are discussed in more detail in our filings with the SEC, including our 2024 Form 10-K and our Form 10-Q for the third quarter of 2025 to be filed with the SEC. Such factors may be updated from time to time in our periodic filings with the SEC, and we do not undertake any obligation to update forward-looking statements. Throughout this conference call, we will also present and discuss non-GAAP financial measures. Reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures to the extent available without unreasonable effort appear in today's earnings press release and presentation, which are available on our Investor Relations website. To facilitate comparability, we will also discuss pro forma combined company results consisting of First Advantage and Sterling Check Corp historical results and certain pro forma adjustments as if the acquisition of Sterling had occurred on January 1, 2023. The pro forma information does not constitute Article 11 pro forma information. I'm joined on our call today by Scott Staples, our Chief Executive Officer; and Steven Marks, our Chief Financial Officer. After our prepared remarks, we will take your questions. I will now hand the call over to Scott. Scott Staples: Thank you, Stephanie, and good morning, everyone. Thank you for joining our call. We have 4 key messages for today. First, we delivered another quarter of profitable growth, meeting and exceeding our expectations with revenues up approximately 4% year-over-year on a pro forma basis and achieving adjusted EBITDA margins of 29%. Our performance was driven by continued go-to-market success in new logo and upsell, cross-sell. This demonstrates our ability to generate solid results amid the current macroeconomic environment in which hiring growth has been consistently flat while maintaining our relentless focus on cost discipline. Second, just last week, we celebrated the 1-year anniversary of closing on our Sterling acquisition. I am extremely pleased with the performance of our entire team as our integration is progressing ahead of schedule, and we are delivering strategic and financial benefits as promised. Third, we are continuing to execute on our FA 5.0 strategy, actioning our best-of-breed product and platform approach to accelerate growth through new logos, upsell, cross-sell and improve client retention. Today, we will highlight how our technologies and products are enhancing our value proposition and solving customers' critical needs. And fourth, today, we are narrowing our full year 2025 guidance ranges with refined midpoints at or above our original guidance midpoint. Now turning to Slide 5 and a closer look at our performance in the third quarter. We generated solid results across revenue, adjusted EBITDA and margin, cash flow and EPS. For Q3, combined upsell, cross-sell and new logo rates continued to perform in line with our long-term growth algorithm targets. Retention improved to 97%, an increase from 96% in Q2, demonstrating the success of our customer-centric approach and that our best-of-breed technology and deep vertical expertise are resonating with the market. We are pleased to share that we recently signed an exclusive 5-year contract renewal with a top customer that is expected to generate over $100 million in total revenues, of which a significant portion is guaranteed through minimum annual commitments. Base revenue performance again improved sequentially, remaining just below neutral and consistent with our expectations. In Q3, our large new logo win in health care went live and is the last of the 3 large wins we have discussed with you on past earnings calls to do so. Combined with the 2 wins that went live last quarter, one in the retail gig economy and the other in international win in Australia, all are now live and generating revenue, providing solid momentum going into Q4. We are experiencing tremendous success with our go-to-market teams as further supported by our 17 enterprise bookings in the third quarter and 75 in the last 12 months, each with $500,000 or more of expected annual contract value. These wins give us confidence in our ability to generate new logo and upsell/cross-sell revenue and are an encouraging sign of our sustained go-to-market momentum since closing the Sterling acquisition 1 year ago. Additionally, we are encouraged by the strength of our late-stage pipeline with many large potential new contracts in the works, including several that are incorporating our Digital Identity product for the first time. Looking at our verticals in the third quarter, our balanced and resilient vertical strategy supported our performance with nearly all of our verticals seeing revenue growth in the quarter on a pro forma year-over-year basis. We saw strength in retail and e-commerce, driven by upsell, cross-sell and fueled by a good start to the holiday season. Transportation and logistics also grew, driven by our upsell, cross-sell initiatives with particular demand from last mile and home delivery customers. In addition to serving onboarding needs for new hires within transportation, our broad range of solutions also supports our customers' ongoing compliance requirements, enhancing our results with balance and consistency across the solutions we provide. Health care was slightly down, driven by uncertainty with Medicare and Medicaid funding, particularly with the nonprofit hospital networks, but this was offset, in part, as health care staffing companies stepped in to fill the hiring needs. We remain optimistic about the long-term industry dynamics and fundamentals in health care as the U.S. population ages and requires more health care services. Our other verticals, including general staffing, manufacturing and industrial financial services showed positive growth in Q3, partially powered by the success in our new logo and upsell, cross-sell programs. October order volumes show similar directional trends to what we saw in Q3 continuing. In international, for the sixth quarter in a row, we achieved year-over-year revenue growth with the U.K. as a bright spot and also improving trends in APAC. Looking at the macro environment, we are still seeing a trend where hiring is remaining consistently flat. Macro uncertainty as well as policy changes, including the recent government shutdown, immigration, tariffs and tax policy have resulted in many of our customers remaining in a wait-and-see posture as it relates to their hiring plans. However, as you can see from our results, our customers are still hiring at consistent levels. Our expectation for the fourth quarter and likely into 2026 is for base growth to remain slightly negative as the overall labor market conditions persist. We continue to be confident in our ability to deliver overall revenue growth through upsell, cross-sell and new logos. Our enterprise customers, diverse vertical mix, global reach, mix of hourly and salaried focused customers and diligent focus on controlling the controllables make our business resilient and able to perform well across a variety of macroeconomic scenarios. With regards to the impact of the government shutdown, our view is that the hiring markets have remained stable and active with our core verticals continuing to perform well. The absence of BLS jobs and employment data has not impacted our ability to run our business. I want to take a few minutes to touch on AI's potential impact on our business, building upon what we shared during our May Investor Day. We are taking a proactive and strategic approach to understanding both the benefits and the risks of AI, and we are optimizing our long-term strategy based on the future of work. We recognize the pace at which AI is evolving and can see how it is currently impacting and how some are expecting it to impact the way certain types of jobs and labor are performed. Of note, the World Economic Forum's 2025 Future of Jobs report predicts net positive growth through 2030, even after accounting for the impacts of AI. Specifically, the WEF notes that while AI and automation are leading factors expected to displace; an estimated 92 million jobs, these technologies and other market conditions are also expected to create 170 million new roles as companies and economies adapt to technological change, resulting in an expected global increase of 78 million jobs over the next 5 years. Again, we are confident that our diversified mix of verticals, customer segments and geographies provides a meaningful degree of resiliency to AI impacts and will allow us to capitalize on the future growth opportunities. We are also strategically reviewing where and how we invest in terms of our products and verticals to ensure we are well positioned to lead in a world increasingly influenced by AI with a focus on continuing to generate long-term shareholder value. For example, we are building tools such as our Digital Identity product, which enables our customers to address the increasing dangers of AI-driven identity fraud. At the same time, we are leveraging AI internally to enhance quality and customer experience. As we like to say, we are building good AI to fight bad AI. Additionally, I want to address some of the recent news headlines on corporate headcount reductions as companies claim to gain efficiencies from AI. In some instances, the news you read happens to relate to customers of ours. And what we have observed is that while those companies are reportedly making job cuts motivated by AI, we are seeing stable, if not growing, overall screening volumes from them. This is because many of these news-making reductions are in administrative-type roles, which have a lesser impact on our business as typically a majority of our screening volume comes from normal churn and core hiring in our customers' operations. Additionally, as customers reinvest in their businesses to build out their internal AI and other capabilities, they should also be driving screening demand as they will require roles to manage these changes. This sentiment is further supported by feedback directly from our customers who have told us that while they are currently investing in and leveraging AI in their businesses, they do not expect to meaningfully change their approach to core hiring over the next several years. Now turning to Slide 6. On October 31, we were thrilled to celebrate the 1-year anniversary of the closing on our Sterling acquisition. Over the past year, we have made significant progress on our integration of this strategic acquisition, which has been outperforming our expectations on customer retention, synergy capture and realization, cultural alignment and complementary technologies and products. Importantly, we have delivered a very seamless, nondisruptive customer experience throughout the integration process. This has enabled us to maintain excellent customer satisfaction as evidenced by our high retention levels and the feedback we are receiving from customers. We have also continued to deepen our customer relationships through our growing Collaborate International user conference series, which reflects our expansive global footprint. In 2025, we've hosted events across the U.S., India, Singapore and EMEA with upcoming user conferences in Hong Kong and Australia. These events provide us with direct insight into our customers' needs and emerging industry risks, showcase our subject matter expertise, uncover upsell and cross-sell opportunities and help cement our position as a category leader. Recently, many of our European customers joined us at our London Collaborate to discuss key topics such as identity fraud, AI-driven screening and global compliance. The strong turnout, high-value content and customer engagement underscore the relevance of our solutions and the trust we are building across markets. Feedback confirms that our customers are looking to us for guidance as they plan for 2026, and we're proud to be a strategic partner in helping them navigate evolving workforce risk. Our back-end automation strategy has also been a key driver of operational efficiency throughout the integration process. By consolidating fulfillment into a single global engine, we are leveraging years of investment, engineering and development in robotic process automation, APIs and AI. We have kept 2 front-end platforms for customer continuity, but behind the scenes, we have been able to streamline workflows, cut redundancies and drive efficiency. These efficiencies not only enhance speed and customer satisfaction, but are also expected to create meaningful margin improvement as we grow. Additionally, since announcing the Sterling acquisition, we have increased our synergy target from our original $50 million plus to a range of $65 million to $80 million. We have also made solid progress on deleveraging our balance sheet as we work towards our target net level range of 2 to 3x. Steven will provide additional details shortly on both our synergy progress and deleveraging. Turning to Slide 7. Throughout the integration process, we have been focused on enhancing our customer value proposition to unlock new logo, upsell and cross-sell opportunities while continuing to drive innovation and foster the high-performance culture we are known for. We are consistently leveraging our best-of-breed approach to provide optimal solutions and technology to solve our customers' challenges. Last quarter, we discussed how the expansion of our award-winning Click.Chat.Call. customer care solution and our high-margin First Advantage work opportunity tax credit product has benefited our customers. We have continued this progress, achieving a milestone in Q3 with the increased usage of the millions of records in our proprietary national criminal record fire database across both platforms, something we have been rolling out since Q1 of this year. With our proprietary data and in-house data science teams, we deliver faster insights and a superior experience for everyone from recruiters to HR teams to candidates. This powers our ability to reduce turnaround time while increasing the speed, coverage and effectiveness of our criminal screenings, facilitating comprehensive and timely results for our customers. In October, we made available our criminal and motor vehicle records monitoring solutions to the entire customer base, offering another best-of-breed experience to all of our customers. We are also underway in leveraging our best-of-breed approach to enhance the user experience. Over the past 18 months, we have been rolling out a new applicant portal. Now approximately half of our order volume on the First Advantage front end runs through this portal with customer adoption continuing to grow. This represents the most secure and user-friendly experience we've ever built, featuring device-agnostic design for a seamless experience across devices, customer-specific branding for a familiar and consistent look and AI-powered features that continuously learn from the candidate interactions to deliver a best-in-class rage click-free experience. In November, we are extending the same modern look and feel to the Sterling front end, bringing the benefits to even more customers. This initiative reflects our commitment to delivering an outstanding user experience backed by rigorous data, feedback, sentiment analysis and continuous improvement. It's a win for our customers and their candidates and a key differentiator for First Advantage. On top of this, we are continuing to see solid momentum and interest in our Digital Identity products. Negative use of AI and other technologies are creating new risks for companies and organizations and are driving rapid evolution in the Digital Identity space. Knowing who you're hiring and confirming who they actually are is critical. Our Digital Identity solution is fully linked in the hiring life cycle with some customers using it multiple times through the recruiting, screening and onboarding process, which is creating a competitive advantage for First Advantage. As an early market leader with Digital Identity solutions, we are able to deepen our strategic dialogue with customers, strengthening our relationships and stickiness of our products. We are highly focused on this attractive opportunity, which has a total addressable market of over $10 billion and an expected growth rate in the mid- to high teens. Our Digital Identity products is continuing to build a strong pipeline as customers navigate the early adoption and pilot phase. Digital Identity is a powerful competitive differentiator for First Advantage and indicative of the direction in which our industry is growing. Overall, our customers continue to be excited about the benefits of our best-of-breed platforms, products, data and AI-enabled technologies. This is evident by our strong customer retention and consistent new logo and upsell, cross-sell performance. With that, I will now turn the call over to Steven. Steven Marks: Thank you, Scott, and good morning, everyone. Today, I will provide color on our third quarter results, synergy progress, deleveraging trends and our narrowed 2025 guidance. I'll start with third quarter results on Slide 9. Our third quarter revenues were $409 million, up 3.8% versus last year on a pro forma basis, with our year-over-year revenue growth rate increasing sequentially from Q2 as expected. Our go-to-market success was in line with our long-term growth algorithm targets as the combined contribution of new logo and upsell and cross-sell revenues delivered 9% growth in the quarter, and our retention rate reached 97%. The trends in our base performance continued to moderate on par with how we had forecast the quarter with base remaining negative on a year-over-year basis. Our solid results were supported by consistent execution on our integration and synergy plans, which remain ahead of schedule. Adjusted EBITDA for the third quarter was $118.5 million. Our adjusted EBITDA margin of 29% exceeded our expectations, representing an improvement of 130 basis points versus the prior year on a pro forma basis despite being slightly lower sequentially from Q2 due to mix. Our results were enabled by our continued focus on accelerating synergies, our disciplined approach to cost management and the scalable nature of our business. As part of the integration process, we are applying best-of-breed fulfillment execution, which is helping improve the combined company's operating margins in line with our historical expectations of the business. Adjusted diluted EPS was $0.30, a 15.4% increase over our expectations. The benefits of our greater scale, expense and capital management and lower interest expense as a result of our debt repricing and voluntary debt payments to date have supported our per share earnings. These have more than offset the impact of the incremental interest on the transaction financing and the dilutive impact of the new shares issued for the Sterling acquisition. On Slide 10, you can see how we are making great progress on our synergy program. This quarter, we crossed the original $50 million threshold of action synergies, now having actioned $52 million and exceeding our initial total synergy program goal within only 1 year. We benefited from the realization of $12 million of synergies in the third quarter, bringing our in-year realization to $30 million. We remain committed to and confident that we will achieve our goal of $65 million to $80 million of action synergies within 2 years and are pleased to see the consistent success of our integration and synergy execution. Looking forward, we are focused on scaling, automating and applying AI as we continue to execute on our integration priorities. Moving to Slide 11. You can see our historical revenue growth algorithm results with combined company data beginning in 2025. As previously mentioned, in the third quarter, our results were driven by strong upsell, cross-sell as well as new logos, supported by consistent solid retention. Base results came in as expected with sequential improvement from Q2 despite remaining negative for Q3. Now turning to cash flow, net leverage and our debt paydown progress on Slide 12. During the quarter, we generated adjusted operating cash flows of nearly $81 million, an increase of $35 million or 78% on a year-over-year basis. This was driven by the larger scale of our business, our tight management of our working capital, including collections on receivables, the benefit of the OBBBA, which has reduced our required cash tax payments and our overall focus on cash flow. Our cash balance at September 30, 2025, was $217 million. With this ample liquidity and cash flow, subsequent to the end of the quarter in November, we made a $25 million voluntary repayment on our debt principal, bringing our total year-to-date principal repayment to over $70 million, most of which has been voluntary using excess cash flow. Our synergized pro forma adjusted EBITDA net leverage ratio at quarter end was 4.2x and represents about [ 0.25 ] of a churn decrease from a year ago when we closed the Sterling acquisition. We remain focused on reducing our net leverage towards approximately 3x synergized pro forma adjusted EBITDA within 24 months post close, and our long-term net leverage target remains 2x to 3x. Moving to Slide 13 and our updated 2025 guidance. As a reminder, year-over-year comparisons are on a pro forma basis to allow for easier comparability. Today, we are narrowing our full year 2025 guidance ranges with refined midpoints at or above the midpoint from our original guidance. Our year-to-date results as well as the momentum we have seen heading into the fourth quarter give us confidence in our revised guidance ranges with revenues now in the range of $1.535 billion to $1.570 billion supported by strong synergy execution and our continued focus on efficiently managing our business, we now expect to achieve full year adjusted EBITDA margins of approximately 28%, a meaningful expansion from pro forma 2024. Looking at the fourth quarter as implied in our updated full year guidance today, our revenue outlook for Q4 of around 6% year-over-year growth at the midpoint continues to assume a certain degree of macro stability while keeping in mind that our customers remain in a wait-and-see mode. The impacts of increased tariffs and other policies remain key areas of uncertainty across the global economy, but our customers continue to hire at consistent volumes. We expect Q4 base growth to remain slightly negative, consistent with Q3, with this trend likely to continue into 2026. As Scott mentioned, we saw very consistent volumes in October, which aligns to our updated Q4 expectations. We anticipate continued productivity of combined upsell, cross-sell and new logo growth, consistent with, if not better than, historical trends. Additionally, the go-lives of our recent large wins and robust new contract pipeline support our expectations for the fourth quarter. We also expect customer retention to remain in line with our historical performance of at least 96%. In the fourth quarter, we expect adjusted EBITDA margins to expand versus the prior year period by more than 100 basis points. This is similar to the expansion we saw in Q3 and results in fourth quarter adjusted EBITDA margins of approximately 28%. While this represents a small sequential decline from Q3 2025, it is in line with the historical trends in our business, reflecting the mix shifts driven by seasonally lower December revenues and some movements in verticals and some movements in volumes between our verticals and products. This year, we also anticipate the mix shifts we saw in Q3 towards products with relatively higher out-of-pocket fees will continue to impact adjusted EBITDA margins into Q4, though over time, we expect these impacts to normalize. Even with these trends in mind, we remain confident in our ability to drive year-over-year margin improvements in Q4. We anticipate that our adjusted diluted EPS growth momentum will continue as revenue ramps and synergies are realized. Despite the mix trend previously mentioned, we expect that quarterly adjusted diluted EPS will remain in the mid-$0.20 range in the final quarter of the year, representing meaningful expansion on a year-over-year basis. On a similar note, we now anticipate free cash flow for the year of $110 million to $120 million. This represents a notable increase from our previous commentary as we have been able to generate incremental cash flow from better working capital management and have successfully managed our integration-related costs. As previously noted, the passing of the OBBBA tax law in July doesn't notably impact our effective tax rate. However, we will be able to utilize certain provisions within the new law to materially reduce our 2025 required cash tax payments. We have provided a full chart in the appendix to the earnings presentation with FX, CapEx, interest and other modeling assumptions. Additionally, we do not expect the government shutdown to materially impact our results. While the shutdown itself has affected some operational items such as the government run E-Verify platform resulting in some delayed I-9 verification, we expect any delays in processing I-9 will be resolved in the quarter as soon as the government shutdown concludes, and this is a very small component of our business. Overall, and taking a step back, we are pleased with our refined 2025 guidance ranges we are providing today, particularly amid our ever-changing world. We are expecting to deliver full year revenue growth, a high single to low double-digit adjusted EBITDA growth rate and an even higher adjusted diluted EPS growth rate and meaningful free cash flow generation, all just 1 year after closing our strategic acquisition of Sterling. With that, let me turn it back to Scott for closing remarks before we open the line for questions. Scott Staples: Thank you, Steven. In closing, I would like to reemphasize First Advantage's position as an investment of choice. We are a market leader offering proprietary technology and data in a large and growing market. We have significant organic revenue growth potential, accelerated by the Sterling acquisition. We are resilient with a flexible cost structure and high revenue diversity that comes from our balanced vertical strategy. We have industry-leading operating margins, leading to strong and consistent free cash flow generation, and we have a track record of value-accretive capital deployment and balance sheet management. All of this supports our confidence in our ability to achieve consistently strong results, including delivering on the 4-year financial targets we established during our Investor Day in May. Looking ahead, we remain focused on executing on our strategy to increase share across our target verticals, accelerate international growth and deliver on our best-of-breed product and platform strategy. Thank you to the entire First Advantage team for the great work you do to support our customers every day. With that, we will open the line for questions. Operator: [Operator Instructions] Our first question is coming from Ashish Sabadra with RBC Capital Markets. Ashish Sabadra: So maybe a 2-part question. As we think about this strong new win momentum that you talked about and as you're ramping up these new clients, how should we think about the upsell, cross-sell as well as new logos going into fourth quarter, but also into 2026? And then the second question would be just the pipeline for new logos. Have you seen any changes in the sales cycle? Any elongation in the sales cycle? Also any early conversations with your clients around new win momentum? Steven Marks: Yes, Ashish, I'll start with your comments on the new logo and kind of that impact going forward. I'll let Scott take the pipeline. I think you're right. As I mentioned in the prepared remarks, we're expecting our Q4, the contribution of new logo and upsell, cross-sell to be in line, if not better, than our historical. So we did 9% in Q3 with very consistent so far this year. Assuming those deals ramp according to schedule, there's some room to do a little better than our historical averages. We're seeing some good initial order demand from those bigger contracts. A little early to comment on '26 just overall. But I mean, obviously, the deals that are just going live in the second half would have some rollover, still have to fill out the rest of the pipeline funnel and still have to execute. But it gives us a lot of confidence, certainly in Q4 being able to achieve, if not exceed, the historical norms for upsell, cross-sell and new logo. Scott Staples: Yes, Ashish, on the pipeline, we are extremely happy where the pipeline is right now. It's at the highest value it's ever been at. The late-stage pipeline for large deals is the best we've really ever seen as a company. That doesn't mean it translates into whatever it translates into, but it's a great pipeline. We've obviously got very good win rates historically. So we're feeling pretty bullish heading into 2026 in terms of the things we can control and our ability to grow organically. So very happy with the pipeline. And I think it all comes back to -- again, look at that increase in improvement in client retention, especially after doing a large merger. We are very happy with client retention actually going up. It means that clients have really resonated with the combination of the Sterling and the First Advantage technology platforms. And I think a big shout out to our tech teams who have done a great job of eloquently putting together the back end to the front ends of both the Sterling and First Advantage customer base. And in this industry, it's very simple. Clients love to partner with a company who understands their vertical deeply, which we obviously do and have invested in the key verticals that we're in and have a great technology platform to back it up, that's clearly why the pipeline is growing, while the deal flow has been solid. We've got a great tech story, and we back it up with subject matter experts. Operator: Our next question is coming from Andrew Steinerman with JPMorgan. Andrew Steinerman: Obviously, I've observed over the years that FA is very tech forward, including AI. With that in mind, do you feel that traditional employment background checks has a risk of being disintermediated by AI innovation and how? Scott Staples: Yes. Thanks, Andrew. As you know, we have a very strong tech story. We've got a great team. And I thank you for your question because I don't think we get enough credit in the market for our tech prowess. I mean I feel that we're basically a Silicon Valley tech shop that just happens to be headquartered in Atlanta, Georgia. We've got great architects. We've got great engineering prowess. And I think when you look at where AI can help or influence or impact the industry, I only see it or we only see it in beneficial ways. We don't see it as a competitive threat because it's going to have to be so integrated into the many things that we do. I think the big change is the dramatic rise of the risk of identity fraud in the recruiting process and how that maps into the traditional background screen. So when you think about running criminal checks or verifications or whatever it might be, the future of this industry is really going to be how that flows from a digital identity check. And that's where a lot of the AI is going to sit because you're going to be leveraging AI to make sure that our customers feel comfortable that they are onboarding the same person that they interviewed. So going from a recruitment to interview to onboarding and to finally I-9, all that has to be tied together with technology and consistent databases. And we are really the glue behind the scenes that can do that for our customers. And that's where a lot of our customer dialogue is going right now. And I think a lot of that's going to be AI-driven. There's going to be a lot of good AI that are used in that solution to offset the bad AI that people are using for deepfakes and other identity -- digital identity hacks. So we want to make sure that we help our customers avoid hiring imposters which, as we told you on our last call, is an extremely increasing risk for them. So that's also driving client stickiness. It's driving upsell, cross-sell. And again, it goes back to the fact that our customers see us as a tech powerhouse that can pull this all together for them. Operator: Our next question is coming from Andrew Nicholas with William Blair. Andrew Nicholas: Scott, I think you mentioned as part of the comment on your 5-year contract renewal that a portion of that $100 million is guaranteed. So I was just hoping to kind of figure out maybe a little bit more background on that contract, what led to that particular structure? I think that's relatively unique within your broader business. And whether or not that's a one-off or something you'd expect to pursue more regularly going forward? Scott Staples: Andrew, I love the question because this has been a really big focus for us in 2025 and will continue in years to come. Now the caveat here is that this will be a little bit of a long road, but this is not a one-off. This was the first of what we think will be the future contract status in this industry where we do get more stickiness with contracts with guaranteed minimums in our contracts. Again, the caveat is it will take a long time for this to kind of flow and run out because we're not going to go to existing customers and ask them to change existing contracts. We are trying to put this new clause into all new logo wins and renewals with existing customers. To date, we have had very little pushback on this concept. And I think it's -- there's other things that we're working on to put more teeth into the contracts, but this is clearly where the industry is now going. And we even think things like Digital Identity and some of our other solutions can actually lead to subscription revenue, and that would then also be included in contracts going forward. So I'm glad you picked up on it because it's definitely a change that we're seeing in the industry, and we're kind of leading the charge here. Andrew Nicholas: Understood. And just for a follow-up, kind of back to the digital identity piece. Is that something -- I don't think you've sized it recently, but is that something that can move the needle on upsell, cross-sell next year? Or is it still too early to be adding percentages of growth to the algo? Scott Staples: Yes. First of all, it is the hottest, hottest, hottest topic with our customers right now. We've -- as you know, we've had Digital Identity products out in the market now for 2, almost 3 years. In the early stages, it was us educating our customers as to the risks associated with imposters and deepfakes and all the things that come with identity fraud. But something has changed. Over the last, I'd say, roughly 6 months, our customers are now showing us actual instances of where they've either stopped a fraudster from entering their company or that they've actually hired an imposter and don't want it to happen ever again. So this is completely dominating the conversation right now, and we've got a fantastic product. And I would call it products because it literally is a series of 6, 7-plus offerings that are all under the umbrella of digital identity. So the -- a couple of things then. One, at some point in 2026, we do plan on quantifying this for you. As soon as we get -- we're still in early sales stages, and we're doing pilots and customers are now ramping up on that product. So I think at some point in 2026, we'll be able to quantify it. There's going to be 3 major impacts to digital identity. One, yes, it will drive upsell, cross-sell revenue. And again, we'll quantify that in the future. Two, it makes us really sticky with the customers because now we're actually in different workflows. When you do digital identity, you're now up in the front of their recruiting workflow and you're really then sticky throughout the whole process. Three, so the byproduct of that is increases in customer retention, which, as Steven said, we -- the bare minimum is 96%. But as you can see, we're now at 97% and hopefully stick there going forward and maybe even higher through the stickiness of this. And the last thing is it also helps sell other products. For example, customers are worried about the person that they are interviewing is the same person that they actually run the background screen on is the same person they actually onboard and do the I-9 with. So Digital Identity is actually giving us a boost to our I-9 sales because we're sitting behind the scenes, and we can triangulate all that data for them if we're the service provider for them. If we're not the service provider for their I-9 product, they have to figure out if it's the same person that filled out the I-9. And the customers don't want to do this. They want us to do that. So this is real stickiness. This is driving multiple levels of upsell, cross-sell. And it's a huge issue with clients right now. This is, again, the hottest, hottest, hottest topic in this industry. That was a long answer, but great question. Operator: Our next question is coming from Manav Patnaik with Barclays. Ronan Kennedy: This is Ronan Kennedy on for Manav. Can I just ask that you unpacked the commentary around October order volumes continuing the directional trends that you experienced for the quarter. It sounds like that reconciles to this week's ADP jobs report, which showed a swing into positive territory, I think, after some back-to-back months of job losses. But also had a question in relation to -- there was a report released earlier this morning that showed October had the highest increase in layoffs since '23. And I think year-to-date, layoffs are up 65%. Just wanted to know if you're seeing that as well. I think AI and the macro factors you referenced were given as drivers. But I know you said with your diversification and resiliency, you're not actually seeing AI impacts and highlighted specific clients as well. So I just want to understand those dynamics as you see them and potential impacts of that for base and the other components of your growth into '26. Scott Staples: Yes, Ronan. So obviously, the macro is on everyone's mind. And I'm going to answer your question, but I'm going to put in a couple of other things to give you the picture that we see. So a couple of things. Specifically to October, yes, we are -- we had a very good October. The order volume trends were similar to what we saw in Q3, meaning that they were above our expectations. Now that doesn't mean November, December will be. It just is a snapshot that October was. We're still in a wait-and-see mode for November and December, but off to a great start in Q4 with the things that we mentioned. We're seeing a good holiday season. We're seeing our key customers driving a lot of volume growth. I think the world is starved for data right now or better data right now on this. And I will remind people that -- I'll remind the market that we are enterprise focused. So a lot of what you hear maybe SMB focused, but we're not experiencing at the enterprise level what is being portrayed in the media. And I think we've got a unique advantage on the data side. And the fact that we can actually see our own order volume, so we know exactly who's being hired and when. And obviously, with the government shutdown, there's no BLS data being reported. And we've talked in the past about how unreliable the BLS data is anyway. It had gotten to a point where there was only about 35% participation rate from companies in the BLS data, and it was primarily from SMB. So it wasn't a very accurate depiction of what we see from the macro standpoint. So one, we've got the ability and the uniqueness of seeing actual hiring data real time. We know exactly when -- what companies in what industries and what geographies are hiring people. And the BLS data was always a few months behind, and every 6 months did a major revision of the numbers because they didn't get it right. But I think our Q3 results and what we're saying on forward thinking about the pipeline and where we are with order volumes is actually showing a very consistent labor market, not a declining labor market. It doesn't mean that there's huge job growth or -- and it doesn't mean that there's huge job losses. It just means that it's consistent. And as we get into 2026, and we'll talk more about this in our next earnings call next quarter, but we're basically thinking that 2026 is going to be very similar to 2025. Consistent hiring, not big decreases, not big increases, just more of the same. And Ronan, one more point. So I gave you -- we obviously have the ability to do qualitative analysis of order volumes and other data sources that we look at. But we also have -- we've also speak to our customers on a regular basis. And I think we've made this point many, many times. Just this year alone, we've had over 1,500 formal business reviews with our customers. Now that may be the same customer 2 or 3 times. But it just shows you that we are formally sitting down with our customers to review their programs, to optimize their screening, to talk about upsell, cross-sell opportunities and to get their views on their hiring. And what we're hearing doesn't necessarily jive with what is being reported in the media. So that's what we're basing our business on. Ronan Kennedy: And then if I may, just to shift gears a little bit. Can you help with how we should think about the cadence of synergy realization in '26? And just a reminder on timing for Sterling EPS accretion and also deleveraging? Steven Marks: Yes, Ronan, great question. So as we mentioned, we're at $52 million. Our target is $65 million to $80 million. We obviously lapped the anniversary as of this week. That remaining, somewhere between $15 million and $25 million, will come fairly ratably over the next year. It's a lot of operational and fulfillment and then data projects that have some of a little bit just more plumbing, more prerequisites that need to be checked off. But we still are very confident that we'll achieve it. And it should hit fairly ratably over the next 12 months or so as we just complete one optimization, one efficiency project after another. In terms of EPS accretion, I mean, you're starting to already see some of that flow through pretty strongly, right? We've got certainly relative to the pre-acquisition period, really strong EPS numbers in the second half of the year. Some of that is just the operational scale. The fact that we've got to consecutive quarters of revenue growth, we've got the synergies flowing through, and then we also have all the work we're doing on the cash flow and debt side of house. So the repricing, obviously, lower interest rates helps a little bit and just working capital management. So we're driving really strong cash flow. So that's going to obviously support your interest expense and help flow things down to EPS. And then I think to your last point on deleveraging, I think we're seeing those trends already kick in. As I mentioned, strong free cash flow, strong EBITDA accretion. As we build more cash and -- which ultimately reduces net leverage, we'll continue to see that number start to accelerate. And we still feel like we'll be getting towards that 3x synergized net leverage ratio by the end of next year, effectively at the 2-year anniversary of the deal. So I think we're on schedule on all 3 fronts there, Ronan. Operator: Our next question is coming from Scott Wurtzel with Wolfe Research. Scott Wurtzel: I just wanted to go back to some of the commentary around base growth for 2026 and your expectations for it to continue to remain negative. Is that right now sort of an expectation that it will remain negative throughout 2026? Or given we are obviously comping a lot of years of negative growth, could we potentially see an inflection as we get sort of into the second half of the year? Steven Marks: Yes, Scott, it's a good question. I mean we're not -- we're not at the point yet where we can kind of give very specific 2026 commentary. I think really, our main focus now is kind of looking at the exit velocity, if you will, of our order volumes in '25 and what that implies for at least the start to '26. I just wanted to make sure that people understand that, to Scott's point, it's been a consistently flat hiring environment now for a period of time. And we expect that dynamic to continue. I mean base has improved dramatically already through the year. It was negative 5.5% Q1, negative 3.7% last quarter, now only negative 1.8%. Negative 1.8% is that slightly negative that we've been talking about the last couple of quarters, and that's kind of that ballpark that our current expectation that persists for the next few quarters. We'll obviously give out a little bit more refined view as we get into our next earnings call for the '26 guide. But you also have to remember at a slightly negative base with the new logo and upsell, cross-sell consistency and the momentum we have, and where we're hitting all cylinders on retention, even with a slightly negative base, you're set up for a pretty good overall growth. But we do see just kind of this macro environment persisting. There's not really any kind of formal outlook on where tariffs are going to take us on immigration policy and all these other things that are kind of impacting just that wait-and-see mode that customers are in. So a little too early to get specific, but certainly, for the foreseeable future, we kind of see that wait and see consistently flat overarching hiring environment. Scott Wurtzel: And then just as a follow-up, going back to the kind of the identity market opportunity, and you mentioned mid- to high teens market growth rate. I mean, given your position in the screening market and everything, do you think you guys can outgrow that sort of market growth rate over the near to medium term as you sort of bring these solutions into your customer base? Scott Staples: Yes. Well, I mean, I think the short answer is we don't know because it's so new. I think we're really well positioned. Our customers can go out and buy point solutions to fix some of this. But we're in a really unique position about being -- we feel one of the only that can sit behind the scenes and help them triangulate all of these things into one solution. So the discussions with customers have been phenomenal. And obviously, we're very happy about the wins and the pilots and the launches that we've done recently. But it's just so early. It's hard for us to sit back and quantify that it will be a certain number and a certain growth rate. But as I said, when we get into 2026 a little bit and these numbers become clearer and we start looking at win rates and pipeline and start doing some math behind the scenes, we will report that out to you because we know it's an important piece of our growth algorithm. Operator: [Operator Instructions] Our next question is coming from Jeff Silber with BMO. Jeffrey Silber: You noted the retention improvement sequentially. I think you cited a few factors that are kind of buried in the Q&A. But if I had to focus on a few things, why do you think you saw that retention improve? And is that something you think is sustainable? Scott Staples: I think there's a lot that goes into it. I mean, first thing, we're a very, very, very customer-focused, customer-centric, customer-inspired company. We spend a lot of time with our customers, as I mentioned with our formal business reviews, and those are only the formal ones. We're talking to our customers daily, weekly, monthly. The Collaborate sessions that we talked about in the script have been phenomenally attended. We've got lots, if not most of our large customers attending these Collaborate events around the world. So we're spending a lot of time with our customers. And I think there's a couple of things that are driving retention. One is we are considered thought leaders in their industry. We pick certain industry verticals to focus on, and we go deep, deep, deep into those so that we know what they're dealing with from a compliance standpoint, from an onboarding standpoint, from a cost pressure standpoint, whatever it might be. We know their industry well. And in most cases, we have most of their peers as customers, so we can help them benchmark. So we can help them say, okay, here's what the industry is doing, and here's where you're best-in-class and here's where there's gaps. And those gaps are great to point out because what that means is upsell, cross-sell opportunity. And that's why package density has been such a great driver of growth for us. So vertical knowledge, industry expertise is clearly one of the drivers of retention. The other one is tech. I mean, as I mentioned earlier, we're a great tech company. We've got agile pods all around the world. We've got solution engineers. I mean we're really good at tech. Our products demo really well, which leads to a lot of new logo wins. And customers are very happy with the products. And also, we've really nailed the Sterling integration from a product and platform standpoint. Our vision, our theory from the very beginning of the acquisition was single back end, leveraging all of the great First Advantage automation that's been out there for literally 9, 10 years now. Single back end, but the front ends don't change for the customers. So that kept customers from attritting. Usually, when you do an M&A, that's the biggest thing that they worry about is, are you going to force migrate me onto a new platform? And the answer was no. And it was even better than no. It was like not only are we not going to force migrate you, but you're actually going to get a series of upgrades because we're taking best-of-breed from both platforms and giving it to the other platform. So there were some things that the Sterling platform did really well that are now becoming available to the First Advantage installed base. And there are some of the things that First Advantage did really well that are now becoming available to the Sterling installed base. And those are things that are visible. So we're talking about functionality. We're talking about best-of-breed user experiences, et cetera. And the things that are invisible to them are the things that we're leveraging on that First Advantage back end. So it's the First Advantage back end with all that great automation, which is driving faster turnaround times. If you look at our turnaround times, which is a key KPI for our customers, our turnaround times are coming down with customers because of the automation. So we're enabling them to onboard faster. And onboarding faster is critical for them, especially in high-volume hires because they need the people to do the job. So I think it's the combination of our vertical expertise and the fact that we actually nailed the technology and the future promises of technology, like how we're rolling out digital ID, how you can integrate your I-9, all that stuff is being eloquently explained to our customers, and I think they like the story. Operator: Our next question is coming from Harold Antor with Jefferies. Harold Antor: Harold Antor on for Stephanie Moore. I guess real quick one for me. Just in terms of international growth, I know international growth has seen several quarters of robust growth. If you could just provide any more color on, I guess, how that's shaping up. It seems as though the U.K. has been a bright spot even though we've heard that the U.K. still is -- in some areas is still weak. So just I guess, anything you're doing there? And then I guess on your verticals, I think you called out weaker health care trends, but I believe you see some seasonal pickup in transportation. So is the seasonal pickup in transportation in line with what you saw historically or just anything there that would be helpful. Scott Staples: Harold.... okay, Steven, go ahead. Steven Marks: Yes, Harold. On international, I mean, look, we're still seeing the momentum we've seen in the last few quarters sustained, if not accelerate a little bit. International was up a little over 11% in total. So again, like the trend we had last quarter, outpacing the consolidated business. And you're right, the U.K. market has been certainly a strong point there, and some of the underlying verticals are still [Audio Gap] some government regulation that's also helping us out. But honestly, we saw growth across all 3 of our international regions. And you remember, we've had that larger financial services win in Australia. We've had some other go-to-market success over the course of the year as well. So really strong base, really strong upsell, cross-sell, new logo type winning there in international. I'll let Scott fill on the verticals, but I think international has been kind of ahead of the curve and continued showing that growth and that accelerate a little bit in the third quarter. Scott Staples: Yes, Harold, on the verticals, so you mentioned health care. I think it's important to note, health care for us is really 4 sub-businesses. So it's acute care, think of hospital networks; post-acute care; life sciences; and health care staffing. Post-acute care, life sciences and especially health care staffing really did well in the quarter. It was really just the hospital networks, and it's completely 100% tied to what's going on in Washington, D.C. with Medicare and Medicaid. It's not like there's less demand for their services. In fact, there's more demand. You've got an aging U.S. population, and you probably know from your own experiences that there's a tremendous demand in health care. It's just that a lot of these smaller regional, even rural hospital networks are dependent upon Medicare and Medicaid funding. And there's a lot of uncertainty in that right now. So they've cut back their hiring just because they don't know where the funding is going to come from. Now health care staffers have filled in the gap because they still need the services. So I think this is just an aberration. I think this is something that will play out over the next couple of quarters, will stabilize. We're very bullish on health care because of the aging population, the incredible need for services. And even though it's slightly down, I would say our strategy is actually to double down in this industry because it could be a tremendous growth industry long term. It's just having a little bit of an aberration right now, and it's completely tied to the smaller and midsized hospital networks. It doesn't really affect the larger hospital networks and affects mostly the nonprofits. Operator: Our next question is coming from Pete Christiansen with Citi. Peter Christiansen: Nice execution here, some nice trends. Scott, a quick question. I want to double tap on the AI disruption kind of concern, which I think you laid out really well. I think there is a slight nuance to the argument though that at least on the fringe and maybe in certain pockets of your base with AI, then maybe those employers can actually in-house some of their onboarding or screening type of duties there. How would you respond to that? What's your opinion there? And then as a quick follow-up, great to see that you combine the databases here and building up your proprietary database. Can you just talk us through how that's delivering on data cost savings? And is there a point where -- of mass criticality where you really could see an inflection in your data cost because of the years that you've built up your proprietary database? Scott Staples: Steven, I'll take the first part, if you take the second part. So on the AI disruption, Pete, I mean, my short answer is no chance. Customers do not want to do this. This is not where they want to spend their engineering dollars and resources, and it's extremely complicated. It's loaded with compliance. There's not a lot that they're going to do internally with AI through the screening process. Now that's not true with recruiting. I think AI is fully in play with recruiting, and it's having great results. So using AI-driven recruiting tools in the front end of the recruiting process makes a lot of sense. But that only feeds then better information to us. We see AI as a real lift in quality because AI should improve the intake of data at the very front end of the recruiting process so that when it then comes to us, to then run a digital identity, to then kick off a background screen to then onboard an I-9, we have better data because AI has helped with the quality of that data. So whether it's a picture capture, whether it's a biometric capture that the AI is doing, whether AI is helping the candidate fill out the application to make sure that they're putting in their address correctly, their name is -- all instances of their name are captured, first name, middle initial or -- and last name and capturing maiden names, all that kind of stuff, it only helps us. But it doesn't infringe any way on our business model. In fact, it's an improvement in quality, which actually also could help with an improvement in turnaround times because the better data we get from an ATS or from an AI-enhanced recruiting engine, it makes our job that much easier. But I think with all of the FCRA compliance laws, with all of the unique thousands and thousands of data sources that need to be hit, I don't see customers doing this themselves in any scenario. Steven Marks: Yes. And then, Pete, on your data question, I think there are 2 things there. One, I mean, leveraging the data assets and resources of the 2 combined companies has been a core part of our cost of sales component of our synergy program. And as you can see, where we're at on that time line, we're already above and beyond the original $50 million target. So we're doing well there and leveraging those in many places in the business. But to Scott's earlier point on the Q&A, we're a tech company at heart and tech companies love data. And we'll continue to invest in ways to grow our databases. And when we give out the full year numbers at the end of the year on the Q4 call. You'll see growth in our NCRS, you'll see growth in our verified databases. And then it's not just growing the databases, it's leveraging them in as many ways as possible, but that will continue to be a storyline in a way that we improve the quality of our products, improve the quality of our P&L and cash flow, but it's always going to be a part of our story here. Scott Staples: Pete, yes, one other thing I'll add to it is -- and again, this kind of ties back to retention. I know I didn't mention this when I got the retention question earlier. But we have literally been automating internal processes and automating our APIs to data sources literally for 10 years now. And for some reason, over the last year or so, we are starting to get amazing accelerated payback on this. So clients are actually feeling our fast turnaround times. And we've also particularly solved some of the sticky data source -- known data source issues in our industry, certain counties or certain states or whatever it might be. And so when you sit down and do these business reviews with customers and you show them that their turnaround times are coming down and they feel that their turnaround times are coming down because of our investments in automation. And again, that's all in the First Advantage back end that we talked about. And now Sterling customers, our legacy customers are starting to feel this now too because we're using our fulfillment engine on the back end for them. That helps with customer retention. And that is just -- the power of that is showing up in the retention numbers. And again, this is something that our competitors just don't have. We are light years ahead of them. And this is a big competitive moat for us. Operator: Thank you. I see no further questions in the queue. Thank you all for joining us today and for your participation. This concludes the First Advantage Third Quarter 2025 Earnings Conference Call and Webcast. At this time, you may now disconnect your line. Have a wonderful day.
Operator: Good morning, and thank you for standing by. My name is Ludy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Silvercorp's Second Quarter Fiscal 2026 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Lon Shaver, President of Silvercorp. Please go ahead. Lon Shaver: Thank you, Ludy. On behalf of Silvercorp, I'd like to welcome everyone to this call to discuss our second quarter fiscal 2026 financial results. They were released yesterday after the market closed and a copy of our news release, MD&A and financial statements are available on our website and SEDAR+. Before we get going, please note that certain statements on today's call will contain forward-looking information within the meaning of securities laws. And also please review the cautionary statements in our news release as well as the risk factors described in our most recent regulatory filings. So let's kick off the call with our financial results. We delivered more solid performance in Q2 highlighted by our revenues of $83 million, which was up 23% from last year and marks the second highest quarter ever. Additionally, cash flow from operating activities was $39 million, and that was up 69% from last year. This performance was mainly driven by a 28% and 37% rise in the realized selling prices for silver and gold compared to last year. Also notably, the amount of gold sold in the quarter was up 64% compared to last year. Silver remains our most significant revenue contributor at approximately 67% of net Q2 revenue, followed by lead at 16% and gold at 7%. Moving down the income statement. We reported net income of negative $11.5 million for the quarter or negative $0.05 per share. This is down from positive $17.8 million or $0.09 a share in Q2 of fiscal 2025. However, this quarter had a significant $53 million noncash charge on the fair value of derivative liabilities, which was partially offset by a $22 million gain on investments. Removing noncash and onetime items such as this, our adjusted net income for the quarter was $22.6 million or $0.10 a share versus $17.7 million or $0.09 a share in the comparative quarter. Note that the average shares outstanding used to calculate EPS this quarter was 218.6 million compared to 206.5 million in the same period last year. On the capital spending side, we invested nearly $16 million at our operations in China and $11 million in Ecuador during the quarter. We generated $11 million in free cash flow for the quarter, which supported our strong closing cash position of $382 million. This cash position does not include our investments in associates and other companies, which had a total market value of $180 million on September 30. And after quarter end, we participated in New Pacific Metals equity financing and acquired an additional 3 million common shares for roughly $7.8 million. Also, subsequent to quarter end, in October, we made the first draw on our $175.5 million Wheaton Precious Metals streaming facility for the El Domo project. We drew down the first $43.9 million tranche, which will be used to fund our ongoing construction at El Domo. Now to just quickly recap our operating results. As we reported last month, in Q2, we produced approximately 1.7 million ounces of silver, just over 2,000 ounces of gold, 14 million pounds of lead and 6 million pounds of zinc. Silver production was essentially flat, but gold production was up 76%. So silver equivalent production, considering just the silver and gold was up 5%. Lead production was up 8% and zinc production was down 3%. Production at Ying was impacted by the temporary closure of certain mining areas, which have since reopened. We expect to mine approximately 346,000 tonnes of ore in this current quarter Q3 compared to the 265,000 tonnes mined in Q2. At the GC mine, production in Q2 was interrupted for about 10 days by Typhoon Ragasa. Year-to-date, we have produced 3.5 million ounces of silver, 4,135 ounces of gold, 30 million pounds of lead and 11 million pounds of zinc, which represents increases relative to last year of 3%, 78% and 4%, respectively, in silver, gold and lead production and an 11% decrease in zinc production. On the cost side, Q2 production costs averaged $83 per tonne at Ying which was down 11% from last year. The improvement reflects greater use of shrinkage stoping over the more labor-intensive cut-and-fill resuing method along with higher ore throughput. Year-to-date production costs also averaged $83 per tonne, which was below the Ying annual guidance of between $87 to $88 per tonne. Ying's cash cost per ounce of silver net of byproduct credits was $0.97 in Q2 compared to $0.62 in the prior year quarter. The increase was driven by a $4 million increase in production costs due to 26% more ore being processed, while silver production grew by only 1% as shrinkage mining tends to have higher dilution rates. This was partially offset by a $3 million increase in byproduct credits. Q2 all-in sustaining cost per ounce net of byproduct credits was $11.75 at Ying, up 30% from the prior year quarter due to a $1.4 million increase in mineral rights royalties following its implementation in China in Q3 of fiscal 2025. A $2.6 million increase in sustaining CapEx and those previously mentioned factors that impacted cash costs. Overall, for the operations, consolidated mining operating income came at $40.8 million in Q2, with Ying contributing $38 million of that or over 93% of the total. Turning to our growth projects. At Ying, we invested $6 million in the quarter for ramp and tunnel development to enhance underground access and increased material handling capabilities. This work goes hand-in-hand with our efforts to expand mining capacity across the 4 licenses at Ying. Recall that last year, the SGX mine permit was renewed for another 11 years with capacity increase to 500,000 tonnes per year. The HPG permit was also renewed and expanded to 120,000 tonnes and the DCG permit was increased to 100,000 tonnes. We're now in the process of applying to increase the TLP LM permit to 600,000 tonnes per year with approval expected later this quarter. Once all approvals are in place, Ying's total permitted annual mining capacity will rise to 1.32 million tonnes from approximately 1 million tonnes currently. At Kuanping, that's the satellite project north of Ying, mine construction continued with 831 meters of [ ramp ] development and 613 meters of exploration tunnelling completed in this quarter. Kuanping has a mining permit to produce 200,000 tonnes per year, which at a full contribution, would bring our total mining capacity at Ying up to 1.52 million tonnes per year. Switching to Ecuador. Construction at the El Domo project is moving ahead steadily. In Q2, around 1.29 million cubic meters of material work cut for site preparation. Roads and channels, and that was a roughly 250% increase over the previous quarter. A 481-bed construction camp has been completed and work on the tailings storage facility began in September. For the 6 months ended September 30, approximately 1.66 million cubic meters of material were cut or removed, and $14.6 million of expenditures were capitalized. Contracts for 4 sections of the external power line have been awarded to qualified Ecuadorian contractors, pending review by the state power distributor, CNEL. Additionally, orders for equipment with a total value of $22.2 million have been placed. Overall, since January of this year, approximately $18.9 million has been spent on capital expenditures and prepayments for equipment purchases related to El Domo. At the Condor Gold project, we kicked off the [ PEA ] for an underground gold operation and expect to complete this study before the end of the year. As a reminder, at Condor, our plan is to construct 2 exploration tunnels into the deposits, which will allow us to conduct underground detailed drilling. In order to do this, we required environmental license and water permits. The studies to support these applications have been ongoing over the year. And during the quarter, we submitted our application for the water permits. The application is now pending final approval. We have submitted our application for the environmental license, and it is under review by the relevant authorities. And with those updates, I'd like to open the call for questions. Operator: [Operator Instructions] With that, our first question comes from the line of Joseph Reagor with ROTH Capital Partners. Joseph Reagor: I guess first thing on El Domo, the guide for CapEx compared to what you spent year-to-date, is it a matter of -- there's a big lift coming here soon or some long lead items that you guys have to pay for? Or is it -- are things maybe tracking a little slower than anticipated as far as capital spending goes? Lon Shaver: I was probably tracking a little slower initially. We began construction this year focusing on earthworks, and it was clearly a wetter year than Ecuador has experienced in past rainy seasons. But I think we've ramped up significantly here in recent months as indicated by the results that we published this quarter. And going forward, we should be able to provide an update on our construction progress this quarter, particularly as we are looking to execute the contract for bid package #2 in due course. And that's obviously the contract associated with stripping of the open pit and actually mining of the deposit. And we'll be in the position here shortly to share results from the metallurgical testing program that we've undertaken this year. So we expect to have an update prior to year-end where we can bring all these items forward and provide any updates. Joseph Reagor: Okay. And also on El Domo with the Wheaton drawdown, I think initially, when you guys made the acquisition, there was some thought that there was a potential to maybe buy that stream out or not use it in some way, but now you've drawn down on it. Does that just reflect that there was no way to really negotiate out of it given gold and silver prices have moved so positively since it was signed? Lon Shaver: Well, I think your last comment really indicates what we'd be dealing with to renegotiate. There was contractually an opportunity to adjust the stream at the time of the acquisition. It didn't make sense at the time, and it still doesn't make sense based off of those numbers. What might be available to negotiate with Wheaton, I can't comment on. You'd have to speak to them as well in terms of what their expectations are based on the contract that they entered into with Adventus. Joseph Reagor: Okay. Fair enough. And then just on guidance, it sounds like you guys are expecting a pretty strong catch-up quarter at Ying in Q3 and that, that will get you back in line with guidance, whereas if you were operating at normal rates, you'd kind of be tracking a little below after the Q2, let's call it, issue for lack of a better word. Lon Shaver: Yes. I mean, clearly, Ying is a mine in transition as we look to increase mechanization, we've certainly been demonstrating other than the temporary setback in this last quarter, the ability to generate tonnes. So that has been ramping up nicely. Also, we've been able to deliver more tonnes and produce more gold. So that is a bit of a shift in the profile. But whether we're able to make up for what was missed in so far this year, a little early to tell. I think it will depend on our ability to run at those expanded rates, great profile going forward and also Q4, just -- last year, we had some excess tonnes and we had a brand-new mill with excess capacity to work through those. So it kind of remains to be seen what we can push through in Q4 to get away from what has seasonally been a slower quarter. So still a bit early to tell. But as you point out, we're in a bit of a catch-up mode here. Operator: [Operator Instructions] And we have no further questions at this time. I would like to turn it back to Lon Shaver for closing remarks. Lon Shaver: Okay. Well, great. Thanks, operator, and thanks, everyone, for joining us today. If anyone does have any further questions after the call, please feel free to reach out by calling or e-mailing us. We look forward to hearing from you, and we look forward to catching up to discuss the results of our third quarter. Thanks, everyone, and have a great day. Operator: And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Good day, and welcome, everyone, to the HEALWELL AI Third Quarter 2025 Financial Results Conference Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to [ Hefton Seni ], Investor Relations. Hefton Seni: Thank you, operator. Joining me on the call today are James Lee, CEO of HEALWELL; Dr. Alexander Dobranowski, President of HEALWELL; and Anthony Lam, HEALWELL's CFO. I trust that everyone has received a copy of our financial results press release that was issued yesterday. Listeners are also encouraged to download a copy of our quarterly financial statements and management discussion analysis that was filed on SEDAR+. Please note portions of today's call, other than historical performance, include statements of forward-looking information within the meaning of applicable securities laws. These statements are made under the safe harbor provisions of those laws. Please refer to yesterday's press release and to our management discussion and analysis for more details on the company's risks and forward-looking statements. We provide forward-looking statements solely for the purpose of providing information about management's current expectations and plans relating to the future. We do not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations or any change in events, conditions, assumptions or circumstances on which any such statement is based, except if it's required by law. We use terms such as gross margin and adjusted EBITDA on this conference call, which are non-IFRS and non-GAAP measures. For more information on how we define these terms, please refer to the definitions set out in our management discussion and analysis. There will be a question-and-answer session at the end of the call, which will be limited to analysts only. To ask a question, analysts are required to call in to the conference using the dial-in number provided in our press release. And with that, let me turn the call over to James Lee, CEO. James Lee: Thank you, Hefton. Thank you, everyone, for joining us today. Look, Q3 for was HEALWELL was a very busy period, both in terms of productivity and change. So we're excited to share our progress. Obviously, as you know, in Q2, we completed the acquisition of Orion, and we had a major milestone becoming adjusted EBITDA positive. And as we enter Q3, we set ourselves 2 really simple but clear goals. We want to simplify the business and focus the business to maintain growth and a balance of adjusted EBITDA positivity. We announced in Q3 and we've completed this week the simplification of HEALWELL, forming a major milestone where we've gone from a conglomerate to a pure-play software service and AI business. And we've seen the strength of the diverse geographic and product mix, allowing us to maintain a positive adjusted EBITDA during the traditional slower Northern Hemisphere summer quarter, which we'll talk about later. These milestones are a critical event for us. They shape our future as a focused and simplified business. We have the resources now to succeed on our journey of creating a globally relevant and leading preventative care AI business. Now I'd remiss if we didn't thank everyone, like this wouldn't have been possible without the support of our key partner, WELL Health and the hard work both from our Board and our broader team members. So I want to thank everyone for a really busy and productive Q3. Now Post Q3, the business now is a simplified software and AI business. But looking at our Q3 results, Q3 has been another positive step for us in our journey. Our continued operations achieved revenue of $30.4 million versus $6.7 million in 2024 and adjusted EBITDA of $0.7 million. While we saw a quieter start to the quarter due to the summer period, we ended the quarter strong in our AI and data division, and we see good momentum for the rest of the year and into 2026. Now in Q3, we announced that we are integrating our AI platform, DARWEN, into our software platform, Amadeus. And this combination with -- in conjunction with our expansion here in the U.S. has begun to show really promising signs, which we'll talk about shortly. We're very early in the adoption cycle of AI tools and health care systems. So having the appropriate resources and becoming increasingly efficient with these resources is really important. So our goal is to maintain that balanced investment and maintaining adjusted EBITDA positivity. You heard us and you will continue to hear us talk about the word simplify and focus a lot today. As we talk about and shift the strategic focus over the last 6 months in the quarter. But I'd be remiss if we didn't talk about why we've done it. Now AI is a powerful tool. It's in the infancy of its understanding and adoption, but we believe that in health care, it's the most valuable use case that AI is currently able to do. At its heart, it's capable of consuming significant amounts of data looking to signal. But the impact we're seeing in the health care system for what we can do today is undeniable. Our AI engine, DARWEN, can identify hard to find patients using existing clinical data. Now unlike precision medicine when you need new data, we can find signal from existing data. As we've begun to expand DARWEN across the global footprint, we've seen the sheer size of the opportunity to expand materially. So to achieve our stated goals, which I mentioned before, of investing while maintaining and improving operating margin required us to have a really disciplined and focused business. Now, that let us taking the hard decision to simplify our business and product offering, which you've seen us execute this quarter. We've integrated our AI business. We acquired the balance of Pentavere. We've begun aligning our software businesses. We've expanded in the U.S. and we simplified our business lines and added some resources. So going into the final quarter and the first quarter of 2026, we have 2 primary areas of focus. In Q4, our goal is to complete the integration plans to maximize position and flexibility, allowing us to maintain improved operating margins year-on-year while investing. And in Q1 next year, our goal is to demonstrate commercial validation of AI platform and health care systems outside of life sciences. Maintaining and keeping focus on a well-defined set of goals in the immediate future allows us to remain disciplined so we can demonstrate both value to our customers and to our shareholders. Finally, I'd like to give a little bit of context about the opportunity in front of us in AI. Now I think it's [ one-off effect ] that the earlier you identify treatment path ensure the great path is identified, the better both the patient outcome and the cost of the system will be. Our AI platform, DARWEN is uniquely placed to help extract meaningful insight from existing unstructured clinical data, allowing us scalable improvements to both. We've already begun a number of proof points and what we call proof of values to multiple health care systems right across North America with the ability of identifying at-risk patients. Our priority is, obviously, as we mentioned, is to take advantage of the leadership of our field, demonstrate commercial value to the health care systems and to our shareholders. During Q&A, we'll talk a little bit about the opportunity and where we're looking to deploy and how many of our algorithms. But for now, on behalf of the team, I want to thank you all for your continued support. We look forward to sharing progress over the coming quarters. Anthony, I'll hand it over to you for the financial results in more detail. Anthony Lam: Thank you, James. Before I begin, I'd like to remind everyone that all of the figures I will be discussing today are in Canadian dollars, and our financial statements are presented in accordance with IFRS International Financial Reporting Standards. Our third quarter 2025 results are as follows: HEALWELL achieved quarterly revenues of $30.4 million during Q3 2025. This compares to $6.7 million generated during Q3 2024, an increase of 354% Revenue growth in the quarter was primarily driven by the acquisition and integration of Orion Health, along with both organic and inorganic initiatives. HEALWELL achieved gross profit of $16.5 million during Q3 2025, an increase of 330% compared to $3.8 million in Q3 of 2024. This increase was tied directly to higher revenues in the quarter. HEALWELL achieved gross margin percentage of 54% during Q3 2025. This compares to 57% in Q3 2024. During Q3 2025, HEALWELL reported positive adjusted EBITDA of $0.7 million compared to an adjusted EBITDA loss of $2.8 million in Q3 of 2024. This marks the company's second consecutive quarter of positive adjusted EBITDA, highlighting continued execution improvements and stronger financial performance. HEALWELL reported an IFRS net loss from continuing operations of $16 million for Q3 of 2025. This compares to a net loss of $8.7 million in Q3 of 2024. HEALWELL ended the quarter on September 30 with $15.6 million in cash, an increase when compared to $9.4 million at the end of Q4 2024. Looking at our revenue segments. As of November 1, 2025, following the divestiture of the company's Clinical Research and Patient Services division, HEALWELL now generates revenue across 2 core segments: first, AI and data science; second, health care software. Our AI and data science segment achieved revenue of $2 million in Q3 2025, marking a 79% year-over-year growth compared to Q3 of 2024. The commercial adoption across all of our offerings, including Khure and Pentavere technology, drove strong organic growth in the quarter, reflecting increasing demand for HEALWELL's AI-powered disease identification and clinical insight tools. The second revenue stream is health care software, which generated $28.4 million in revenue in Q3 2025, an increase of 408% from $5.6 million in the same quarter last year. The acquisitions of Orion Health and VeroSource have been the primary drivers of growth in this segment. With the recent divestiture of noncore assets, HEALWELL is now fully focused on driving growth, innovation and profitability across its 2 high-margin scalable segments, AI data science and health care software. With that, I'll turn the call over to our President, Alexander Dobranowski, for an update on progress that we made with regards to our AI division. Alexander Dobranowski: Thank you, Anthony, and thank you, James. I'd like to take a few minutes to highlight some of our progress we have made in Q3 with regards to our AI division. Most notably, in Q3, we achieved full ownership of Pentavere, enabling deeper integration of DARWEN AI with Khure Health for early disease detection and clinical insight generation. In addition, we launched Amadeus AI, integrating DARWEN into Orion Health's Amadeus platform, extending HEALWELL's AI capabilities across global health care systems. From a peer-reviewed validation perspective, our teams under the leadership of our Chief Medical Officer, Dr. Chris Pettengell and the Co-Founders of Pentavere, Aaron Leibtag and Steve Aviv have now published over 40 peer-reviewed scientific publications, underscoring HEALWELL's leadership in validated and clinically proven AI solutions. Subsequent to the quarter, as James and Anthony mentioned, we recently announced a 50-50 joint venture with WELL Health to build an AI-driven clinical research platform. By actioning this, we have transitioned HEALWELL into a pure-play AI and SaaS health care company focused on preventative care and early disease detection. Our AI platform powers this JV, automating patient recruitment, trial execution and real-time data insights. Ultimately, now, our strengthened balance sheet and focused operations enable global expansion of HEALWELL's AI commercialization strategy. From an outlook perspective, we are currently demonstrating continued expansion of proof-of-value AI projects with health care systems across North America. Our ongoing and progressing discussions with global pharmaceutical and research organizations to extend AI-driven real-world evidence and clinical data programs continues to progress, and we are now commercially active with 8 of the top 10 world's largest pharmaceutical companies, and this roster continues to grow. We also recently announced one of the world's first examples of using AI to generate regulatory-grade real-world data for supporting patient access and advancing the pharmaceutical industry. These types of capabilities are key differentiators of HEALWELL and our artificial intelligence engine, highlighting us as leaders in this section. A key focus for us in 2026 is scaling DARWEN AI commercialization and demonstrating measurable clinical and economic outcomes. And with that, I'd like to thank everybody today for attending this call, and I'll now hand it back to the operator and move to the Q&A portion. Thank you. Operator: [Operator Instructions] We'll take our first question from Allen Klee at Maxim Group. Allen Klee: Nice to hear from you guys. Just on what you're doing with Orion and cross-selling opportunities with the rest of your business and how you're thinking about how that can all expand your total addressable market and opportunities? James Lee: Look, and if I've understood the question correctly, what you've asked is how we look and expand the overall market as we integrate through the Orion network. I think what you've seen there is that it's not just the existing customers, the Orion network that we're spanning over. What we've actually found is the broader footprint Orion has and reputation has significantly enhanced the size of that market. So while we thought the original proposition was we would cater to existing customers, actually, the brand recognition in different regions has been really, really favorable. But if you think about the market opportunity, what it's led us to do is go from just being at the governmental and integration layer levels right down now to the hospital level. We are seeing that the market size from where we can add value is like I'll make up a number, but 10x to 15x larger. Allen Klee: And then just last question on -- with your AI business, what are the main areas that you're kind of -- you're working on proof of concept, but just in general, in terms of commercializing the business more. Can you talk about kind of what the main initiatives are? James Lee: Sure. And just for the vernacular, we use proof of value because I think the concept and an important distinction is the concept is clearly been proven. What we're demonstrating now is that our deployments are providing value to a health care system. So look, as we look across the opportunity set, the best way to think about it is that if we just take a small subset to get the numbers relevant, if you took the top 100 health care systems in the U.S. and what you have there is a patient identification of where just 100 disease states would mean up to 2 million patients are being either misdiagnosed or underdiagnosed. And so for us, the opportunity set there is to take just a small subset. So to prove that value that we could take 10 most relevant, whether that's from [ heart valves ] or through oncology, what we're trying to do is take a very small subject to prove value before we take the wider array of products out. But in general, we can find 105 different disease states, and we think just the top 10 would cover about 1/3 of the opportunity. So we're trying to remain disciplined and focused with a smaller subset so we can prove scale first in the North America. Operator: We'll move next to Michael Freeman at Raymond James. Michael Freeman: Congratulations on the quarter and all the action. I wonder if -- first, congratulations on the launch of Amadeus AI. I'm glad to see this being deployed through the Orion network. I wonder if you could describe some of the traction you're seeing, some of the reasons why your customers might be adopting this. And then I wonder if you could describe, I guess, preview for us, a product road map of where you're going to further leverage your internal AI capabilities through the organization. James Lee: Yes, great question. I guess let's start with the reasons. So we'll just use one example. And so the example we like to use as we go through it. So if we've got 105 disease states, what does that actually mean? The one that we try and use is the cardiovascular. So Alex, do you want to give a rundown, obviously, we presented that recently of the one project we're running through in the U.S. right now. Alexander Dobranowski: Yes, sure. We would love to. And Michael, thanks very much for the question. So I think one capability that, of course, we kind of anchor around the mission of the company, right, is early disease detection, okay? So -- and what does that mean now practically deployed, right, within a health system or a public sector partner? Well, one example is our capability to be able to screen patient populations and find these at-risk patients and effectively produce a list that then physicians can go and take action on. And one particular example we're working on is there's a number of patients that have worsening heart disease, and they're great candidates for having a heart valve to be replaced. So we're able to identify these patients that are fully reimbursable that should be on track to have this intervention. They're effectively patients that have fallen to the wayside. And we're able to identify them, get those lists to the physician, the physicians can then take action. And then it leads to a number of interesting outcomes. Number one, of course, the patient is on the right and appropriate care pathway. But number two, this is also a revenue-generating initiative for the hospital system. So that's kind of one clear example of us working very focused in one area, which is in cardiology. And then there's, of course, a host of other areas and domains where we have expertise to be able to execute against this. James Lee: Thanks, Alex. Well, I think it's that definition in the U.S. that the American market sees it as a revenue opportunity as opposed to a outcome you see in Commonwealth countries, which has been both not surprising, but really encouraging about the adoption rate in the U.S. Michael Freeman: Okay. And I wonder, in that cardiology example, it appears that the health care system is your customer, where there might be -- there also may be an opportunity with the specific heart valve companies like working with in Edwards, and which resembles the approach perhaps that you're taking with the life sciences companies linking up with Cure Health. Can you describe the reason -- I guess, the rationale for pursuing health care systems versus working directly with life sciences companies in this way? James Lee: Yes. Look, I guess there's a bunch of stuff in that. I'd start from the basis they're not mutually exclusive. So we can do both. It's the same data with the same signal. The second thing I'd say is that it depends where the data sources, right? And so if you're using a hospital's data rather than our data, the hospital is using the componentry of what they already have for their own benefit, and we're enabling that and giving them insight. They may not wish other people to have that access to that data. But more importantly, we think about it as 2 flywheels. And so what I mean by that is that the flywheel we have in Canada of identifying patients and working with life sciences creates more opportunities and more disease states and knowledge to then go to a health care system and say, there are other ways we can use this data. And what we're finding is you can do both. So yes, we can maintain our work with our life science customers. But in different regions, the health care system, what you got to remember is the core component of what we put together, why Orion and HEALWELL made so much sense because their business is health care systems as opposed to life sciences businesses. But the adoption of AI within health care systems will be at a different rate than it will be in life sciences. So we see them as not mutually exclusive, but we actually see them as complementary, Michael. Michael Freeman: Okay. All right. And last very quickly. We just -- from last quarter to this quarter, we saw health care software revenue step down marginally. Can you explain this step down and perhaps let us -- get us your thinking on when we expect that segment revenue to turn around and begin growth? James Lee: Yes. Good question. I think, look, professional services, there are 2 things going there. Obviously, it's not a straight line. It's a lumpy business. So you'll have one quarter will be up, one quarter will be down depending on deliverables. What I would say is that the growth comes in is not a linear line. It will come in like every time a new customer comes is significant, but it's not a week. And so professional services quarter-by-quarter will be lumpy. This quarter, we were working through obviously Northern American summer. So customers being ready to take product as a core component of professional service revenue and hitting key milestones. So look, I don't want to give the impression that it's a straight line professional services. There will be some quarters. Obviously, Q2 was a positive quarter. It was above expectations. In terms of growth, you should expect that some years, that business will grow at 5% and the other years it will grow much higher rate than that depending on whether -- when new customers land because when you win a new customer, professional services revenue comes in before recurring. And that can be a 1-year lag before we implement into the recurring from professional service revenue. So our focus in '26 is clearly driving our AI and data science revenue, which is probably more linear. Operator: We'll go next to [indiscernible] at Canaccord Genuity. Unknown Analyst: Congratulations on the quarter and recently announced divestments. So my first question is on the Middle East partnership that you recently announced through an MOU with Lean Business Services. Would you be able to tell us more about your plans in this region and what this opportunity entails? James Lee: Yes. Look, Lean has been a wonderful partner for the business as it is before. Look, I think what we see with Lean is that they've built real capability in the region and over the top of our existing products. So the opportunity set for us is taking what they've already built across our platform globally, and then within the region for them to be a reseller of what we've built in their environment. That will open up materially new markets that we don't have access to in sales capacity within the Gulf. And our global footprint of taking some of their products is material as well. So we see it as one of the few win-wins you can have in health care where it's noncompetitive. We look at the region the relationships, the expertise they have to expand, and we obviously have the global reach within our network. Unknown Analyst: That sounds pretty exciting. And then maybe a follow-up on HEALWELL's appetite for additional M&A. So following your recent meetings with several potential targets from the U.K., as you mentioned, and what does your pipeline look like? And given the recent divestments, do you think you're in a better position to resume M&A activity? James Lee: Look, M&A activity has been a core component, being good allocators of capital for HEALWELL. We're maintaining a deep pipe of various stages across all parts of the market. The reality is that we're looking currently at tuck-ins, as we said, the key focus for us in the next 6 months is remain disciplined and focused, but not give up the pipeline. So what I mean by that is the deals that we're looking at will take longer than 3 months to consummate, but we don't want to distract the team from what the opportunity set is improving value. I'm sure everyone on this call is looking forward to when we can show the clinical validation and commercial validation across the Orion network. And we're very, very focused on demonstrating that. So what I think you can expect is that M&As will be a core component of the business. But for the next quarter or 2, we need to demonstrate the organic and commercial validation of what we're doing, not just the clinical validation. Unknown Analyst: Sounds great. Certainly, I'm looking forward to hear more good news from you guys. Operator: We'll take our next question from Rob Goff at Ventum. Rob Goff: Congrats on all the efforts and successes within the quarter. James Lee: Thanks, Rob. It's been a busy quarter, but the teams did really well. So it's exciting to be here. Rob Goff: Very good. And looking forward, can you discuss the current POVs outstanding? And how would you measure the success or performance of expanding that pipeline of POVs in the first quarter? James Lee: Well, I think Alex did a great job of explaining one of those POVs. What we're doing is -- but I'll talk about sort of how it works. We take a small portion of their data to prove the value that we're talking about. So rather than give them a list on all of their patients, we give them a list of what they can deal with in the next quarter. And so it's -- what we're building in the -- particularly in the U.S. is a rinse and repeat model, so we can go and take the same algorithm to a different non-competitive health care system. And so given the sheer size of the U.S., what we're trying to do is focus on a small set of subsets of our capability, demonstrate it at scale and then land and expand. Now what we're seeing is that there are multiple different uses. So we're not looking at just like hospital systems. We're looking across med tech businesses, government entities, regulators, pharmacies. So what we're trying to do is demonstrate the breadth of different health care systems that we can integrate with not just -- and I use health care systems as vernacular to anything outside life sciences. The core components, the insight that we can get from that clinical data, whether that's used by health care systems, life sciences, hospitals, insurers is the same insight. It's just got multiple use cases. Rob Goff: Okay. And perhaps it's simplistic, but in terms of tracking it, is something where you could say you currently have 5 proof of values and you're looking to add another 5 in the first quarter or anything to track the momentum there? James Lee: Yes. No, in first quarter, we'll come through how we think about those numbers. But I think the numbers you had there, we're doing more than those. What we're trying to do is be very disciplined this quarter to ensure they're successful. And then we'll start tracking out both the scale of where we're going in the different markets. But our initial approach is to try and have one in each region and one in each product. And so there's well north of 5. But you'll see us talk about those numbers in early 2026. Rob Goff: Very good. And one last question, if I may. Could you discuss your RFP pipeline? Is it an active market at this time? James Lee: Look, yes, the RFP pipeline is actually quite active. What we're finding is that there's multiple RFPs for all of our products in most regions. AI-enabled platforms are now becoming part of the RFP process. We're starting to see in Europe, in particular, the RFPs, including other common use cases, including how you integrate with life sciences. I think health care systems are becoming a lot more open to what they do with their own data. And so our experience of working in life sciences in North America is a real value outside the rest of the world. Yes, 2025, we saw an election cycle, both in Canada and the U.K., which slowed down adoption. But what we're seeing now is that the RFPs are back on right across the business. In fact, every part of our business has got a significant pipeline of RFPs. Obviously, what I would say in health care systems, they are long-dated, big processes, big dollar values. Operator: Our next question comes from Brian Kinstlinger at Alliance Global Partners. Brian Kinstlinger: So as adoption of your AI increases, and I know you're targeting 50% plus annual growth or more, how should we think about the mix of professional services versus subscriptions in that one segment? James Lee: Look, that's a really good interesting question, something you'll see us define more clearly in forward quarters. I think professional services in our AI business probably looks more reoccurring. And so it's not as professional services like it is in software. And so often we find in life sciences that it is a multiyear relationship, not a one-off PSG. So I think we're going to -- we've obviously taken the feedback on that from the investor and analyst community that we need to do a better job of describing that what is PSG and software is not PSG and AI and data science. Brian Kinstlinger: But the sequential reduction in professional services, that was a one-off project, yes, excluding the divestiture. James Lee: Now are we talking now in AI and data science? Brian Kinstlinger: We are, yes. James Lee: Yes. No. So Northern Hemisphere quarter, the summer is you're going to see seasonality. We definitely see in life sciences, holidays being taken. And that's why we saw the ramp-up in September, significant ramp-up in September versus July and August. Brian Kinstlinger: That's helpful. My last question is, as we look at the subscriptions revenue piece of AI, I know pharma and life sciences makes up the majority of that. Are there any hospital systems or clinics or anyone else taking outside of life sciences that are paying for subscriptions yet? James Lee: We do work with all of them. I think the reality is that they're de minimis in the scheme of things currently, the life science is the bulk of them, that you'll start to see that revenue be recognized and grow materially as we go into 2026. Operator: We'll go next to Daniel Rosenberg Paradigm. Daniel Rosenberg: My first one just comes around the proof of value that you spoke of. I was just curious how easy or hard is it to go to market with these proof-of-value concepts? Do you find it's early adopters? Or is it more broadly than that? People are curious to explore the capabilities of the AI. James Lee: Look, I would say the adoption cycle in North America is faster. It's not just early adopters. I think the reality is that it's a new segment in the U.S., helping burdened and profit struggling entities find patients where they can generate revenue and give better patient outcomes is something that hasn't really existed over there. So I think what we're actually seeing is that it's not just the early adopters, but actually people with large bases. It means the conversations are swiftly with CFOs, not just with medical offices. So what I would suggest is that what we're seeing in the U.S. because of the profit-centric nature of that health care system is that the adoption cycle to get to procurement is faster. Procurement and legal is still a slow process. It's weeks and months, not days, but I would say that we are at the very front line of what AI experimentation has been happening in the U.S. I mean a lot of what is workflow tools and our tools are very different to that. Daniel Rosenberg: And then you mentioned some -- the time it takes to go through procurement and legal. So how do you think about the sales cycle? And then perhaps as you think about competitors trying to go to the market, is there an advantage you have there just based on Orion's history, the Pentavere research you have out there? How helpful is that getting you through the door? James Lee: Look, immensely helpful. I mean, at the end of the day, what you need in any market is cut through. So we have an established brand that's been there 20, 30 years. We're not a start-up. We have clinically validation -- clinical validation on multiple disease states. We're not picking on one thing with one department. We can talk across most components of health care. And so we are peer-reviewed published, and I think the number grows every day, but from my understand, it's well over 50x now, I think 45x, 3 months ago. So we're publishing on a regular basis, new disease states. And I think even our validation we've got with life sciences, we work with the largest life sciences companies in the world. So I think that validation component and reputation is vastly important because privacy and security is a core competency in the U.S. you're using health care data. So as we walk along in a, what I would say, sea of AI, I think we really stand out. It's very hard to find anything that's been clinically validated and peer reviewed published as often as we have. And certainly, it's very hard finding with the long-term reputation that Orion has had. So going back to the industrial logic of the 2 acquisitions, Pentavere and Orion, we are seeing market fit and why that works in the U.S. right now. But I use U.S. loosely, like I think North America is probably is a better phrase than just the U.S. Daniel Rosenberg: Good to hear. Last one for me, if I may. It sounds like early disease detection, we're obviously in the very early days of AI, very early days of proof of concepts and showing -- commercializing it. But it sounds like it can expand dramatically. I'm just wondering how do you think about that balance of taking one concept, growing it, scaling it versus expanding into other verticals and the cost and resources to do that. James Lee: Yes. Look, we've taken the approach of "crawl, walk, run" as Sacha, our COO, will talk about. So what we've gone into is make sure that the foundations of how we get the data out and how we put into our algorithms is scalable and repeatable. And so a lot of the work at the moment from the team and make sure the technology is deployed on the ground. So our core part of this is going to the U.S. is the data can't leave the U.S. So we have to deploy a team there. But once we've got the infrastructure right and we know what disease states, it's actually a relatively fast follow-on of the next step. Once the pipes are in, if you think about it, of how we get the data out, we know what to look for and set DARWEN over. We just need to tune it. So it's the same clinical data we're pulling out and it's just different insights we're drawing from it. So when you think about the model, the model was new health care systems, there is a deployment of getting the data into DARWEN. But once you're in there, then expanding it over 1 disease state to 10 to eventually 105, that stage is a much faster and easier deployment cycle than a new customer. And so our focus today is to go wide and then go deeper. Operator: We'll move next to Justin Keywood at Stifel. Justin Keywood: Nice to see the results. On the MOU with Lean Business Services in Saudi Arabia announced last week, are we able to quantify that opportunity? I know historically, Orion has been very active in the Middle East. And how should we monitor that opportunity going forward? And any indication of the potential TAM or size? James Lee: Yes. Look, obviously, it's early days in any MOU. But what I would suggest is, yes, there has been success in the Middle East, but I think the Middle East is a much bigger market. And as health care systems grow, the wonderful thing that the Middle East has and why Lean is such a great partner is there are regions where we don't have people on the ground. And so working with them to deploy some of our platforms in either the Middle East or even if they take it to Africa, the regions that we're not focused on currently. And so the reality is what is a wonderful partnership because what it brings to us is that we focus on our core markets where we've got expertise, people on the ground, talking Europe, North America, Asia. But in the areas where we don't have capacity, we don't have to give up on those. And so Lean is a wonderful partner in that thing that it's a conjunct, if you like to think about it, and bring parts of the market that we're not currently servicing. Justin Keywood: Interesting. Absolutely. And then just on the growth in the quarter, obviously, a big step-up. Is there any indication of the organic expansion? James Lee: Yes. Look, the short answer is that, obviously, AI is predominantly organic expansion and growth. And I appreciate your comment that much of our software growth has been the Orion and VeroSource acquisitions. The reality is in the sector is that between Q2 and Q3, the professional services number was flat to down. And so the organic growth was, therefore, very low between the quarters. I think you will continue to see that PSG being volatile, as I said before, and that will come in a lumpy stage. The nature of the contracts is they are very large, but long dated. And so it won't be a straight-line quarter-by-quarter growth. Operator: Next, we'll move to Gianluca Tucci at Haywood Securities. Gianluca Tucci: Just one question here. Could you perhaps update us on how you're seeing cost synergies play out across the entities post Orion acquisition? James Lee: And, [ Lam ], why don't I leave that to you. Anthony Lam: Yes, absolutely. Great question, Gianluca. Since the acquisition, we've been really ramping up our work with the team at Orion. And we've got, as you can appreciate, a mature experienced team there and looking at the best of all our business units, and we're finding that there's some really good synergies that we will realize. It will take a little more time for us to see that. We'll see that benefit as we get into the 2026 fiscal year, but we're certainly seeing a lot of benefit to having the large team there that has the experience we need across the organization. And so those synergies will be realized. It just -- it will be something that we'll see in 2026. Gianluca Tucci: Okay. And if I could just ask follow-up question on the sales cycle process. As you work through these POCs or POVs, James, are you seeing more eagerness from clients who have a better understanding of the technology just given the state of AI globally today? James Lee: I'll sort of paraphrase that a little bit. But the -- particularly in the U.S., the understanding and willingness to deploy AI is very high. Some of our health care systems have got 50-plus projects that have been [ tried them ] in any quarter. So there's definitely an understanding that to improve profitability, they need to use AI a lot. And there are a lot of different products. What I would suggest is that most of the workflow products that they've seen currently to reduce that burden. You've probably all seen charts that the administrative burden of health care is way outstrip the cost of health care from a clinical point of view, particularly in the U.S. So they're trying to solve that burden. And where we're coming in a different space because of the willingness to look at AI is that we're in a very narrow field of -- by the way, we can find revenue. You can focus on your cost through the other providers, but we are a different type of AI solution for you. And that has a real cut through. Operator: And that concludes our Q&A session. I will now turn the conference back over to James Lee for closing remarks. James Lee: Look, I just want to thank everyone. I really appreciate the engagement. Look, Q3 was a big quarter for us. I think I read a research report saying it was surgical amputation, which I thought was a lovely way to phrase it that we've gone through the business. We've looked at what we need to sharpen our business. And going into the end of the year and next year, we're really excited about what we're seeing. I think we're looking forward to talking to you early next year about these proof of values and showing commercial validation. But thank you for everyone's support to the team. Thank you for your hard work and throughout to the Board and to our shareholders, we appreciate all the support. All the best. Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, and thank you for standing by. My name is Ludy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Silvercorp's Second Quarter Fiscal 2026 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Lon Shaver, President of Silvercorp. Please go ahead. Lon Shaver: Thank you, Ludy. On behalf of Silvercorp, I'd like to welcome everyone to this call to discuss our second quarter fiscal 2026 financial results. They were released yesterday after the market closed and a copy of our news release, MD&A and financial statements are available on our website and SEDAR+. Before we get going, please note that certain statements on today's call will contain forward-looking information within the meaning of securities laws. And also please review the cautionary statements in our news release as well as the risk factors described in our most recent regulatory filings. So let's kick off the call with our financial results. We delivered more solid performance in Q2 highlighted by our revenues of $83 million, which was up 23% from last year and marks the second highest quarter ever. Additionally, cash flow from operating activities was $39 million, and that was up 69% from last year. This performance was mainly driven by a 28% and 37% rise in the realized selling prices for silver and gold compared to last year. Also notably, the amount of gold sold in the quarter was up 64% compared to last year. Silver remains our most significant revenue contributor at approximately 67% of net Q2 revenue, followed by lead at 16% and gold at 7%. Moving down the income statement. We reported net income of negative $11.5 million for the quarter or negative $0.05 per share. This is down from positive $17.8 million or $0.09 a share in Q2 of fiscal 2025. However, this quarter had a significant $53 million noncash charge on the fair value of derivative liabilities, which was partially offset by a $22 million gain on investments. Removing noncash and onetime items such as this, our adjusted net income for the quarter was $22.6 million or $0.10 a share versus $17.7 million or $0.09 a share in the comparative quarter. Note that the average shares outstanding used to calculate EPS this quarter was 218.6 million compared to 206.5 million in the same period last year. On the capital spending side, we invested nearly $16 million at our operations in China and $11 million in Ecuador during the quarter. We generated $11 million in free cash flow for the quarter, which supported our strong closing cash position of $382 million. This cash position does not include our investments in associates and other companies, which had a total market value of $180 million on September 30. And after quarter end, we participated in New Pacific Metals equity financing and acquired an additional 3 million common shares for roughly $7.8 million. Also, subsequent to quarter end, in October, we made the first draw on our $175.5 million Wheaton Precious Metals streaming facility for the El Domo project. We drew down the first $43.9 million tranche, which will be used to fund our ongoing construction at El Domo. Now to just quickly recap our operating results. As we reported last month, in Q2, we produced approximately 1.7 million ounces of silver, just over 2,000 ounces of gold, 14 million pounds of lead and 6 million pounds of zinc. Silver production was essentially flat, but gold production was up 76%. So silver equivalent production, considering just the silver and gold was up 5%. Lead production was up 8% and zinc production was down 3%. Production at Ying was impacted by the temporary closure of certain mining areas, which have since reopened. We expect to mine approximately 346,000 tonnes of ore in this current quarter Q3 compared to the 265,000 tonnes mined in Q2. At the GC mine, production in Q2 was interrupted for about 10 days by Typhoon Ragasa. Year-to-date, we have produced 3.5 million ounces of silver, 4,135 ounces of gold, 30 million pounds of lead and 11 million pounds of zinc, which represents increases relative to last year of 3%, 78% and 4%, respectively, in silver, gold and lead production and an 11% decrease in zinc production. On the cost side, Q2 production costs averaged $83 per tonne at Ying which was down 11% from last year. The improvement reflects greater use of shrinkage stoping over the more labor-intensive cut-and-fill resuing method along with higher ore throughput. Year-to-date production costs also averaged $83 per tonne, which was below the Ying annual guidance of between $87 to $88 per tonne. Ying's cash cost per ounce of silver net of byproduct credits was $0.97 in Q2 compared to $0.62 in the prior year quarter. The increase was driven by a $4 million increase in production costs due to 26% more ore being processed, while silver production grew by only 1% as shrinkage mining tends to have higher dilution rates. This was partially offset by a $3 million increase in byproduct credits. Q2 all-in sustaining cost per ounce net of byproduct credits was $11.75 at Ying, up 30% from the prior year quarter due to a $1.4 million increase in mineral rights royalties following its implementation in China in Q3 of fiscal 2025. A $2.6 million increase in sustaining CapEx and those previously mentioned factors that impacted cash costs. Overall, for the operations, consolidated mining operating income came at $40.8 million in Q2, with Ying contributing $38 million of that or over 93% of the total. Turning to our growth projects. At Ying, we invested $6 million in the quarter for ramp and tunnel development to enhance underground access and increased material handling capabilities. This work goes hand-in-hand with our efforts to expand mining capacity across the 4 licenses at Ying. Recall that last year, the SGX mine permit was renewed for another 11 years with capacity increase to 500,000 tonnes per year. The HPG permit was also renewed and expanded to 120,000 tonnes and the DCG permit was increased to 100,000 tonnes. We're now in the process of applying to increase the TLP LM permit to 600,000 tonnes per year with approval expected later this quarter. Once all approvals are in place, Ying's total permitted annual mining capacity will rise to 1.32 million tonnes from approximately 1 million tonnes currently. At Kuanping, that's the satellite project north of Ying, mine construction continued with 831 meters of [ ramp ] development and 613 meters of exploration tunnelling completed in this quarter. Kuanping has a mining permit to produce 200,000 tonnes per year, which at a full contribution, would bring our total mining capacity at Ying up to 1.52 million tonnes per year. Switching to Ecuador. Construction at the El Domo project is moving ahead steadily. In Q2, around 1.29 million cubic meters of material work cut for site preparation. Roads and channels, and that was a roughly 250% increase over the previous quarter. A 481-bed construction camp has been completed and work on the tailings storage facility began in September. For the 6 months ended September 30, approximately 1.66 million cubic meters of material were cut or removed, and $14.6 million of expenditures were capitalized. Contracts for 4 sections of the external power line have been awarded to qualified Ecuadorian contractors, pending review by the state power distributor, CNEL. Additionally, orders for equipment with a total value of $22.2 million have been placed. Overall, since January of this year, approximately $18.9 million has been spent on capital expenditures and prepayments for equipment purchases related to El Domo. At the Condor Gold project, we kicked off the [ PEA ] for an underground gold operation and expect to complete this study before the end of the year. As a reminder, at Condor, our plan is to construct 2 exploration tunnels into the deposits, which will allow us to conduct underground detailed drilling. In order to do this, we required environmental license and water permits. The studies to support these applications have been ongoing over the year. And during the quarter, we submitted our application for the water permits. The application is now pending final approval. We have submitted our application for the environmental license, and it is under review by the relevant authorities. And with those updates, I'd like to open the call for questions. Operator: [Operator Instructions] With that, our first question comes from the line of Joseph Reagor with ROTH Capital Partners. Joseph Reagor: I guess first thing on El Domo, the guide for CapEx compared to what you spent year-to-date, is it a matter of -- there's a big lift coming here soon or some long lead items that you guys have to pay for? Or is it -- are things maybe tracking a little slower than anticipated as far as capital spending goes? Lon Shaver: I was probably tracking a little slower initially. We began construction this year focusing on earthworks, and it was clearly a wetter year than Ecuador has experienced in past rainy seasons. But I think we've ramped up significantly here in recent months as indicated by the results that we published this quarter. And going forward, we should be able to provide an update on our construction progress this quarter, particularly as we are looking to execute the contract for bid package #2 in due course. And that's obviously the contract associated with stripping of the open pit and actually mining of the deposit. And we'll be in the position here shortly to share results from the metallurgical testing program that we've undertaken this year. So we expect to have an update prior to year-end where we can bring all these items forward and provide any updates. Joseph Reagor: Okay. And also on El Domo with the Wheaton drawdown, I think initially, when you guys made the acquisition, there was some thought that there was a potential to maybe buy that stream out or not use it in some way, but now you've drawn down on it. Does that just reflect that there was no way to really negotiate out of it given gold and silver prices have moved so positively since it was signed? Lon Shaver: Well, I think your last comment really indicates what we'd be dealing with to renegotiate. There was contractually an opportunity to adjust the stream at the time of the acquisition. It didn't make sense at the time, and it still doesn't make sense based off of those numbers. What might be available to negotiate with Wheaton, I can't comment on. You'd have to speak to them as well in terms of what their expectations are based on the contract that they entered into with Adventus. Joseph Reagor: Okay. Fair enough. And then just on guidance, it sounds like you guys are expecting a pretty strong catch-up quarter at Ying in Q3 and that, that will get you back in line with guidance, whereas if you were operating at normal rates, you'd kind of be tracking a little below after the Q2, let's call it, issue for lack of a better word. Lon Shaver: Yes. I mean, clearly, Ying is a mine in transition as we look to increase mechanization, we've certainly been demonstrating other than the temporary setback in this last quarter, the ability to generate tonnes. So that has been ramping up nicely. Also, we've been able to deliver more tonnes and produce more gold. So that is a bit of a shift in the profile. But whether we're able to make up for what was missed in so far this year, a little early to tell. I think it will depend on our ability to run at those expanded rates, great profile going forward and also Q4, just -- last year, we had some excess tonnes and we had a brand-new mill with excess capacity to work through those. So it kind of remains to be seen what we can push through in Q4 to get away from what has seasonally been a slower quarter. So still a bit early to tell. But as you point out, we're in a bit of a catch-up mode here. Operator: [Operator Instructions] And we have no further questions at this time. I would like to turn it back to Lon Shaver for closing remarks. Lon Shaver: Okay. Well, great. Thanks, operator, and thanks, everyone, for joining us today. If anyone does have any further questions after the call, please feel free to reach out by calling or e-mailing us. We look forward to hearing from you, and we look forward to catching up to discuss the results of our third quarter. Thanks, everyone, and have a great day. Operator: And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the AMC Networks Third Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Nick Seibert, SVP, Corporate Development and Investor Relations. Please go ahead. Nicholas Seibert: Thank you. Good morning, and welcome to the AMC Networks third quarter 2025 earnings conference call. Joining us this morning are Kristin Dolan, Chief Executive Officer; Patrick O'Connell, Chief Financial Officer; Kim Kelleher, Chief Commercial Officer; and Dan McDermott, President of Entertainment and AMC Studios. Today's press release is available on our website at amcnetworks.com. We will begin with prepared remarks, and then we'll open the call for questions. Today's call may include certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that could cause actual results to differ. Please refer to AMC Networks' SEC filings for a discussion of risks and uncertainties. The company disclaims any obligation to update any forward-looking statements made on this call today. We will discuss certain non-GAAP financial measures. The required definitions and reconciliations can be found in today's press release. And with that, I'd like to turn the call over to Kristin. Kristin Dolan: Thanks, Nick, and thanks, everyone, for joining us this morning. We're pleased with our performance in the third quarter and our progress in several key areas. We delivered another quarter of healthy free cash flow and are on track to achieve our increased guidance of $250 million in free cash for the full year. The results we reported today mark a key milestone in our transition from a cable networks business to a global streaming and technology-focused content company. Streaming revenue growth accelerated in the quarter and offset affiliate revenue declines, resulting in stable domestic subscription revenues. As we have previously discussed, we expect streaming to be our single largest source of revenue in our domestic segment this year. This is a first for us and a meaningful inflection point as we continue to manage the business for the long term. As much larger companies spin off assets or split up to find clarity in a complicated time, we've built the components of a modern media business that is nimble, independent and well suited to today's environment and whatever comes next. We have a successful studio that produces programming and franchises that attract passionate and engaged viewers. We're home to the world's largest collection of targeted services, bringing fans of specific genres and unmatched level of curation and depth. We window our owned content across a full distribution ecosystem of domestic and international networks, streaming services, theaters and FAST channels. And we service all of this with a unified technology platform that allows us to deliver our content to viewers wherever they want to watch in a scalable way with predictable costs. A few highlights before I turn things over to Patrick. As previewed on our last call, we renewed and expanded our branded content licensing agreement with Netflix, which has been beneficial for both companies. We reserve new seasons of our most important franchises for our own platforms and get the promotional benefits of making prior seasons available to Netflix's large base of U.S. subscribers. This new agreement also expands to select international markets with a combination of first and second window rights focused on our biggest franchises like Anne Rice, Dark Winds and The Walking Dead. Turning to other key partnerships. We renewed a long-term distribution agreement with DirecTV, which expands the availability of our networks and programming across linear, FAST and streaming. Next year, DirecTV will hard bundle the ad-supported version of AMC+ in video packages that include AMC's linear network and will also add Shudder to one of their genre packages. We continue to work with Charter to raise awareness among Spectrum TV customers that ad-supported AMC+ is now included in their video package. More than 850,000 Spectrum customers have opted into AMC+ since its inclusion in the package earlier this year. We've also expanded our relationship with Cox. All 5 of our linear networks are now included in their streaming-only TV plan, Cox TV Lite. Just this week, we launched our first triple bundle with Amazon Prime Video offering AMC+, MGM+ and Starz a significant savings over stand-alone pricing. During last quarter's call, as we were finalizing our upfront negotiations, we noted a more than 25% increase in digital advertising commitments. I'm pleased to say the final figure was an increase of 40%. This is meaningful growth in an increasingly important category as our digital presence expands and advertisers see the impact of reaching viewers across all platforms that feature our popular and critically acclaimed programming. Our FAST and AVOD business continues to grow. We recently renewed our distribution with CTV leaders, Samsung and Roku and expect to launch 4 new FAST channels by the end of the year. As discussed last quarter, we are also implementing this successful strategy internationally. We currently have FAST channels in the U.K., Canada, Germany, Spain and Latin America. Globally, as of the end of September, we have 33 FAST channels distributed across 22 platforms totaling 215 active channel feeds. Combined, our portfolio of streaming services delivered an all-time high in viewership during the quarter, including the highest ever viewership of AMC+. Acorn TV, our streaming service focused on international crime dramas and mysteries, is having its best year ever. We're thrilled with the new talent, energy and momentum we're bringing to this beloved service now in its second decade and one of the world's first and most successful targeted streaming services. Irish Blood, the new series starring and executive produced by Alicia Silverstone, premiered in August and is already Acorn's #1 series ever and has been renewed for a second season. We're currently in production in Nova Scotia on a new series called You're Killing Me, starring and executive produced by Brooke Shields. We just completed another successful FearFest, one of our biggest programming events of the year, now spanning thousands of hours of programming across AMC, AMC+ and Shudder. Brand partnerships included an integrated show sponsorship with Hyundai, a Universal Studios promotion on Shudder for Black Phone 2 and multi-platform partnerships with Bacardi and Kraft Heinz, anchored by full week placements on Sphere as well as on our linear streaming and social platforms. On AMC and AMC+, we just brought fans a third series in our popular Anne Rice Immortal Universe, Anne Rice's Talamasca: The Secret Order. The first episode has already been seen by 2 million viewers across all platforms and is pacing as the most watched series premiere since The Walking Dead: The Ones Who Live. Interview with the Vampire will return next year with a new season called The Vampire Lestat focused on the popular character Lestat as the world's first truly immortal rock star. We've completed production of a new series that will premiere next spring on AMC and AMC+ called The Audacity, written and produced by Better Call Saul and Succession writer, Jonathan Glatzer. It's a provocative, timely and darkly comedic series featuring an amazing cast, including Billy Magnussen, Sarah Goldberg, Zach Galifianakis, Rob Corddry and Simon Helberg. Next year, we're planning to go into production on a new franchise, Great American Stories, the first season of which will be focused on John Steinbeck's The Grapes of Wrath. Our film group is experiencing one of the most successful years in its history with recent theatrical release, Good Boy joining this summer's Clown in a Cornfield to deliver 2 of the 3 highest grossing opening weekends we've ever had. Dangerous animals also saw solid box office results this summer. Just as important as the theatrical success is the impact these films have when they move to streaming on AMC+ and Shudder, extending the reach of our high-quality IP with minimal audience duplication. Earlier, I spoke about the strategic components of our business and our commitment to remaining fast-moving and adaptable as our industry evolves. Our achievements are only possible because of our people, and I'm extremely proud of the work we're doing and the culture we have built together. To support our employees during this dynamic period in media and to advance our company with dedication and focus, we recently offered a voluntary buyout program to most of our U.S. workforce. This program did not have specific financial targets, rather its purpose was to strengthen our talent base and ensure we have the right skills for the future. The result of this initiative is a less than 5% reduction in our total employee base. We are thankful for the contributions of those who have chosen to pursue new opportunities and of course, those who are driving this new era of the company. AMC Networks continues to differentiate itself during this changing time in media. As I said at the top of the call, when I look across our business, I see a company that has the pieces and the people necessary to succeed in this environment and to move quickly to find new and better ways to bring engaged fans to the content they love. And now I'll turn the call over to Patrick. Patrick OConnell: Thank you, Kristin. We are pleased with our third quarter performance. And today, we are reiterating our outlook for the full year. We delivered another quarter of healthy cash flow generation with free cash flow totaling $42 million in the third quarter. We remain well positioned to achieve our 2025 outlook of approximately $250 million of free cash flow. Third quarter consolidated net revenue declined 6% year-over-year to $562 million. Favorability in foreign exchange rates resulted in an approximately 65 basis point tailwind to our consolidated revenue growth rate. Consolidated AOI declined 28% to $94 million with a 17% margin, and adjusted EPS was $0.18 per share. I'll now review our segment results. Domestic Operations revenue decreased 8% to $486 million. Subscription revenue was flat year-over-year with streaming revenue growth of 14%, partly offset by a 13% decline in affiliate revenue. Streaming revenue growth in the quarter benefited from the implementation of rate initiatives as well as year-over-year streaming subscriber growth of 2%. We ended the third quarter with 10.4 million streaming subs. We've implemented price increases across all of our streaming services this year. Retention and engagement remain healthy across our portfolio of services, and we continue to anticipate an acceleration in our streaming revenue growth rate for the fourth quarter. As Kristin highlighted earlier, streaming revenue is expected to be our largest single source of revenue this year in this segment. Moving to Advertising. For the third quarter, Domestic Operations advertising revenue decreased 17% due to linear ratings declines and lower marketplace pricing. The ad market remains challenging for everyone, but we are encouraged by our strong upfront performance, the strength of our programming and our significant advanced and digital advertising capabilities. As Kristin mentioned, we are pleased to have renewed and expanded our licensing agreement with Netflix in the third quarter. Recall that licensing revenues often vary quarter-to-quarter due to the timing of agreements and delivery schedules. For the third quarter, content licensing revenue was $59 million, reflecting the timing and availability of deliveries in the period. Demand for our high-quality content remains healthy, and we now anticipate that Domestic Operations content licensing revenue will exceed $250 million for the full year. Domestic Operations AOI was $112 million for the quarter, representing a decrease of 25%. The decrease in AOI was largely driven by continued linear revenue headwinds. Moving on to our International segment. Third quarter International revenues were $77 million. Excluding the favorable impact of foreign exchange in the current period, International revenues decreased approximately 50 basis points. Subscription revenue, excluding FX, decreased 6% due to the nonrenewal with Movistar in Spain, which occurred in the fourth quarter of 2024. Advertising revenue, excluding FX, increased 10% due to strong ad performance in the U.K. and Ireland. International AOI for the third quarter was $12 million with a 15% margin. Turning to the balance sheet. We remain focused on continuing to reduce gross debt and extend maturities. We ended the quarter with net debt of approximately $1.2 billion, a consolidated net leverage ratio of 2.8x and approximately $900 million of total liquidity. We continue to believe that our securities will offer attractive opportunities to deploy cash across the capital structure to create meaningful equity value over time. In the third quarter, we repurchased $9 million of our unsecured senior notes due 2029 at an average price of $0.84 on the dollar. Subsequent to the end of the quarter, we also paid down approximately $166 million of our Term Loan A and amended our credit facility to push the maturity of the majority of our revolver availability to late 2030. Regarding capital allocation, our philosophy remains consistent. First, we look to support the business by creating and acquiring compelling programming that resonates with our audiences while maintaining healthy levels of free cash flow generation. Second, we remain focused on reducing gross debt and extending debt maturities as evidenced by our third quarter open market repurchases and recent partial repayment and extension of our credit facility. Lastly, acquisitions and share repurchases will be opportunistic and measured. Moving to our outlook. We are reiterating our 2025 outlook today. We remain confident in our ability to drive free cash flow and are on track to deliver approximately $250 million of free cash flow in 2025. With $232 million already generated in the first 9 months of the year, we are well on our way to achieving this goal. We continue to expect consolidated revenue of approximately $2.3 billion, reflecting continued linear headwinds, partially offset by streaming and content licensing strength. And we also expect consolidated AOI in the range of $400 million to $420 million for the full year. We are proud of the meaningful progress we've made in transitioning our business. We've built all the necessary components of a nimble and opportunistic modern media business. All the while we've continued to create and curate the high-quality content that engages fans and builds valuable lasting franchises. We remain grounded in our consistent strategy of making great content, distributing that content broadly, generating meaningful free cash flow and being prudent in how we allocate our capital. With that, I'll hand the call back to Nick. Nicholas Seibert: Thank you, Patrick. Well, operator, we'll now open the line for questions, please. Operator: [Operator Instructions] And our first question comes from the line of Charles Wilber of Guggenheim Securities. Charles Wilber: Just wanted to ask, I was hoping you could talk about your partnership with the Sphere and promoting FearFest. How are you thinking about similar partnerships in the future for other promotions like Best Christmas Ever or content premieres? And then on AOI, margins decreased in the quarter to kind of mid-teens range. I believe in the past, you guys have talked about long-term margins in the mid- to high 20% range. Is that still how you're thinking about margin potential over the long term? And what steps do you need to take to drive margin expansion? Kristin Dolan: Great. Charles, it's Kristin. Thanks for the question on Sphere. As you know, we sell cross-platform all of our inventory, and we do it against specific audiences. And having the opportunity to integrate with the Exosphere capabilities in Vegas has been really attractive to a variety of advertisers, particularly those in packaged goods where we can work with Sphere Studios to create an interesting companion on the Sphere to their linear FAST and AVOD purchases with us. So Kim can you expand a little bit, I think, on who we work with and how that's come together. Kimberly Kelleher: Sure. I'd just add, it's an incredible way to mark the campaign in a marquee global way where the Exosphere goes global on social, and it really -- it marks that kind of signature moment for the advertisers. So most recently with FearFest, we did Bacardi and Kraft Heinz with -- and to a great deal of success. And we do have partnerships in discussion for Best Christmas Ever and into other signature time frames for '26. Patrick OConnell: Charles, on the margin question, I think what we've been -- what we've said in the past is that we're trying to do 2 things at once. We're trying to, on one hand, continue to invest heavily in premium programming and at the same time, drive significant free cash flow through the business. You have seen over the last couple of years that our free cash flow conversion has increased materially. It's quite high, over 60% in 2025. And that will continue to be the focus going forward. So I would pay particular attention to the free cash flow in the business. Obviously, in the last quarter, we actually increased the guide for the year, up from an implied $225 million to $250 million this year. And so that's really the watch where I focus on the free cash flow generation. Operator: [Operator Instructions] Our next question comes from the line of Doug Creutz of TD Cowen. Douglas Creutz: Just as you become less of a linear business and more of a streaming business, how does that affect your overall cost structure? Are there ways that it's going to help you? Are there ways where it's going to hinder you? Can you talk how you -- about how you expect that to continue to evolve over the next couple of years? Patrick OConnell: Sure, Doug. I think we've got one of the most efficient models out there. When you think about how hard our programming dollars work against multiple distribution platforms, right? So when we program for AMC linear, it goes on AMC+ and the amount of incremental programming that's on AMC+ exclusively is relatively small from a dollar perspective. Certainly lots of episodes. There's a lot of Shudder content, et cetera, for subscribers there. So there's always something new with different and exclusive. But from a financial standpoint, the preponderance of our programming investment on AMC really does double duty across both linear and streaming. And then secondly, I'd point out some of the other more targeted streaming businesses where like Acorn, for example, where the unit economics from a cost structure are quite advantageous. The cost of production on those series is much, much lower than on kind of other larger streaming services, the audiences are extremely kind of tuned in and we've got good engagement churn metrics, et cetera. So we feel really good about the efficiency from a cost perspective of the way we approach the streaming business. And I would say kind of broadly across the overall business, we continue to have levers to pull. But we are primarily focused on continuing to invest in premium programming across all of these businesses. And we think we do it well and that we get it to work hard for us. Kristin Dolan: I would just add, Doug, thanks for the question. On the operating side, we continue to remind people that our strategy is to be a wholesale streamer. And in doing that, a lot of the costs end up on the size of our distribution partners, whether it's for acquisition or for customer service or for promotion and bundling. And then the technology work that we've undertaken over the last 12 to 18 months is driving a very predictable approach, right? So digital, when you're doing streaming, we have all of our content is nicely tucked away with Comcast Technology Services and then that supported with their second location, cloud location. So we know that our content is safe, it's stored efficiently and successfully through CTS and then our distribution for streaming and for digital is on the back of that deal, which, as we always say, it's a deal that we know what it can -- what it will cost us to deliver and that is -- it is scalable for as large as we want to grow. Operator: [Operator Instructions] Our next question comes from the line of David Joyce of Seaport Research Partners. David Joyce: Thinking about advertising, with the components of the upfront commitments you mentioned and the 850,000 AMC+ sign-ons with Charter Spectrum, what would be the glide path do you think with this increased streaming presence to turning advertising into a growth business again, granted the advertising level because of linear is half of what it was like 8 or 9 years ago. But what can make this a growth revenue stream again? Kimberly Kelleher: Charles (sic) [ David], it's Kim. I would point to the number Kristin shared in our successful upfront tied to the 40% growth in our digital advertising, which really aligns actually -- aligns and includes that 850,000 ad-supported Charter subscribers. We continue to kind of expand the inventory we have through our partners of AMC+. So we really continue down the road of focusing on making our inventory digitally or dynamically ad inserted, which actually allows us an opportunity to cross-sell across all our platforms, including CTV, our streaming services that are ad-supported, which we continue to add to with Shudder ad-supported coming shortly. It's just -- it's growing that overall pool, and that will align over time. Operator: [Operator Instructions] Our next question comes from the line of Steven Cahall of Wells Fargo. Steven Cahall: I wanted to ask about advertising as well. So you talked about the growth in the FAST channels. I was wondering if you could give us the percentage of either domestic or total advertising revenue you're now recognizing from those FAST channels just so we get the relative size as it grows. And then just on the upfront, we've heard from some peers that at least entertainment linear pricing might have been down year-on-year. So I was wondering if you could give us any color there. And then finally, you talked about streaming revenue as your biggest revenue bucket. Can you just confirm if that's subscription and advertising? And if we compare streaming subscription and advertising to linear subscription and advertising, is streaming now bigger, which I think would be a big turning point. Patrick OConnell: Steven, it's Patrick. I'll do the third piece first, and I'll flip it over to Kim on the advertising side of the business. Our streaming revenue is streaming revenue only. There's not the digital advertising embedded in that. So that's -- you can call it kind of a clean or pure number. Obviously, we've got a number of products in the market from an ad-supported basis, but those dollars get captured in our advertising dollars, not the streaming dollars. So hopefully, that clears up. Kimberly Kelleher: And I would just mention, as Kristin pointed out in her comments, we do have -- we have 33 FAST channels now across 22 platforms with over 250 global feeds, and that's creating a great deal of streaming digital inventory for us. We don't break that out, Steven. That's included in the overall digital inventory that we sell cross-platform. But what I would add is this is not just an advertising venture for us. We look at the FAST and AVOD marketplaces as an opportunity for us to garner interest for our programming with early seasons that actually help drive awareness and promotion and marketing towards our streaming services. So the majority of the new FAST channels we've launched recently are channels that actually sample our targeted streaming services like Acorn Mysteries or Scares by Shudder or ALLBLK Gems. These services samples the -- sample content from our streaming services and give us an opportunity to drive that kind of noncord connected audience to our streaming services directly. So we're really seeing them beyond just an advertising generator, but more of a marketing and promotional opportunity for us in streaming. Kristin Dolan: And I would just add we have one partner right now who's trialing with us the opportunity to click through a FAST channel to purchase the corresponding TSVOD. So that's an interesting experiment for us. So it goes beyond just using FAST as a barker channel. It's actually an interactive mechanism to purchase the correlated streaming service. So we're excited about that and hoping for some positive results. Operator: This concludes the question-and-answer session. I would like to turn it back to Nick Seibert for closing remarks. Nicholas Seibert: Thank you, everyone, for joining us this morning. We appreciate you giving us the time and your continued interest in AMC Networks. Have a nice day. Operator: Thank you for your participation in today's conference. This concludes the program. You may now disconnect.
Operator: Hello, and welcome to the Algonquin Power & Utilities Corp. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I'll now turn the conference over to Mr. Brian Chin, Interim Chief Financial Officer and Vice President of Investor Relations. Please go ahead. Brian Chin: Thank you, operator, and good morning, everyone. Thank you for joining us for our third quarter 2025 earnings conference call. Joining me on the call today is Rod West, Chief Executive Officer. To accompany today's earnings call, we have a supplemental webcast presentation available on our website at algonquinpower.com. Our financial statements and management discussion and analysis are also available on the website as well on SEDAR+ and EDGAR. We'd like to remind you that our discussion during the call will include certain forward-looking information and non-GAAP measures. Actual results could differ materially from any forecast or projection contained in such forward-looking information. Certain material factors and assumptions were applied in making the forecasts and projections reflected in such forward-looking information. Please note and review the related disclaimers located on Slide 2 of our earnings call presentation at the Investor Relations section of our website at algonquinpower.com. Please also refer to our most recent MD&A filed on SEDAR+ and EDGAR and available on our website for additional important information on these items. On the call this morning, Rod will touch on our leadership and then provide a review of the key highlights and operational updates for the quarter. He'll also provide some commentary regarding the company's portfolio strategy. I will follow with details of our financial results. We will then open the lines for questions. We ask that you kindly restrict your questions to 2, and then requeue if you have any additional questions to allow others the opportunity to participate. And with that, I'll turn things over to Rod. Roderick West: Thanks, Brian, and good morning, everyone. Thanks for joining us on the call. Before we move into the quarter results, I'd like to briefly touch on the important leadership update we announced by press release earlier this morning. We're very pleased that Robert Stefani will be joining Algonquin as Chief Financial Officer, effective January 5, 2026. Robert brings to the role an exceptional blend of financial discipline, capital markets expertise and strategic acumen, having served the last 3 years as CFO at Southwest Gas Holdings and 4 years as in the same role and Treasurer of PECO Energy. We're excited to welcome Rob to the executive leadership team. I expect his capabilities and contribution will help us accelerate our path to becoming a premium pure-play regulated utility. I'd also like to take a moment to thank Brian Chin for stepping into the interim CFO role. I personally appreciate his partnership and steady hand during my early months as CEO, and we look forward to having Brian continue with us as a key member of the finance and leadership team and to assist in the leadership transition. On would we go. From a financial and operational standpoint, I'm pleased to report that it was a constructive and solid quarter. Our Q3 financial results were strong with double-digit year-over-year percentage increases in adjusted net earnings and adjusted net earnings per share, and our outlooks remain unchanged. On the operational front, we received approval of our EnergyNorth rate case settlement and our CalPeco rate case settlement is pending. At Empire Electric, we filed a settlement and recognize from commission feedback that we have more work to do to align on specific metrics and milestones to demonstrate improved and predictable customer service. Let me state, we always appreciate hearing from the commission. We are listening and we are committed to reciprocating the transparency. We will be working with the parties to consider how to factor the commission's feedback into our settlement. We have hearings in December on our New England Natural Gas rate case. And in our Litchfield Park case, intervenor testimony is due on January 2026 with hearings scheduled for March of next year. These 2 cases represent a combined total rate request of $73.6 million of the $326.4 million in total pending rate request. A few additional comments, while we're on the topic of our regulatory proceedings. We understand that any adjustments in rates can be challenging for some customers, and affordability is a concern we take very seriously. Rate requests go through a rigorous regulatory review process designed to support our continued delivery of safe, reliable and cost-effective utility services for our customers. with rates reflecting the very real cost of modernizing infrastructure, meeting safety and reliability standards and improving customer experiences and outcomes. These are investments made by the company to create sustainable value for all of our stakeholders. We recognize that while necessary, our investments must be balanced with affordability in mind, which is why we are committed to doing our part to continuously find ways to lower our costs and be more efficient in the way in which we work. And finally, before I turn things over to Brian on the results, a few comments on the company's portfolio optimization strategy. When I became CEO in March, I initiated a series of quantitative and qualitative screens of our portfolio including value accretion, dilution, credit strength and overall strategic fit. I heard the questions that many of you were asking me in my first days, hours and weeks in the role. With the benefit of that initial work now behind me, I am confident that our back to basics pure-play regulated strategy we laid out in June is fundamentally sound. Continuing our focus on lowering our cost curve, improving operational performance and stakeholder engagement is our best path to creating sustainable value, reducing risk and growing our business. That being said, with a stable balance sheet and robust organic growth prospects within our existing portfolio, we are poised to be opportunistic, should the situation arise. And regarding those opportunistic situations, you should first expect that any potential opportunity will -- must be first value-enhancing to our regulated pure-play strategy, whether it's through EPS accretion and/or risk reduction. And secondly, you should expect that we would have and articulate clear lines of sight on transactability. And thirdly, it should not be a surprise to you, given the fact that we're turning this company's performance around or aim to. It should not unduly distract management's attention from our central strategy of turning around our financial performance and keeping our promise to you to be steady and predictable. That being said, Brian, I'll turn it over to you for the quarter results. Brian Chin: Thank you, Rod. As Rod stated earlier, it was another positive quarter for our key financial metrics, and our 2025 financial outlook remains unchanged. Third quarter adjusted net earnings from continuing operations were $71.7 million, up approximately 10% from $64.9 million in 2024. Net earnings for the Regulated Services Group were up year-over-year, fueled by growth from the implementation of approved rates across several of the company's gas and water utilities as well as slightly favorable weather compared to the prior year at the Empire Electric system. Lower operating and interest expenses also contributed positively to the quarter with gains partially offset by higher income tax expense due to higher earnings before tax. Our expectation of an effective tax rate for the year in the mid-to-low 20% range has not changed. Net earnings for the Hydro Group were essentially flat for the quarter. And for the Corporate Group, a decrease of $14.7 million was primarily related to the removal of dividends related to the company's investment in Atlantica, which was sold in the fourth quarter of 2024, partially offset by lower interest expense of $8.9 million. Moving to our EPS walk. Q3 adjusted net earnings per share were $0.09, up 13% from last year's Q3 2024 adjusted net earnings per share of $0.08. Positive drivers for the quarter included $0.02 driven by stronger operational performance from approved rate adjustments and favorable weather compared to last year, another $0.01 related to lower operating expenses and a $0.01 onetime gain from the EnergyNorth depreciation deferral. We were down $0.01 due to the inclusion of a benefit in third quarter 2024 of a New York Water retroactive payment that did not repeat in 2025. Additionally, we benefited by $0.02 from lower interest expense from deleveraging, which was more than offset by the elimination of Atlantica dividends of $0.03 and then finally, a negative $0.01 of unfavorable taxes. And now back to Rod for his closing remarks. Roderick West: Thanks, Brian. And to close, this was another quarter of quiet but steady, thoughtful execution. As we continue our way forward, our focus remains on creating sustainable long-term value for our stakeholders and continuing to effectively serve our customers and communities. We're looking forward to seeing many of you at EEI in the coming days. Thanks again for your time and continued support, and we are happy to take your questions. Back to you, operator. Operator: [Operator Instructions] Your first question comes from the line of Baltej Sidhu from National Bank of Canada. Baltej Sidhu: Congratulations on the strong quarter. Just looking at the OpEx improvement, could you share any color as to what were the main drivers of this and if it's sustainable? Looking in the MD&A, you had highlighted favorable timing as a factor. Brian Chin: Yes. Thanks, Baltej. So as you know, we have been continuing to work on improving our cost discipline. You'll notice that we have taken cost-cutting measures as part of our ongoing strategy of improving value to our customers and stakeholders. We do say in the MD&A, and I'm glad you pointed it out, that we do expect a little bit of reversal on OpEx timing to happen in Q4, and that's part of the reason why our [indiscernible] remains unchanged. In terms of specific drivers, it's across the board. I wouldn't point to any one particular thing, Baltej. It's a myriad of improvements in efficiency and discipline across the board. So do be prepared for a little bit of reversal of that in Q4. But broadly speaking, we're pleased with the trajectory that we've been making. Baltej Sidhu: Great. And just another one for me. If you can provide some color on, if there's been any incremental conversations with data center players and/or if you expect any large-sized projects that would -- or could meaningfully contribute to your system or rate base? Roderick West: Yes. We wouldn't be talking about any conversations with customers unless they were aligned with us disclosing those conversations. I will say that our focus is on creating the conditions precedent to serving a multitude of customers, especially increasing transmission capacity in Southern Missouri, which we've already disclosed that we intend to do and certainly looking at stabilizing our generation portfolio in the region as well. And that's about all we'll say. Operator: Your next question comes from the line of Nelson Ng from RBC Capital Markets. Nelson Ng: Just a quick follow-up on the operating costs. So I think out of the $9 million of -- sorry, out of the $11 million of cost reductions we saw in Q3, $9 million was due to timing. So are -- so Brian, should we expect to see the $9 million all get pushed into Q4? Brian Chin: Nelson, I think that the timing aspect for Q4 is going to be an item that does crop up. Is it going to come out exactly at $9 million? We'll see what happens as we continue to progress through Q4, but the order of magnitude, I think, is correct. Nelson Ng: Okay. And then also in the quarter, I think restructuring costs were about $9.6 million for the quarter and I think $22 million year-to-date. Can you just talk about when you expect to see restructuring costs gradually roll off? Brian Chin: What I'd say is we're in the early innings of our restructuring efforts still. Obviously, given the history of the company, we believe we have a lot of opportunities to provide value across our cost curve. And so stay tuned for more, but early innings is how we would describe it here. Nelson Ng: Okay. So this could be a multiyear process? Brian Chin: Early innings, Nelson, is how I would phrase it. Operator: Your next question comes from the line of Rob Hope from Scotiabank. Robert Hope: As part of the portfolio optimization review, do you take a look at the domicile of the company just given the fact that the majority is now in the U.S. Roderick West: No, no question about it. I got those questions, as you know, and you guys were part of the queue from March on about the domicile question. It is an active conversation and consideration, as we think about providing sustainable value. The question for us, recognizing that we would need to get the support of our existing shareholder base is how does that play out. And while we have not made any determinations, I owe it to you and to my Board to do the due diligence to answer those questions. That work and that analysis is in flight. And that's all I can say. I do expect that at some point, we'll be in a position to opine as to whether it's something we pursue or not. Robert Hope: All right. Appreciate that. And then maybe just moving over to the regulatory front. Are the settlements at the various utilities kind of better or worse than you were expecting in your financial update in June? And more broadly, on the next go around for these regulatory filings, how would you as the new management team do things differently? Roderick West: Well, I'll simply say in our outlook that we laid out for you in June, we made certain assumptions around the reasonableness of our regulatory outcomes in the litany of rate cases. And I'll simply say that, as I alluded to in my opening remarks, everything is very much in flight. So I won't comment on whether or not where we are in our various settlement postures, is above or below expectations, but our expectation around reasonable outcomes remains as reflected in our outlook. In terms of what we are doing differently and what our existing, and certainly with Rob's arrival, our future management team would be doing differently, we'd be spending more time as we've sought to accelerate here, engage with our stakeholders long before we put pin the paper on a regulatory filing. And you've heard me say this before, but it bears repeating that our objective is that by the time we actually make a filing for any rate adjustment mechanism tweak or legislative change that we have reduced the number of contested issues to as few as humanly possible before we make the filing to give our regulators a lot better air cover in both assessing and deciding on regulatory outcomes. And that's just more work beforehand that really efficient and candidly, premium utilities, that's what they do, and we expect to mirror the attributes of those highly valued pure-play utilities. Operator: Your next question comes from the line of Mark Jarvi from CIBC Capital Markets. Mark Jarvi: Just on the activities at Empire, you had a nonunanimous settlement, OPC hasn't signed off yet. Are you in ability to negotiate with them and do a revised sort of more fulsome settlement in parallel to the public hearings that were ongoing? Roderick West: We're going to always be open to resolving disputes between every -- any and every stakeholder. I'm not singling out OPC, as I don't want to get ahead of any of the processes in Missouri. But the short answer is our objective is to get the support of the commission by bringing as many of the stakeholders along and resolving disputes. So OPC is an important stakeholder, but it's the commission at the end of the day who will call balls and strikes, and we're going to do our best to bring as many folks along as we can. Mark Jarvi: I'm also curious how you guys think about updating the market in terms of the journey on the cost cutting and navigating these rate cases. If you had sort of final decisions on CalPeco and Empire at some point in earlier 2026 and you've seen some progress on the cost reductions, would there be a view to update potentially '26 and '27 guidance at some point early or sort of midyear 2026? Roderick West: Yes, it's a great question. And I think it also aligns as I look out at the calendar with the arrival of our new CFO in January. I certainly would want -- if all things remain equal, not just with the timing of the various rate case developments, I'd want my new CFO to come in and weigh in because he, along with me, would own the path forward. So an update if it was -- if we thought that there was any need for -- to disclose a material change in our outlooks. I'd give him a little bit of grace in the early part of next year, but our foundation is sound. And my short answer is I'd always update if I thought there was a material change, but the arrival of the CFO gives us a chance to reflect and have fresh eyes on it as well. So the -- your assumptions on timing, I think, are pretty sound. Mark Jarvi: Okay. Makes sense. And then just, Brian, I know you mentioned the reversal in Q4 of some operating costs. But just as it stands today now, would you be tracking above the 2025 guidance on EPS? Brian Chin: No, our guidance is our guidance. So we're not going to make any comment about how we're thinking about things relative to that guidance. Operator: Your final question comes from the line of John Mould from TD Cowen. John Mould: Maybe just going back to the portfolio optimization aspect. I'm just wondering if you can elaborate a little bit on the risk reduction commentary. Is that chiefly a comment around utility or state-specific regulatory risk? Or are there other aspects of the portfolio optimization process where you see risk reduction opportunities as enhanced potential... Roderick West: Great question. The short answer is all of the above. It's risk period. So anything that would reflect a risk to our ability to achieve steady, predictable outcomes for the long term would be a consideration. So I don't mean to point to any specific one. But in the same way that I -- that we not doing the math on whether a specific transaction would be EPS accretive, the remainder of the considerations that would drive portfolio assessment, value assessment would be just how we articulate, identify and mitigate risk. So I appreciate the opportunity to be explicit on that. It's the generic enterprise risk to value. John Mould: Okay. And then maybe just one more on your customer and billing and data systems. I appreciate the challenges that we've talked about on previous calls, are pretty backward looking at this point. But can you just give us a sense of how that system is operating broadly across your utility footprint at this point? Roderick West: Yes. I am -- in the midst of all the noise from the customer disruptions with the billing issues we've had, I'm encouraged with the progress that we have made. When we brought Amy Walt on as Chief Customer Officer, it was her experience around SAP deployment and end-to-end customer systems that gave us confidence that there was a path forward for us to create different outcomes for customers. We're well on our way to doing that, which is why I was explicit and intentional in recognizing the guidance and feedback we got from Missouri, who themselves want to see better customer outcomes and are really focusing us on the metrics and milestones that not to be tried, the show-me state wants us to show them how we are improving the customer outcomes, which we know we are, but how do we know that we're doing it in a way that is sustainable. And I am really encouraged with the progress we're making internally and the fact that we have an opportunity in Missouri to show how the improvements we made are going to be sustainable. So we're making progress. We got a lot of work to do, but we are making progress. Operator: There are no further questions at this time. I'd like to turn the call over to Mr. Rod West. Please go ahead. Roderick West: Well, everyone, we are days away from EEI. So I thank you for your time and attention to our story, and we look forward to double-clicking face-to-face. Safe travels to everyone. Have a great weekend. Operator: This concludes today's conference call. You may disconnect.
Operator: Good day, ladies and gentlemen, and welcome to the Galiano Gold, Inc. Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Friday, November 7, 2025. I would now like to turn the conference over to Matt Badylak, President and CEO of Galiano Gold. Please go ahead. Matt Badylak: Thank you, operator, and good morning, everyone. We appreciate you taking time to join us on the call today to review Galiano Gold's third quarter results that we released yesterday after market close. On Slide 2, we'll be making forward-looking statements and referring to non-IFRS measures during the call. Please refer to the cautionary notes and risk disclosures in our most recent MD&A as well as this slide of the webcast presentation. Yesterday's release details our third quarter financial and operating results. They should be read in conjunction with our third quarter financial statements and MD&A available on our website and filed on SEDAR+ and EDGAR. Also, please bear in mind that all dollar amounts mentioned in the conference call are in U.S. dollars unless otherwise noted. On Slide 4, with me on the call today, I have Michael Cardinaels, our Chief Operating Officer; Matt Freeman, our Chief Financial Officer; and Chris Pettman, our Vice President, Exploration. For this presentation, I will initially provide a brief overview of the quarter, Michael will give an operations update. Matt will discuss the financials, and then Chris will review the ongoing exploration success his team is having at Abore. I'll then provide some closing remarks and open the call for Q&A. Here on Slide 5, we can see the team continued the momentum during the third quarter towards an improved overall operational outlook. Let me walk you through the highlights on this slide. Safety remains a top priority. I am proud to report that, again, no lost time injuries were reported for Q3, maintaining a strong safety record and demonstrating our unwavering commitment to our workforce. Turning to production. We produced just over 32,000 ounces of gold in Q3, up 7% from 30,000 ounces produced in Q2. This increase was driven by higher grades and increased throughput quarter-on-quarter following the commissioning of the secondary crusher in late July. From a financial perspective, Revenue came in at $114 million, up 17% quarter-over-quarter from $97 million. This was driven by higher production and improved gold prices. Our balance sheet remains solid. We ended the quarter with $116 million in cash and cash equivalents, a slight improvement on Q2 despite stripping at Nkran increasing during the period. This strong cash position provides us with the financial flexibility to continue to invest in our operations, particularly as we accelerate stripping at Nkran in 2026. Exploration remains a key focus area. At Abore, we drilled just over 11,000 meters during the third quarter focused on infill and step-out drilling around the high-grade zones identified earlier this year. Moving to Slide 6, please. Here on this slide, I'll provide a few words about the events that occurred at Esaase during the quarter. As previously disclosed, on September 9, an incident occurred when a group of illegal miners attacked military camp, housing members of the Ghana Armed Forces and damaging our contractors' mining equipment at the Esaase deposit. Regrettably, the incident also resulted in the death of a community member. Due to the scale of damage sustained to the fleet, mining operations at Esaase were paused. However, haulage from low-grade stockpiles resumed shortly after the incident. Since early September, we have worked closely with our mining contractor to remobilize the fleet to Esaase. This process continued into early November, and I'm pleased to report that mining operations at Esaase now recommenced and will continue to ramp up over the balance of the year. With that, I'll turn it over to Michael and Matt to discuss production and financial performance in more details in the coming slides. Over to you, Michael, and Slide 7, please. Michael Cardinaels: Thank you, Matt, and good morning, everyone. As Matt just highlighted, we continue to see an upward trend in performance during the third quarter of the year. We had a significant increase in personnel hours worked on site during Q3 with the ramp-up of Nkran mining staff and contractors involved in the secondary crusher project and the TSF Stage 8 construction. Our safety statistics continue to improve, with over 4.2 million man hours worked since the last lost time injury. On a 12-month rolling basis, our lost time injury and total recordable injury frequency rates up 0.39 and 0.9, respectively per million hours worked at the end of September. In terms of mining production, Esaase mining was impacted by the incident mentioned earlier by Matt. But production from Abore increased significantly, including a 57% increase in ore mined compared to the previous quarter. As Abore development has progressed with increasing depth and the pit is opened up to a steady state. We now have a better understanding of the ore body and our ability to recover the resource. We find ourselves mining more ore tonnes at lower grade, resulting in approximately the same number of ounces. And Abore currently provides the majority of the mill feed and will continue to do so for the balance of the year. Despite the Esaase mining interruption, production from both Abore and Nkran pits increased, and the total material mined increased 26% in Q3 compared with Q2. On to Slide 8, please. As you can see from the images on this slide, Cut 3 of Nkran pit is progressing well, including the development to support infrastructure in the form of an overhead power line extension and relocation and the drilling of additional deepwatering bars around the perimeter of the pit. Nkran stripping also increased 111% compared to Q2, primarily as a result of an additional excavator being mobilized to site as part of our ramp-up plan. Development capital costs for pre-stripping at Nkran totaled $12 million in Q3 and $22.1 million year-to-date. The contractor is on track to deliver additional equipment in Q4 2025 and the remainder of the planned fleet to ramp up to full capacity in 2026, putting us in good stead to continue stripping as per our schedule with steady-state ore production still due in the early 2029. On to Slide 9, please. On the processing performance, with the successful commissioning of the secondary crusher circuit at the end of July, we saw an increase in the plant performance for Q3. Milling rates since commissioning of the secondary crusher have increased approximately 13% compared to Q2. There remains some modifications in the circuit to fully optimize the performance, and as such, we expect to see further increases in production in Q4. Mill feed grade also improved compared to Q2 as we are getting deeper into the Abore pit and have access to better grade at depth, which in turn helped increase the recovery. On the back of the improved plant throughput and grade, we increased gold production to 32,533 ounces for the quarter compared to just over 30,000 ounces in Q2. The incident and subsequent interruption at Esaase have unfortunately had an impact on our plan for 2025. Despite having now restarted mining in Esaase, we will continue to see an impact as we ramp back up production over the balance of the quarter. Our forecast takes this into consideration, along with our improved understanding of the Abore deposit and the recent performance of the plant following the commissioning of the secondary crushing circuit. We estimate a revised production guidance of between 120,000 and 125,000 ounces for the year. And with that, I would like to turn over to Matt Freeman to discuss the company's financial results. Matthew Freeman: Thanks, Michael. Good morning, everyone. Here on Slide 10, we've outlined some of the key financial metrics for the quarter. We recognized revenues of $114 million, at a record average price of just over $3,500 per ounce for the impact of hedges. We earned income from mine operations of $48.2 million, while net earnings continue to be negatively affected by the fair value adjustments to our hedge book, following the continued run-up in gold prices such that we recorded a net loss before taxes of $5 million. This quarter, we also recognized a tax expense for the first time now that we have exhausted previous tax losses and a forecast to be taxable this year. Indeed, we've already paid $12 million in tax installments to the Ghanaian government. We generated $40 million of cash flows from operations in the quarter and ended the period with a strong cash balance of approximately $116 million. This included, as mentioned before, payments of additional $6 million in income taxes. In addition, as previously advised, given these strong operating cash flows, we have continued to allocate capital to accelerating the waste to the Nkran, incurring $12 million in the quarter as Michael noted, we expect the Nkran mining volumes ramp up further as more equipment is mobilized. All-in sustaining costs were consistent with the second quarter at $2,283 per ounce, we expect AISC to start to reduce in Q4 as production volumes increase compared with Q3. Despite our expectation that all-in sustaining costs will be lower in Q4 than Q3, given the overall shortfall in production ounces that Michael mentioned, we have increased our all-in sustaining cost guidance for the year to between $2,200 million and $2,300 per ounce. And this includes all the impacts of the royalties under the higher gold prices that we previously mentioned. On to Slide 11. Despite the headline increase in AISC that really is primarily production-driven. We continue to focus on the cost structure of the mine and are pleased that fixed operating costs such as processing and G&A in aggregate remain consistent with previous quarters. Of note, pricing costs per tonne have continued to reduce quarter-on-quarter, seeing a 13% decline in unit costs since Q1, and we expect further decreases on a unit basis as the full impact of the secondary crusher is realized in the fourth quarter. Mining costs at our producing deposits, namely Abore and Esaase declined on a per tonne mined basis by approximately 8% as mining volumes increased. Additionally, Nkran mining costs are also subject to a fixed unit mining contract, and we expect to see those unit costs continue to decrease as volumes increase over the next 12 months as management costs, which affects a shared over more tonnes. We also remain disciplined with capital allocation with regards to capital. The largest project ongoing currently is the Raise 8 at the tailings facility, which is expected to be completed in 2026. So overall, costs are being well managed, and we should see an improvement in unit rates as the year progresses. Now that the secondary crusher is online, and we expect to produce more tonnes and subsequently produce more ounces. This will generate higher operating margins and cash flows for the business. On to the next slide, please. Our cash margins have improved with the run-up in gold prices, which has meant that despite investments in the development capital for the secondary crusher project and stripping Nkran, we continue to maintain a very strong balance sheet with approximately $116 million of cash and no debt. We're also pleased to have progressed discussions to implement a $75 million revolving credit facility to further enhance the balance sheet to be earmarked for general working capital. And with that, I'll turn it over to Chris to discuss the exploration progress we've seen at Abore. Chris Pettman: Thanks, Matt. Q3 was another excellent quarter for us in exploration and was highlighted by exceptional results from drilling at Abore. Our press release dated August 20 detailed the first results from the Abore Phase 2 drilling program, which commenced in Q2 and led to the discovery of multiple new high-grade ore shoots across the Abore South and main zones as well as a significant new high-grade discovery at the northern end of the deposit. Some of the highlighted intercepts from this stage of drilling are shown here on Slide 13. Following these results, drilling at Abore remained the focus of exploration activities at the AGM through Q3 as we began infill drilling to prove continuity of these new high-grade zones while also continuing to test for further extensions of mineralization below the mineral resource. Drilling activity was ramped up through the quarter from a total of 5,040 meters drilled at Abore in Q2 to an additional 11,554 meters drilled in Q3. Based on the continued success of Abore drilling, the program has been further expanded with an additional 10,000 meters now planned for completion by the end of this year. This drilling is currently underway and the next round of results is expected to be released shortly. In addition to our work at Abore, we continue to advance our regional greenfield portfolio targets through the quarter. Most notably, the ground IP survey at the Nsoroma target area, which is located approximately 8 kilometers southwest of the processing plant was completed on schedule in Q3. The survey was successful in identifying chargeability and resistivity targets coincident with previously identified gold and soil anomalies along the interpreted extension of the Nkran shear zone. Drilling is now underway, and approximately 2,000 meters of RC drilling is planned for completion in Q4. The Nsoroma target area lies within a 5-kilometer long gold and soil anomaly located on the Nkran shear southwest of the Nkran deposit and is one of the several high-priority regional targets being evaluated by the AGM exploration team. Next slide. This image on Slide 14 is a long section through Abore showing the location of highlighted assay results received in Q3. Drilling has identified 2 primary ore shoots plunging to the north at low angles under the south and main pits. Additionally, high-grade mineralization has been intercepted below the saddle zone between the 2 pits along the conjugate south plunging structure as well as in the new high-grade zone under the North pit. We are particularly encouraged to see wide intercepts of mineralization at significantly higher grade than the current Abore reserve grade of 1.27 grams a tonne over long strike length as we continue to evaluate the potential for an eventual transition to underground mining. Next slide. Slide 15 shows the locations of the drilling I've been discussing in plan view to further illustrate the fact that mineralization intercepted in this round of drilling spans the entire 1.8-kilometer strike length of the Abore deposit. Next slide. This cross-section here shows one of the holes drilled below the south pit hole 368 which intercepted 45 meters at 2 grams a tonne, including 17 meters at 3.3 grams a ton. This image is reflective of how strong mineralization is being intercepted below the mineral resource across the deposits and the potential growth upside as the system remains open. Next slide. As mentioned earlier, based on the success of Q2 results and what we've been seeing through Q3, the Abore drill program has been further expanded with an additional 10,000 meters now scheduled for completion in Q4. Drilling will continue to focus on conversion of mineral resources and testing for further continuations of mineralization down plunge and beneath the current drilling. We're very pleased with the Q3 results and are very optimistic about continued exploration success at Abore and across the AGM portfolio targets. With the support of Matt and the Board, we have been giving access to additional resources to capitalize quickly on these positive results and have secured our drills through 2026 to ensure we can continue the Abore program unabated. And with that, I'll hand it back to you, Matt. Matt Badylak: Thank you, Chris. In closing, I'd like to highlight that although the quarter fell slightly below expectations and the incident at Esaase necessitated a review of full year guidance Q3 showed continued positive momentum. We saw quarter-over-quarter improvements across key operation metrics, including total ore tonnes mined, mill grades, mill throughput, gold production and cash balances, all moving in the right direction. As we continue to optimize the secondary crushing circuit, we expect further throughput enhancements in the quarters ahead. On the exploration front, I'm particularly pleased with our progress. The upside we are seeing at Abore reinforces my confidence in the organic growth potential of the AGM, and I remain excited about what lies ahead. This quarter also marked an important shift in our shareholder base. Following Goldfield's divestiture of the 19.5% stake, we have strengthened our register and improved our trading liquidity. I want to remind everyone that Galiano is well positioned as Ghana's largest single-asset gold producer with compelling fundamentals across many key areas. We maintain a robust production outlook supported by strong financial discipline, including a solid $116 million cash position, which provides flexibility to execute our mine plans. With that, I'll turn it back to the operator and open the line up for any questions. Thank you. Operator: [Operator Instructions] Your first question comes from Heiko Ihle from H.C. Wainwright. Heiko Ihle: Decent quarter overall, I guess, even given the guidance. You obviously had great recoveries in the period, and that really matters given the current pricing environment. And it seems like additional improvements are made to the circuit. Walk us through what you see as the longer-term impact of all of this? And if you were in my shoes, how would you model this out? I mean these were the best recoveries in over 4 -- I think, 4 quarters it was. Matt Badylak: Yes. Thank you, Heiko. I appreciate the question. I think best if I just pass it across to Mick for an initial adds up, and then I can add anything if needed. Michael Cardinaels: Yes. I think we've benefited from the increasing grade that was seen quarter-on-quarter over the year. And with that improved grade comes an improvement in our recoveries as well. And we expect those to be maintained into next year. And obviously, hopeful that the grades improve further with depth as well. We do have a number of things that we are finalizing in the secondary crushing circuit, as I mentioned, we're upgrading a number of conveyor drives. We're trying different configurations with our screen panels and a few other things to further optimize that circuit. We think that there's additional throughput enhancements that we can achieve. So we expect to trend upwards and obviously targeting that 5.8 million tonnes per annum. if that answers. Heiko Ihle: It does. Matthew, do you want to add anything or do you want to move on? Matt Badylak: No, no. I think mix answered your question, ultimately, there's only one other thing, I guess, that we didn't touch on is that the SAG mill discharge grades are also going to be reduced in size as well, and we feel that that's going to improve our throughput and also potentially recoveries as well. So yes. Heiko Ihle: So yes. Fair enough. On Slide 13 in the presentation, you talked about some of those high-grade ore shoots. You also discussed this in the press release with the earnings and then also back in August. These intercepts, some of which you see 3 grams per tonne are obviously very economic, especially right now. With this transition to underground mining, I mean, I know it's quite early to ask this question, but I assume at least some thinking has been done on this. What exactly would be needed to start underground mining related to costs, permitting, duration to get a decline, all that good stuff? Matt Badylak: Yes. Good question, Heiko. Well, obviously, we're really, really excited about the grades that we're seeing just below our current reserve pit, right, as highlighted in the slide that you mentioned. I think the first step that we need to tick off, and this is quite imminent for us at the moment, too, is to define what the underground resource looks like there at Abore. And as I said, I mean, that's not too far away, and there will be some work internally and also with external consultants that is currently going on. We do expect to have a view on that in the early next year, Heiko. So that's the first stage. And on the back of that resource or the maiden resource, we will be able to provide a little bit more color in terms of what we're seeing with regards to the cost time lines, permitting, et cetera, on that front as well. But again, I will highlight that the upside for underground at the Asanko Gold Mine is not within the next 12 months, right? It's probably a year or 2 away. We have to continue to mine through the bottom of Abore at the moment. And then once we do that, it will come on the back of the depletion of this under open pit resource. That doesn't mean that we can't start the work concurrently, but the ounces delivered to the mill are some time away at this stage. Operator: Your next question comes from Raj Ray from BMO Capital Markets. Raj Ray: The first one is more a clarification on, I think, Michael's prepared remarks, and my apologies if I got it wrong. Michael, you're saying that with Abore, you're getting more tonnage at the lower grade and then the overall ounces is still the same? Is that correct? Michael Cardinaels: Yes, that's correct. A function of basically being deeper into the pit has allowed us to open up and we're mining full width across the granite ore body now. And with the reduction in material that has come out of Esaase, we're basically relying heavily on Abore to feed the mill. So we -- we're seeing with our mining methodology to keep tonnes to that mill, we can basically mine such that we're limiting how much material is being stockpiled. So we're less selective in terms of high grading that material, knowing that it's all going to the process plant to keep ourselves fed at the moment. Matt Badylak: Yes. Maybe I'll just add to that. This is kind of quite specific to the last quarter, as Mick was saying, and we do know that the mineralization at Abore, you don't want to lose any of the high grade that may be lost if you tighten up your [indiscernible] too much, right? So we had the opportunity in Q3 to maybe step out a little bit and accept a little bit more dilution in Q3, and that's kind of driving the commentary as well. Raj Ray: Okay. Got it. And the second question I had was, I noticed that part of the CapEx has been -- the development CapEx has been deferred into next year and you've lowered your number. Is there any potential for any impact early in '26 as a result of Esaase being out for 2 months? And then if you can comment on what your stockpile levels were at the end of Q3 in terms of tonnage and grade? Matt Badylak: Yes, sure. Listen, in terms of guidance and outlook for 2026, obviously, that will come in due time. We're working through that at the moment internally. And once we have clarity on where the numbers lie on '26, we'll obviously provide the market with an update in early 2026 on that. But at this stage, as we were saying, we do expect that the material movement from Esaase will ramp up and be in a position where this impact of the shutdown that we had that we saw in Q3 and early into Q4 is probably going to be addressed by that stage as well. So we don't expect it to be extending into the new year. And then in terms of stockpile grades and balances, guys, do we have that at hand? Or should we get back to Raj on that one? Matthew Freeman: I think we can get back with specifics. So I don't have the actual numbers to hand. I think we obviously don't have a particularly big stockpile at this point. I think, as Mick alluded to, given the pause in mining at Esaase we won't be able to mine excess material. So we build up maybe 0.5 million tonnes or a bit less than that, but no more on keeping it fairly small. And the grades of that will be similar to what we've been seeing going through the mill. So maybe slightly lower where we could have got some slightly better grades through the mill, but pretty consistent with what you've seen from the mining... Raj Ray: And if I may, one last question. On the Ghana audit, is it possible for you to give any color in terms of what they are specifically asking from the companies? Matt Badylak: Yes. I think you're referring to the MinCOM audit. This was not that was received by all large-scale mining companies earlier in the quarter. So it's not specific to Galiano. We are of the understanding that our site audit will take place in January next year. It's been staggered monthly between all the large-scale mining companies. There's been no additional information provided to us at this point in time in terms of what's being specifically audited or any request for pre-documentation before that. So -- that's all I can provide on that at the moment, Raj. Operator: Your next question comes from Fred Schmutzer from Equinox Partners. Alfredo Schmutzer: Matt, first, I just wanted to have maybe an update on the community relations. How has that evolved since the incident? Matt Badylak: Yes. I mean, again, it's a very good question. Like we worked hard Alfredo to ensure that the community relations across all of our tenements, which are quite large, are maintained. I'm pleased to report that shortly after that incident the relationships there were brought back into check and we've been able to haul, as I mentioned earlier, we've restarted haulage operations from Esaase stockpiles very shortly after that incident occurred. So from that point until now, everything has remain calm and has returned to normal. But these kind of things do flare up. And we're keeping close relationships with all of our community members across all our tenements. So nothing to be concerned about at this point in time on that front, Alfredo. Alfredo Schmutzer: Okay. That's great. And then on unit costs. So you mentioned that they're going to keep decreasing as you increase the volumes. But how can we maybe model that reduction of unit cost in terms of dollar per tonne? Like how much can it go down? Matthew Freeman: Alfredo, it's Matt Freeman here. I think from a sort of a G&A and processing standpoint, the easiest way to model it is to see that our absolute costs are pretty fixed on a month-by-month, quarter-by-quarter basis. So therefore, as we increase those in the milling and increase the throughput, that will actually bring your unit cost down. So if you make some assumptions, as Mick said, hopefully getting back towards the 5.8 million tonne run rate through -- an annual basis throughput, fixed costs will therefore come down on a unit cost basis. Mining cost is a little bit harder. I think the reduction is modest as we increase the mining volumes because really, that the mining contracts are largely variable cost, but we do have a management -- a fixed monthly management cost component, and that's a bit where you start to benefit in those unit rates. So as we move forward, certainly through Q4, we're seeing those rates come down a little bit. But then again, as we move into future years as you get deeper in some of the pits, then you start to maybe as things start to creep back up again a little bit or get back to where they are now as you have longer haul cycles and you're in deeper parts of the pit. So it's a little bit hard for me to guide you exactly on that, but I think the mining costs are sort of where we are now is a good point and it's not going to get higher in the short term, and it should drive down a little bit in Q4, if that makes sense. Alfredo Schmutzer: Yes, yes, very helpful. And then my last question is on taxes. So you mentioned you have already paid $12 million this year. And I know this year is especially more difficult to model because you just finished, I guess, using all those losses. So do you have a kind of a range of how much you're going to pay for this year? Let's assume spot prices until the end of the year, like just to have a range of how much would you pay? And then going forward, how should we calculate that? It's just like a 35% effective tax rate? Matthew Freeman: Yes, you're right. It is a bit complicated and it's a little bit hard to guide clearly. But yes, I think we're -- this year, we're probably in the -- depending on if prices stay where they are now, we could be in that $20 million to $30 million range, hopefully, more towards the low end, but we'll see. We certainly paid more than -- we probably paid a good half of it in installments so far for the year. And there's a few nuances in the final tax returns that we're looking at where we can maximize and optimize our positions. And then from a go-forward basis, yes, I think the Ghanaian tax rate is 35%, we will start seeing a bit of noise with deferred taxes coming through. But on a base sort of current income tax expense basis, 35% would be a good number for you to use. Alfredo Schmutzer: Okay. Okay. And if I may, very quickly, sorry, maybe the revolver credit facility, any specific reason why you decided to take that this year or I mean this quarter? Matthew Freeman: No. Obviously, this is a process that takes a period of time. We're very much looking at it. It's just prudent balance sheet management. We've got an opportunity to put it in place just to reinforce things and get ourselves flexibility. But that's the reason we felt it's prudent at this point to do that for risk management. Operator: [Operator Instructions] Your next question comes from Vitaly Kononov from Freedom broker. Vitaly Kononov: First one relates to Esaase. So as it was paused temporarily in September, those bottleneck, let's say, lasted for 2 months. Can you elaborate on the measures taken to prevent any further disruptions that could take place in the operations? Matt Badylak: Yes. Sure. I mean, I think our first defense in all of this is making sure that we've got strong relationships with the host communities in which we operate. And we do that on a day-to-day basis, right? So that's our first priority. I mean, the fact is that with gold prices doing what they're doing at record levels. And if you have any knowledge of West Africa as a region, illegal mining is prevalent in those parts of the world. And with those factors considered, there is an acceleration or an increase of illegal mining in our tenement. So the first thing that we need to do is make sure that the communities and the key community leaders that we have good relationships with as those relationships are maintained. And then the other thing that I will say is that we do mention about the military presence on site. I will point out that -- Asanko is the only the second large-scale mining company in the country that has access to military full-time 24-hour military presence on site. And with that as well, we feel that we're in a strong position to ensure that something like this doesn't occur in the future. Vitaly Kononov: That covers my question. Perfect. And then second one relates to the secondary crushing unit that was recently installed. Can you elaborate on what would be the nameplate capacity going forward with this new equipment on hand, would you expect to raise full year guidance from the 5.8 million tonnes of... Matt Badylak: No. I mean, listen, we've stated before that the purpose of the installation of that secondary crusher is to get us back up to the 5.8 million tonnes per annum. We were obviously a little bit shy of that because of the hardness of the ore that we were processing during the course of this year. We'll continue to process into 2026. So that's the target. The nameplate target will be 5.8 million tonnes per annum. Vitaly Kononov: Wonderful. And the last quick one. So you've had a lot of exploration results that you're probably longing to share. Shall we expect to see a mineral resource update provided with the end year results? Matt Badylak: Yes, we're expecting to provide an update to the mineral reserves and resources early in 2026 and most likely accompanying our full year financial and operating results at that time point. Operator: There are no further questions at this time. I will now turn the call over to Mr. Matt Badylak for closing remarks. Please go ahead. Matt Badylak: Yes. Thank you, operator. And I just want to say that I appreciate everyone's time who dialed into the call and asked questions. And as a management team, we're looking forward to execute to our revised guidance for the balance of the year and continue to provide the market with some exploration results as we continue drilling at Abore. So thank you very much and have a good day. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.
Operator: Good morning, everyone, and thanks for waiting. Welcome to the conference for the disclosure of results of the third quarter '25 of Cogna Educação. [Operator Instructions] We inform you that this conference is being recorded and will be available in the RI site of the company, www.cogna.com.br, where you can find the whole material for this result disclosure. You can also download the presentation in the chat icon even in English. [Operator Instructions] Before going on, we would like to clear that eventual declarations being made in this conference regarding the business perspectives of Cogna, projections, operational and financial targets are the beliefs and premises of the company and the management as well as the information available for Cogna. Future information are not guarantee performance, and they depend on circumstances that may happen or not. So you have to understand that the general conditions, the sector conditions and other operational factors may affect the future results of Cogna and may lead to results that will be materially different from those expressed in future conditions. I'd like now to pass on the floor to Roberto Valério, CEO of Cogna to start his presentation. Mr. Roberto, please, the floor is yours. Roberto Valério: Good morning, everyone. Thank you for participating on the conference to discuss the results of the third quarter of '25. As we always do, we have Frederico Villa, our CFO here; Guilherme Melega, the Head of Vasta. This call will last 1 hour in which we'll have a 40-minute presentation and 20 minutes for the Q&A. So I'd like to start this meeting by saying once again that we understand this is one more quarter with great results in our understanding. We keep growing with the ability of operational delivery in a quite good way. It grows in a fast pace in double digits in the quarter and in the 9 months. So we are growing almost 19% of revenue in the third quarter and 13% in the 9 months. And I'd like to say that both the core business, therefore, higher education and basic education are growing double digits, and we keep investing in new fronts and future opportunities as it is the case of our business line for governmental sales as another example with our franchise starting. So from the point of view of growth, we understand that the core has a lot of capacity to deliver results. We are growing double digits with the same assets. Since the beginning of the structure in 2021, we understand that the core business still have a lot of opportunity to grow, basically refining and improving processes and the client experience. But we keep here planting and seeding new business to grow the company. The same way, the operational results keeps growing in double digits, basically 10% in the quarter and 12.4% in the year in the accumulated of the year. So this is the 18th consecutive quarter with the EBITDA growing. I'd like to reinforce our concern with consistency and it's a structural growth. So it's been 4.5 years that we are consecutively growing operational results. From the point of view of EBITDA margin, this quarter is pressured by an increase in the PCLD regarding Pague Fácil that was something that we did in Kroton in the commercial cycle. We will explore in the next slides as well as lower margin in Saber due to seasonality. And as you know, Saber, as Somos has the fourth quarter and the first quarter as strong quarters from the point of view of results and the third quarter is a smaller one. But in this case here of Saber, it pressured a little, but we'll talk specifically about PCLD later on. Now talking about the net revenue, we had BRL 405 million in the 9 months accumulated. So in spite the delta growth in the quarter to the net income was BRL 220 million because we had losses in the third quarter of '24. And when we analyze the 9 months, the delta of the net income is BRL 450 million. Obviously, it's being fostered by the improvement in operational results that we emphasize in the quarters we are talking about, but not especially, but also due to the reduction in the financial expenses to reduce the debt and our liability management strategies that allow the cost of debt to be lower. Therefore, the operational results with the lower expenses is happening in the net income. In terms of cash generation, we reached BRL 392 million with BRL 1.9 million less compared to last year. And as we always do, we let you judge if these points are one-offs or not. But in the third quarter of '24, we recovered taxes in cash of more than BRL 115 million. Obviously, if we compare operational to operational in the recover of taxes, our growth in the GCO would be 38%, therefore, quite a strong one. In the accumulated 33% of growth, almost BRL 940 million in post OGC. So the highlight of the quarter and the 9 months is the free cash flow. We reached BRL 300 million in this quarter, BRL 583 million in the 9 months accumulated. Just to emphasize, there's almost BRL 584 million in 9 months. This is 50% more than all the free cash flow generation in the whole year of '24. So in 9 months, as we generated more cash, 50% more of free cash flow than the whole year of '24. Now going to the debt, we reduced the net debt in BRL 474 million in the 12 months. I emphasize that only in the second quarter here, our reduction was more than BRL 220 million. So the cash generation is, in fact, being used to reduce debt. And then Fred will explain that aside from the reduction, we can also have important reductions in the average cost of the debt. Regarding leverage, we reached 1.1x the EBITDA, the lowest one in the last 7 years. The last time we had this level of leverage was in 2018. Therefore, we are quite satisfied with the results and prospectively thinking for the fourth quarter into '26, we keep having the same -- we keep optimistic and trusting that we have everything to have consistent results. Now going to Slide 5, we will talk about the operational performance of Kroton. And I think I can start by emphasizing the growth in intake more than 7% in the period. I would like to emphasize specifically the growth of the presential one. That is not the first cycle of intake. It's the third cycle that we have growth in the presential. And with the growth, I'll talk later, but with the growth specifically in the high LBV, I mean the most expensive courses, which help us in the ticket. And I relate this growth and the presential to our commercial model that is fine-tuned in the campy and is allowing this growth. And in distance education with a growth of 6.4% that is specifically to the change in the regulation for GL that fostered the course, mainly the health care courses that bring not only the benefits of growth, but also the improvement of the average ticket. So in the mix, it helps a lot. Obviously, we have a lot of evolution in the team, improvement of processes, systems and commercial strategies, but I reinforce that in the presential, this fine-tuned model in the campus helped a lot and the change in the regulation of DL fostered the enrollment, mainly in the health care courses that are the most impacted by the new regulations. The student base grew 2.7% in total. But if we consider only ProUni and ex ProUni, the ones that, in fact, pay and generate cash to us, the student base grew 4%, quite important and consistent as it's been over the last years. From the point of view of average ticket I also have emphasis here in this quarter because the Kroton as a whole is growing 11.7% in 3 segments: presential, DL and on-site -- I'm sorry, KrotonMed, and we have 2 points helping the average ticket. Newcomers, as I mentioned, in on-site, we have more enrollment in the most expensive tickets and in DL, also more newcomers in the health care courses on average with a greater ticket. But I also have to mention that we can repass the inflation to the old students in KrotonMed on-site and DL. So we have both old and new students with an increase in the average ticket, which pushed this growth to almost 12 points. Now in Slide 6, talking about the net revenue. Obviously, if we have more enrollment. And I forgot to say something important here about intake reinforcing that, obviously, the volume of intake is important to us, but the balance between volume and ticket is very relevant. We are always analyzing take analyzing the revenue in the period and the revenue grew 41% in this period. When you have a new period growing the revenue, and we know that the students will be with us for many semesters. In perspective, we have quite a positive result regarding the revenue for the next months and quarters. Now talking about revenue specifically. So we grew almost 21%, growing a lot on-site and online education. So we grew a lot in both front. So to be completely transparent, even if we reclassify the discounts that, as you know, we have a complete disclosure with all the items we are using since we reclassified the discount with inactive students for IDD with a neutral impact in the EBITDA, but adjusting the revenue, this growth instead of 20.9% would be 15.9%, but even though quite a strong double-digit growth. I'm talking about the accumulated, it's the same, 17% in on-site and DL. And here, we see the effect of Pague Fácil that we'll talk later is more diluted. Therefore, the delta between the growth we see of 17.4% and the growth ex Pague Fácil is smoother. Now in Slide 7 and talking about the gross profit as a whole, it grew 21.5% with a small increase in the gross margin from 79.4% to 79.9%. And in the same way in the accumulated in the year, we had an important growth in gross profit and a slight growth in the gross margin, which shows that the growth in operation in its core that is revenue minus cost is quite positive, and we are gaining on efficiency when we analyze the 9 months. The gross margin improved 0.7% with a small reduction in the margin of KrotonMed, and it's important to emphasize that in the 18 courses that we have, the medicine courses that we have, 3 are new. And as they mature, they increase the base of cost as we hire more professors. So the amount of hours increased, the general cost increase. So it pressures a little the margin, but according to expected and completely in line with our plans. So in Slide 8, costs and expenses. As you can see when we analyze cost and expenses with the percentage of net revenue, we have a gain in performance in all lines. So corporate expenses with a small gain in performance, the operational ones gaining more than 3 point percent of market and sales with diluting 1 point percent as the cost, as I mentioned in the previous slide. So the company grows and grows keeping the costs controlled and specifically the expenses controlled, which makes us gain efficiency and diluted with the percentage of net revenue. The only difference is PCLD that I'll explore in 2 slides because in the third quarter of '24, it was 6.2% growing 7.6% going to 13.8% due to 2 factors, both the reclassification of the discounts for inactive students as well as the greater penetration of Pague Fácil, but I will talk about it in other slides. When we look at the accumulated, you see that we keep growing in efficiency with no operational expenses and marketing and cost and I'm in Slide 9. So we have more -- 2 points more of dilution and marketing, 1.4%. So gaining efficiency, we see that the operation is quite adjusted. Now in Slide 10, so that we take more time here explaining those differences in the PCLD, we made this diagram to be easier to understand. So I am on the left and considering the third quarter of '24 with the first information, you can see the net revenue, BRL 939 million, which was published in the third quarter '24. The PCLD was BRL 58 million. Therefore, the percentage would be 6.2%. With the reclassification of the discounts that is so that we didn't have a reduction in the revenue every time we renegotiated with an inactive student, we would start classifying the discounts in the PDA. So in the pro forma of the third quarter of '24, the PDA would be BRL 98 million and not BRL 58 million, but the revenue would increase from BRL 939 million to BRL 980 million. So in the pro forma comparing it, the third quarter of '24 to '25, the PDA divided by the NOR would be 13.4% and 13.8%. Therefore, an increase of 3.7% in the PDA. So I explained the first delta of the 6.2% that adjusted by the reclassification of discount would be 10.1%. And if we consider delta for Pague Fácil, that is the offer that we implemented in this quarter, the PDA would be stable. And why would it be stable? Because our inadequacy is not increasing. It's kept the same. The fact is that when we offer more offers in Pague Fácil, that is the facility to pay the first installments. We don't have the history of credit of the students. So we provision more than students that we already have their history so that you have a reference. The level of provisioning is close to 10% to the student with the history. And in this case here of the students coming with this offer of Pague Fácil, we provision 47%, therefore, a greater provision. So that's the explanation, so why the PDA is growing. So it increases in this quarter because this is when we give the offer to the student. And in the fourth quarter, we don't have the offer anymore because we don't have newcomers anymore. So you see a convergence of the PDA to the closer number of pro forma. So explaining the movements, I would like to take some minutes here for you to understand the offer itself. So with the change of the regulatory framework, many players among us started communicating that they should take the period before the regulatory framework change to enrolling courses that won't be available anymore. But during the intake process, we realized that many players were offering discounts in the monthly payment. So in practice, it reduces the LTV of the student because all the payments that we come along the life of the student will be with a lower ticket. So we decided another offer. So to keep the average ticket, but offering to pay the second -- first and second payments in July and August in our case, installment. So the student enrolls because they are making the enrollment in middle of August when classes started. So they didn't pay July and they didn't pay August. They are starting to pay from August on. So these 2 parcels were not a bonus. So we divided them installments during the period of the student course. So in this case, the students in 4 years would be divided into 46 months. So as we don't know the credit profile of the students, they are new. So we provision more with these 2 payments that we booked and we are receiving month by month. So for you to understand clearly the offer, that's it. And it makes sense because we don't give up on the average ticket. We don't reduce the LTV of the student. We simply consider installments for the payment of 1 or 2 monthly payments along their course of time. So if you have more doubts regarding that, we can discuss in the Q&A. And we have a second table that is the deadline for receiving, which shows that the default is still positive. That's why we are decreasing the average deadline from 47 to 34 days. So this is the clear proof that is the P&L because we see that the student is, in fact, generating cash. Now going to Slide 11. The consequence of all that is the EBITDA result. Therefore, the EBITDA in the quarter grew 10% in the year accumulated 15.8%. So you can see a drop in the margin between the third quarter of '24 and '25 going from 37% to 36%. So the reclassification of discounts and the additional provision of Pague Fácil is pressuring the margin because it is increasing the PDA, but all the other costs like marketing, operations, corporate is all -- they are all diluted and gaining on efficiency, and we see that clearly in the results and in the cash generation. With that, I finish the explanation of Kroton, and I'd like to pass on the floor to Guilherme Melega for the comments on Vasta. Guilherme Melega: Thank you, Roberto. I'll go on with Slide 13 on the net revenue. I'll concentrate on the graph on the right with the commercial cycle because the third quarter is the one finishing what we call the commercial cycle of Somos Educação that goes from October to September. So here, we have the total idea of how the classroom behaved and everything that happened and will -- that happened in '25. So we reached BRL 1.737 billion, which is 13.6% considering the cycle of '24. The highlight is the subscription products with the teaching and complementary solutions that grew 14.3%, reaching BRL 1.32 billion. And now the non-subscription had an increase of 17%, reaching BRL 118.6 million result of the growth of our 2 flagships all in Anglo, one in São José do Rio Preto and the Pasteur Institute also with a growth in the pre-SAT courses in the year. So we acknowledge the growth in the 2 main business lines of the company. I also emphasize the B2G, bringing a natural volatility, but we could with new contracts keep the balance in this line of revenue, also keeping a similar level to '24, reaching BRL 76.2 million, BRL 66.8 million, I'm sorry. In Slide 14, I'll show our subscription sector. So we start on the right, where we have the breakdown of the core segments that are the learning and teaching segment. The complementares, the social emotional bilingual, makers and other complementary activities to the basic subjects, our growth was quite robust, reaching 14.3% in total. But the core segments grew 12.5% and the complementary segments, 25% as we can see a faster growth in the complementary over the years. And I'd also like to emphasize something that Roberto commented that is quite important to us. That is our consistency over the years, delivering that. So on the left, we see the first ACV of Vasta that is in 2020 when we acknowledge BRL 692 million compared to BRL 1.552 billion that we are delivering by the end of this semester. It represents 2.3x more, so a figure of 17.5%. So we are quite satisfied with the performance we can reach with the gain in market share and the penetration that our products are having on the private market. Now going to Slide 15, talking about the EBITDA, we grew 10.6% in our EBITDA, focusing here also in the cycle. We reached BRL 480.9 million EBITDA, the greatest one of Vasta in the commercial cycle, representing a margin of about 28%, in line with the previous year. And here, we will decompose a little our expenses going to Slide 16. I'll talk briefly because the third quarter to Vasta is not so significant, but it is important to note when we look at the table, our recurring gain in lower provisioning of PCLD. So we had a provisioning here, a lower one as we observed in other quarters. And we have more investments in marketing and sales because we are in the peak of the campaign for '26. But when we analyze the next slide, 17, we have an idea on how our expenses behaved in a complete cycle. So here, we have our total expenses when we analyze the table with the percentage of revenue, keeping in 71% with emphasis to the gains in productivity that we have in corporate expenses, operational expenses and PDA, as I mentioned in the previous slides. We have small investments in marketing and sales that should keep the double digit of the revenue. And in costs, I call your attention to the impact of 2.1% result of a mix that comprises more and more complementary products that we pay royalties for. So they have a higher cost like bilingual and social emotional as well as the Mackenzie system that grows in a fast pace. So these products have royalty, they increment a little our costs. On the other hand, we do not deliver capital to develop the product. So when you look at the benefit that we have in the cash, it's much greater than the small points of margin that we observed in the total costs. And lastly, I would like to emphasize that we are in the peak of the commercial campaign for the cycle of '26. We are quite optimistic with this period to keep the growth and keep the history of ACV as we saw before, we will have probably quite a good '26. I emphasize that we reached more than 50 contracts and we are operating 6 units this year. Next year will be 8 as franchising with a total of 14 units and the B2G is a big path of growth that we have with a lot of prospection at this moment, and we hope to have quite a hot fourth quarter to supply the cycle of '26. Now I pass on the floor to Fred to go on the presentation. Frederico da Cunha Villa: Thank you, Guilherme. Good morning, everyone. I'll start the presentation of Saber. And remember that Saber has some businesses, the national program of didactic books, languages, other services encompassing governmental solutions and so on. So note the graph on the left that in the quarter, we grew the revenue from -- of 9.4%. So this growth was fostered by the hitting of 2 business. First of all, 17% in languages; and secondly, the growth of Acerta Brasil that is governmental solutions with a growth of about 38%. It's important to remember that in '25, this is the year of purchase for high school and repurchase for elementary school. In high school, we had a gain of 8% in market share, which shows the growth that we have in our products with the program of didactic books. However, we see that there is no representativity in the quarter. We had a displacement from the third to the fourth quarter. Now going to the graph on the right, in the accumulated, I had a reduction of 9% in 9 months comparing '24 to '25. So this reduction, as I mentioned before, is only a reflect of the displacement and the reduction of the PDA, but it's according to the fourth quarter, and we had businesses with a positive impact of about BRL 32 million in 9 months in '24. And in the year, in the 9 months, the big effect here was in the first quarter that we've had a revenue that walked back in about BRL 60 million, but our expectations, as I mentioned before, is that we will have a stronger fourth quarter with the displacement of the didactic books program. So going to Slide 20, talking about the recurring EBITDA and margin EBITDA. As we said before, this is a year to grow the margin, but with the EBITDA growing and it shouldn't mainly due to the effects of investments that we will have in the material for marketing and all the commercial part, mainly, as I mentioned before, due to the repurchase program of high school and in the accumulated of 9 months that finishing September 30, we saw a growth in our EBITDA of 16%, leaving from -- going from 67.5% to 78.5% with an expansion of margin and 4.7%. So it's a neutral semester with a growth in revenue, but without growing the EBITDA, but this is due mainly to the displacement of the PDA. Our expectation is to have quite a positive fourth quarter. Finishing the presentation of Saber, I start now Cogna. Cogna represents our 3 main businesses like Kroton and Somos and Vasta, and I just mentioned Saber. So just a brief summary going to the final presentation. We had a growth in the revenue in the quarter in Cogna of 18.9%, reaching BRL 1.523 billion. So we grew revenue in all businesses. And in the accumulated, we also reached BRL 4.816 billion with a robust growth. That going to Slide 23, we have the demonstration in the recurring EBITDA and margin EBITDA. So we grew the EBITDA in the third quarter 9.8%, reaching an EBITDA of almost BRL 423 million. And as I mentioned, we grew the revenue in our 3 main businesses in Saber. We decreased the EBITDA, but we have the effect, as Roberto mentioned before, the effect of our commercial strategy in Kroton for intakes via Pague Fácil. And the main goal here was to keep the average ticket. You can see in our release that we can keep and have even growth in our intakes, and we had an impact in the PDA. We grew with the program to pay installments in Kroton, and in this way, we grew the PDA in the accumulator of 9 months, we grew 12.4% reaching an EBITDA of BRL 1.530 billion. Now going to Slide 24 with net profit and margin. In the quarter, the third quarter of '24, we had losses of BRL 29 million, and now we reached a net profit of BRL 192 million with a growth of more than 700% and a growth in the margin of net profit. And this comes from the growth of our operational results and it grew about 10%. We had a reduction of our financial results. So with many initiatives here in liability management and renegotiation, we reduced our financial results in 13%. And the main effect here is the effect of taxes of BRL 126 million and the reason we demonstrated this continuation and the operational effects and what are these effects mainly here with the reversion in the contingency that is not going over our EBITDA and the recurrent results, and we had the condition of the income that I briefly explain means that we had a company, Saber that had the tax losses in revenue income. And we incorporated this company so that we had this benefit in this year and future benefits. So look at this year, we had accountability effect of BRL 126 million. But in the fourth quarter, we will compensate BRL 11 million in taxes. So this operation brings not only accountant benefits, but in the cash of '25 and the years to come. If the accumulated, we reached almost BRL 406 million next year -- last year, in December 31, '24, we had a profit of BRL 879 million. Just remember that part would come from a reversion of contingency and our net profit of the operation was BRL 120 million. So in 9 months, ex effect of the income taxes, we reached the net profit of the operation compared to the previous year. And finishing that, the most important to us in the company is as we manage the company and we look a lot that for getting EBITDA and now analyzing the net profit and the cash generation and free cash. So we can see that in the operational cash generation, we had a slight reduction of 12%, reaching -- going from BRL 392 million last year. And last year, we had a positive effect of BRL 150 million of receivables of taxes from the federal revenue, and we had this benefit last year. We didn't have the benefit this year, but it's part of the game. So there is no adjustment. We are not proposing that. We are just explaining. But the most important to us is the free cash flow that we grew in the free cash flow. And when I say that, it is the generation of operational cash post CapEx and debt. So we reached BRL 300 million with a growth of about 3%. I'd like to mention also that the company analyzing the risks, we kept the second quarter of '24, '25 compared to the third one or the third of '24 with the third quarter of '25, we had a risk neutral with a small decrease of about BRL 9 million regarding the second quarter of '25 and BRL 17 million compared to the third quarter of '24. So you can see that the cash -- the free cash flow is not coming from postponing the risk. We are reducing our risk. And just to finish the free cash flow, an important data is that in the accumulated, we reached BRL 584 million last year. We had a generation of BRL 395 million. So remember that our fourth quarter, as I mentioned, is strong here in the national program of didactic books, and it's also a strong quarter in Somos Educação. So we are thrilled with what is about to come to the fourth quarter. Now going to the end of the presentation, our cash position and debt, we -- in Slide 26, I would show that the important is that we are reducing the net debt. So we reached BRL 2,576 million. We finished the third quarter in a strong cash position with BRL 1.277 billion. And the message here is analyzing the amortization schedule. In '26, we don't need to do any debt, and we have no amortization for '26, which is generally a difficult year because it's the elections year. Now going to Slide 27, the last one of my presentation, I'd like to show the leverage of the company. We reached the leverage of 1.11x, our lowest level of leverage since the fourth quarter 2018. Considering the third quarter of '24, our leverage would be 1.58x. We had a reduction and more than leverage. We monitor also the net debt. So we had a reduction of net debt compared to the last year, BRL 474 million. And regarding the second quarter of '25 compared to the third one, a reduction of BRL 230 million, which shows that in the last 4 years, we are doing what we say, what we committed to hit the revenue and generate EBITDA that will do the deleverage of the company, free cash flow and reduction of net debt. And last but not least, our average cost of debt is reducing. So in the third quarter '24, we had an average cost of 1.82%. And in the third quarter, it's 1.52%. And as we understand the market and our rating that we maintain that, but with a positive prognostic. We have cost of an eventual debt for future liability management in a lower cost than this one that I mentioned of 1.52%. So we are still thrilled with more execution, more work. And I pass on the floor to Roberto Valério for the final considerations. Roberto Valério: Thank you. Now going to Slide 28. I reaffirm our pillars and growth is one of the pillars. It's not by chance, it's the first in the list. As we showed, we grow in all operations, and we are planting and developing new pathways of growth to the future. As Fred mentioned, we are thrilled to the end of the year, the fourth quarter that is generally with no news in Kroton, but given the diversity of our portfolio, we have good quarters in Vasta and Saber with a positive perspective to the year. And we see no different challenge to '26. We see the level of unemployment very low, people with good income. This is -- next year is electoral year, which benefits our businesses. We are quite positive to this item of growth. From the point of view of efficiency, it's in the DNA of the company. We have quite well designed all the processes. We are converging systems to 1 or 2 single systems to gain on synergy and speed. So we are working in improvement of processes, automation systems, implementing AI. That is something we've been doing since '23. So basically 2 years, almost 3. And this is something that is spreading in our value chain, and it will keep bringing efficiency in gross margin and reduction of expenses. So this is another front that we see opportunities. Experience, the client experience is something that is the core of our decisions. We keep improving the NPS of students and partners. So just for you to understand in this third quarter, we had 4 important awards that are related to customer experience in many segments. So it is still our focus, and we understand that we serve well to reduce the churn and improve the growth. And culture -- people and culture is an important pillar. We are investing a lot in training and development and assessing performance and skills and feedback of our workers so that they know how to develop and external trainings and courses, I think we are progressing a lot in this front. And it's not by chance that we could be in the ranking of the best companies -- Great Places to Work. So we have the GPTW, still, we've had that, but being in the ranking is very difficult, and we are there at the 12th position, and we are in the 6th position, I'm sorry. And it's quite nice and innovation, we are supporting the business areas of the company, speeding up the B2G and new ideas that are under discovery in the initial steps, but I'm pretty sure are the seeds for our growth in education that is a big segment, and our approach is not only one segment. We have a multi-segmentary strategy. We have a broad portfolio, which in fact increases the options of growth to us. From the point of view of ESG, it is still important in the agenda. We held the V Education & ESG Forum this quarter. We were acknowledged in the ranking besides being acknowledged for being the best companies in customer satisfaction by the MESC Institute and some awards among which the best legal department in the education sector. So it's said by other people, which is also more important because it's not our opinion. It's the experts in the sector saying that to us. With that, I finish our presentation, and I open for the Q&A. Thank you. Operator: [Operator Instructions] The first question is from Marcelo Santos, sell-side analyst, JPMorgan. Marcelo Santos: I have 2 questions. First, I'd like to mention Pague Fácil because you've always had the PMT. So I understand that, in fact, you increased the amount of that, but the program would be the same. So I'd like to be sure of that. And was it more focused in DL? Is it -- does it have something to do with competition? I would like to understand why it's stronger in the divisions that you showed. And I would like to know if next year, it will be more normalized. And the second question is related to the cash generation because the fourth quarter last year was very good. So is there any event, any effect to change the seasonality for this year? Or you would bet to say that it would be the same as last year? Roberto Valério: Well, Marcelo, thank you for the question. So regarding Pague Fácil, you are correct. It's the same program we already had. So the mechanism is the same. The only thing is that now we are offering to more students. In general, we would offer the benefits to the students later on in the course when they enter in August or September, and we offer now since the beginning of the intake process when we start offering the benefit beforehand, more students make use of this. So the penetration of the program increases. So it's the same program with the same -- greater penetration for newcomers, which means that looking ahead, we should then see new growth. It should be more stable when comparing the quarters because the penetration was almost absolute, let's say, quite high. Basically, all students enrolled took advantage of Pague Fácil in the period. And regarding the cash generation, Fred will say. Frederico da Cunha Villa: Well, Marcelo, thank you for your question. In the fourth quarter last year, we had a strong operational cash generation. This is the beauty of our business, the diversity that we have. So last year, we had a positive effect of the national program of didactic books and also governmental solutions. And the cash here wouldn't have anything different compared to what happened in Kroton last year. And our expectation is to have a positive cash, and it comes with the same effect that we've had last year with the national program of the didactic books. A point of attention here is that we are a little late. We would imagine that our third quarter would be stronger. The government is late. So it may bring some impact to the cash in the fourth quarter, but our expectation is not different from previous years. It is to receive in the fourth quarter. But if we don't, Marcelo, then we should receive in the first 15 days or the first 2 any -- first days in January '26. But as I mentioned, it is our daily life. Marcelo Santos: Just a follow-up in Pague Fácil, Roberto, it is more concentrated in some of the units due to the competition, it was more in DL or is it general? I would like to understand this point. Roberto Valério: Sorry, you asked this question, and I didn't answer. It's generated. It's not focused in DL, both on-site and DL and the corresponding courses of KrotonMed. Operator: The next question comes from Vinicius Figueiredo, the sell-side analyst, Itaú BBA. Vinicius Figueiredo: I'd like to discuss a little bit about this quarter because we had a more concentrated effect. You mentioned a lot PDA in Pague Fácil that reached the margin. But having that said, a good behavior of all lines in this quarter, along with the fourth quarter not being with such a strong PDD due to the lower intake. So does it make sense that this quarter was quite atypical regarding the performance comparing the margins of the years, and we would see the cycle again an expansion in the fourth quarter? And then in the context of next year, will this effect along with the investments to adequate to regulation, how is that as a whole? And the second point is a follow-up to Marcelo's question. What would you see here as the balance point to Pague Fácil? Outside this context -- this is a typical context of the second semester and looking ahead, what is the participation it should have as a whole? Roberto Valério: Vinicius, thank you for your questions. I think it is quite an important topic to us that you have it quite clear in Pague Fácil and PDD. So as basically all students came via Pague Fácil, there shouldn't have any additional impact in any other quarters. So let's consider that in the third quarter '26, if all students have Pague Fácil, the delta should be only the growth of the enrollment and not the take rate of Pague Fácil. So we have nowhere to go because basically all students took Pague Fácil, whatever grows in the PCLD is related to the intake for the future. So this is the first point. The second point, you are correct. As in the fourth quarter, we don't have newcomers. Therefore, we don't have the pressure of Pague Fácil. The trend is that PCLD comes to the average and reduces to a lower level like the inadequacy and the numbers that we have here, as Fred always mentioned, a PDA of processes of inadequacy would convert to that, therefore, remove the pressure of the PDA improving the margin trend. And you are perfect in your observation. Obviously, we cannot predict -- we cannot give a specific guidance, but this is the specification. I don't know, Fred, do you have any additional comments? Frederico da Cunha Villa: Well, no comments. It's exactly that. The comment I would make is that that as we collected more with Pague Fácil because Pague Fácil and PMT are only different commercial names, but basically, it's the same. So the important is that the PDA is high due to the payment installments if our inadequacy is in X. So this effect is in line and close to 10%. So we'll see the quarters and understand that there's nothing new because it's already provision if we improve the inadequacy and improve the dropout, we will have an upside to the future. Otherwise, the PDD is already correct. So regarding the perspectives for DL, considering the regulation, it's difficult to predict, but we can have some ideas considering 2 important aspects. One that in the beginning -- in May, when it was disclosed, how much of restriction of courses that were DL and now are semi-presential and how it could restrict the movement of the student, I mean, going from DL to on-site. So this is the first doubt. We are seeing that, yes, there is quite a positive migration effect in the first weeks, we are in the beginning of the cycle. But in the first weeks where the nursing courses are not available in DL, we don't have the regulation defined. We see quite a strong growth of the courses, especially nursing in on-site. So the first doubt, well, if the fact we don't have cheap DL, the students won't be able to study. Therefore, we won't have so many enrollments. We don't see that. We see a strong growth in the on-site, which is positive from the growth point of view with the pressures on the margin because the on-site courses have lower margin, but the nominal contribution is much greater. The final benefit to the cash generation is quite positive. So this is the first element. The second one that is in the air, and we expect to have more information in the last weeks is how the fast track of approval of the nursing courses will be and how -- from there on, how many units and colleges will offer this course, and we are quite optimistic that MEC will propose a transition rule to allow that those operating -- keep operating. But this is only an expectation. We don't have any official information. Regarding the cost impact, we keep having the same view that we've had since the regulatory framework was launched. And if you know that from the point of view of cost, we understand it's quite not relevant, both in online and semi-presential or DL. So they are prone to repasses in the average ticket of the student. As you can see, we keep repassing inflation. The average ticket is growing for newcomers and old students. So we have the same view, and we don't have elements to say that DL will have a non-manageable impact, let's say. Operator: The next question comes from Caio Moscardini, sell-side analyst of Santander. Caio Moscardini: Could you talk a little bit more of Vasta ACV, what we can expect in this new cycle? If the 14% that we saw in '25 is a good proxy? I think it helps a lot. And in Saber, just to confirm if this market share of 30% is regarding a new cycle of the PDA from '26 to '29 that the government has a budget close to BRL 2 billion? And what should we expect in terms of EBITDA for Vasta in the fourth quarter, if we can grow this EBITDA of Saber in '26 comparing year-to-year? Guilherme Melega: So thank you, Guilherme here. I'll talk about the Vasta ACV. As shown in the presentation, we are having quite a positive track record in the evolution of ACV. We have a CAGR of 17,000, but I can tell you that we'll keep the growth for '26 at a similar level as we had from '24 to '25. So in the mid-double digit of growth. Roberto Valério: Okay. Thank you, Melega. Regarding your question of Saber, Caio, you are correct. The last purchase of high school government typically makes 1 purchase a year. It can be fund 1 or 2 of the average. In the fourth quarter, we are talking about high school. We've had market shares in schools and teaching systems choosing 30% of all the purchase being with our books from Saber. And we'll have a take rate of 30% of the program compared to a take rate of 22% in '21. So it's 8% more in share. So this is the information. So yes, we do expect to grow our income in this sense. And we know that MEC as FNDE are discussing budget to comply with this purchase. And remember that next year's program is the new high school program. It's different with more disciplines, more content. But your interpretation is correct, basically confirming what you said in your comment. Caio Moscardini: Okay. And regarding Saber in the fourth quarter, going from '24 to '25, it should grow year-by-year. Frederico da Cunha Villa: Caio, Fred speaking here. Our point of attention is only seasonality. If you have a displacement from the fourth quarter to the first one, as I mentioned, due to the delays, but EBITDA should be neutral positive because as it is a year of purchase, as Roberto mentioned, I also have expenses with marketing and advertising, which affects a lot of the cost, but due to the growth of 8%, it can be positive. Operator: The next question is from Samuel Alves, sell-side analyst at BTG Pactual. Samuel Alves: My first question is about receivables and maybe it's related to the comments before about Pague Fácil because we saw an important increase in receivables after 1 year. So can it be related to Pague Fácil so that I get your idea about the aging? This is the first question. And a second question is having a follow-up on the topic of the PDA. If I'm not mistaken, the company had a certain target of EBITDA to '25 in Saber of about BRL 200 million, BRL 230 million, if I'm not mistaken, but something like that. So you were mentioning this point that Fred mentioned now about the marketing expenses and the cycle of purchase as a challenge. So it caught my attention, the comment of EBITDA being neutral or positive compared to the years in the fourth quarter because it would be above that. So was it my misperception of not understanding your comment considering it was BRL 360 million. I guess the EBITDA last year of BRL 200 million was adjusted. Just to make it more clear about Saber's performance. Roberto Valério: Well, Samuel, I'll start with Saber and Fred will talk about the aging. It's important to consider that Fred's aspect is that we are not so certain or clear on the income of high school in the fourth quarter. As the orders are delayed, maybe part of this income will decrease in the first week of January. So it's difficult to be content and understand what is the EBITDA in the fourth quarter considering the uncertainty in the displacement of income. We have almost no doubt regarding the effectiveness of the purchase of the government. Therefore, government needs to handle the books to students in February when classes start. So maybe this misperception is a little more regarding the conviction that we have that the fourth quarter specifically will have a neutral positive EBITDA without knowing exactly what is the displacement of the income. So any displacement should be of weeks because the program must be carried out. I don't know if I made myself clear, if you have any doubts, we can discuss more. And I'll then pass on the floor to Fred to talk about aging. Frederico da Cunha Villa: Samuel, Fred here. About the aging of receivables, you are analyzing the IPR of the company. So I have the growth in the installment programs for Pague Fácil. So I'm growing this potential, but the second effect of growth in the aging above 365 days is not for Pague Fácil. It's the fat effect PP, the program that already finished. And here, we have more than 70% provision. So we have our natural efforts here for charging, nothing different from what we already have, nothing different from previous quarters or years. Operator: Our question is from Lucas Nagano, sell-side analyst, Morgan Stanley. Lucas Nagano: We have 2 questions as well. The first one is regarding Pague Fácil. And first of all, I'd like to check some points on the coverage because you mentioned the provision in the beginning is 40% and inadequacy default is converted to 10%. So if it's 47%, is it the same of the PND of the previous year or it varies in the cycle? And the second one is regarding nursing, considering that the government will facilitate the accreditation. How far it could smoothen the effects of the margin? How feasible would be the implementation and offer of professors and the demand available for this level of teaching? Frederico da Cunha Villa: Lucas, Fred, I'll start with Pague Fácil doubt because our provision uses always the history -- as a criteria, the past history because, as I mentioned, Pague Fácil and PMT are just the commercial trade name. So I need to use the history, and we use it. In the beginning, we provisioned 60%. But as I naturally have returns every month, the index of provision coverage is 47%. So just to make it clear to you, I use the history in the beginning, and I provisioned 60% of the budget. And in the history, it's 47%. You can do the math, okay? Roberto the second question. Roberto Valério: Okay. Thank you, Fred. Well, Lucas, regarding nursing, your question about the feasibility to carry out on-site nursing and this transition, the feasibility on our site is complete. I would like to emphasize 2 things. One, our nursing costs where we would offer nursing in the post already had on-site hours of 42% with the new rule, it's 70%. So I already have tutors and professors and labs and classrooms and everything. So we would be working in a lower percentage. So going from 42% or 52% to 70% is as simple as increasing the amount of hours of the professors and tutors that we have. This is our reality because we always operate with health care courses with off-site labs. We didn't have practice of offering nursing as you asked. In 100% online model, we always have the labs and so on. So if we have a fast track made by MEC based on the evidence that we already have the lab and all the colors, it would be quite fast this impact and it's fast and the impact basically 0 considering that students are migrating from DL to on-site where we have these offers presentially. So this is my understanding. Obviously, we need to leave to be sure that the scenario is the practice, but I have enough elements to say that, yes, that's it. Lucas Nagano: And just a quick follow-up, how should it affect the first point of this post. Roberto Valério: Well, the average price of an on-site nursing course is 30% higher than the semi-presential. This is how the prices were made. And I think that pricing is less related to ability of payment of the students and more related to the level of competition of prices among the many players in the city. If you remove players because they have no labs or professors or so on, the trend is that you can repass the prices and students can pay. So that's why we are seeing a strong growth in the campus even with the on-site being more expensive than semi-presidential or DL. Operator: The next question is from Eduardo Resende, sell-side analyst, UBS. Eduardo Resende: I have 2 questions here. The first regarding the migration of DL students to the on-site or hybrid model as you mentioned. And I would like to understand what was the difference in the commercial strategy now to the next cycle that you see this movement. So anything that you had to do differently in the marketing or other fronts that might be helping that. And the second question is regarding Acerta Brasil and Saber. This year and last year, we had this line contributing a lot to the growth. And I'd like to understand if we have space to expand in the next years or if we now raise the bar too low for that? That's my question. Those are my questions. Roberto Valério: Eduardo now to answer your questions regarding the new commercial strategies to foster the migration from DL to on-site. The answer is no. It's a natural movement on the market. The students had options, and we are talking specifically about the campus. We had the on-site and DL offers as DL is cheaper, we have more demand on DL, but we kept making groups and enrolling students for on-site. We don't have DL. Now they have to enroll for the on-site education. So we keep the levels of enrollment the same, but they simply migrated from a simple line of product to the other one with a higher average ticket, which means a net profit with a greater nominal contribution. As I said, a lower percentage of profit, but with a greater nominal contribution. But directly talking about your question, we have nothing specific. It's a natural movement of the market. And now talking about Acerta Brasil. There's no doubt Acerta Brasil reinforces the learning, especially for Portuguese and math that we deal with the state and Municipal Secretaries of Education. It's a good product. The indicators show that the evolution of the students using this material. And we still have space to grow. Brazil has many states and cities, and we have more than 5,000 cities, and we sell to a small amount of that. So we believe we still have space to grow. Operator: Next question is from Flavio Yoshida, sell-side analyst, Bank of America. Flavio Yoshida: My doubt here is regarding Pague Fácil as well. I'd like to understand better the economics of the students in Pague Fácil when we compare to out-of-pocket students and understanding the dropout and the quality of payment of Pague Fácil. And my second question is specifically regarding the technology CapEx. We know that when we consider the 9 months of '25 compared to the previous year, we had an expressive increase of almost 70%. So I would like to understand the drivers here and if we should wait impressive growth in '26 as well? Roberto Valério: Fred, you start with CapEx. Frederico da Cunha Villa: Yes, I start with CapEx. Flavio, thank you for your question. Regarding CapEx, technology is a product here. So we have strong investments in technology. We are doing this investment and note that in the 9 months compared to '24 and '23, we also grew, and we are here building this too, that is an academic RP, and we believe nobody has that on the market aside from the investments we are also making to improve the student learning and all the development of AI. And here, this is what we look in terms of product view. What we mentioned before is that we don't understand that in the total CapEx of the company, we are not growing nominally here compared to the year. And for the next years, we believe that the CapEx is simply a see-saw reduced technology and invest more in the field, but it's natural. I cannot say only technology, but the CapEx as a whole should even grow nominally comparing the years. Roberto Valério: The second question regarding Pague Fácil. Well, Flavio, it is important. I'll try to explain better because the student Pague Fácil is the out-of-pocket students, they pay, they are not funded. We don't fund any student. All of them pay to us every month. We don't fund -- we haven't funded students for a while, and this is Pague Fácil because the first monthly payments that are -- as they understand latest that they pay in installment. So considering January so that you understand, if the student enrolls in December, for example, December '25 to start studying in February '26, when they pay the monthly fee in December, what are they paying? They are paying the January monthly fee. So the second is February, the third day, March, April, so on. So when it is already March and the student comes late, they say, "Hey, but it's not fair. Why do I have to pay January and February if I didn't study. We still didn't have classes, it's already March," and then we say, "Well, in fact, the point is you pay for the semester in 6 installments as it's already March. I am facilitating. That's why it's called Pague Fácil, easily. So you are late. So I let you pay installments January and February. So you choose 46 or 47 installments." So we explain to the students and to make it clear, Pague Fácil historically is a student that is late in paying the installments. They don't want to pay it all the time. So we facilitate by paying the installments. So there is no difference between Pague Fácil and the one that pays. The difference is that we only had this offer of Pague Fácil start in February, March, April, and now we are offering even for December, January for those who were correcting payments. So that's why we increased the penetration of Pague Fácil. So in this case, there is more quality or less quality. We understand they have more quality because if you enroll previously, you are scheduled to that you organize if you are enrolling in January or December, they are more organized and more engaged, probably a better payer. So in our understanding, the fact of allowing the monthly fees in installments wouldn't facilitate the dropout because they are good students. They come before the ones that are late in their enrollment. So it's important to say that all this process to the students is quite clear. They sign a contract acceptance terms, so they can pay the installments that are, let's say, late or they choose how to participate. So obviously, they have to choose the benefit. That's why they have such a big penetration. So that's why we are completely transparent in all questions that we understand this strategy than simply reducing the prices to be competitive commercially. So this is the strategy plan of Pague Fácil. Operator: The next question is from Renan Prata, sell-side analyst, Citi. Renan Prata: Quite briefly regarding the results, I think this line that we have 4 semesters with gains. I would like to understand your point of view on this funding. And I don't know what you are thinking for this line and the other, if you can give an update of the trade-off of Vasta because there was some delay regarding SEC, but if you can update us, it will help as well. Roberto Valério: Renan, the first question of risco sacado. The risk is something that we know we are keeping that. And in this case, it is in Saber and Vasta that is the installment, the funding of our raw material, mainly paper and printing. There is a correlation with the growth of revenue. As I grow the revenue, I need more paper and print the books and so on. So note that I'm growing the revenue in Somos Educação and not Saber, but this strategy is ongoing. So why? Because today, my average cost of debt is CDI plus 1.5% and risco sacado is 2.9%. So what happens is that we are doing that naturally, Renan, because if I simply remove all the risk and put it into a debt, I have no problems in leverage and the debtor risk was always clear in the company. But if I do that, I reduce the operational cash at the moment 0 in BRL 490 million. So naturally, you will see that this line that was correlated to the revenue will be a line that will reduce quarter-by-quarter until we understand that we do not have to consider the debtor risk is the main reason is the average cost of the debtor risk regarding our debt. First question. The second one regarding the trader offer of Vasta, it's public. So I won't say anything different. So we are just waiting for the American SEC that is the Brazilian CGM that is in the shutdown process due to political problems in North America. So we are waiting for the reopening of SEC so that we can have the operational and legal bureaucracy for the operation. We postponed the operation due to the shutdown of the SEC. And until the deadline that is December 9, our expectation in discussions with our legal consultants in North America that SEC will open in November, and this is a data that I'm just repassing what I've heard. There is no commitment in what I'm saying. So the expectation is that until 9 we can have more elements in this operation to close everything. Operator: The Q&A session is over. So we will now pass on the floor to Mr. Roberto Valério to his final considerations. Roberto Valério: Well, I thank you all for your participation. I'd like to reinforce my thanks to everyone of the 26,000 workers that are working nonstop so that we can reach the results and get better to our clients and students. Thank you very much. And we are still available with our team to clear any doubts necessary. Thank you very much, and we see you in the next quarter. Operator: The results conference regarding the third quarter of '25 of Cogna Educação is over. The Department of Relation with Investor is available to clear any doubts you might have. Thank you very much to the participants, and have a nice afternoon. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good day, everyone, and welcome to the Global Partners Third Quarter 2025 Financial Results Conference Call. Today's call is being recorded. [Operator Instructions] With us from Global Partners are President and Chief Executive Officer, Mr. Eric Slifka; Chief Financial Officer, Mr. Gregory Hanson; Chief Operating Officer, Mr. Mark Romaine; and Chief Legal Officer and Secretary, Mr. Sean Geary. At this time, I'd like to turn the floor over to Mr. Geary for opening remarks. Please go ahead, sir. Sean Geary: Good morning, everyone, and thank you for joining us. Today's call will include forward-looking statements within the meanings of federal securities laws, including projections or expectations concerning the future financial and operational performance of Global Partners. No assurances can be given that these projections will be attained or that these expectations will be met. Our assumptions and future performance are subject to a wide range of business risks, uncertainties and factors, which could cause actual results to differ materially as described in our filings with the Securities and Exchange Commission. Global Partners undertakes no obligation to revise or update any forward-looking statements. Now it's my pleasure to turn the call over to our President and Chief Executive Officer, Eric Slifka. Eric Slifka: Thank you, Sean. Good morning, everyone, and thank you for joining us. We performed well in the third quarter, consistent with our expectations, reflecting operational strength and disciplined execution across the organization. We experienced a strong performance in our Wholesale segment in Q3, driven by favorable market conditions in gasoline and the continued optimization of our liquid energy terminal network. Over the past 2 years, we have significantly scaled our terminal assets, meaningfully enhancing our product distribution network and positioning Global Partners for long-term growth. This effort reflects our strategy of efficiently connecting liquid energy products with downstream markets, leveraging the integration of terminals acquired from Motiva, Gulf and ExxonMobil. These assets continue to perform well, strengthening our supply chain flexibility, contributing to throughput growth and enhancing our network. We are pleased that fuel margins have remained historically strong even with the year-over-year decline. Our retail network is a critical part of our strategy as we invest in, optimize and upgrade our portfolio. Recently, we expanded our marine fuel supply operations into the port of Houston. As a reminder, today, our bunkering business is centered in the Northeast, and now we have extended this business into the Gulf Coast. On the retail side, we're continuing to redefine the convenience store experience through our all-time Fresh and newly reimagined Honey Farms Market brands. These brands embody our 4 pillars: community, hospitality, local and fresh, while introducing chef-driven menus, clean label offerings and hyperlocal engagement. Through our new loyalty platform, these benefits, we are creating a seamless personalized experience designed to drive repeat business, build long-term loyalty and strengthen the connection between our guests and our brands. Turning to our distribution. In October, the Board declared a quarterly cash distribution of $75.50 per common unit or $3.02 on an annualized basis. This marked our 16th consecutive quarterly distribution increase. The distribution will be paid on November 14 to unitholders of record as of the close of business on November 10. With that overview, I'll turn it over to Greg for the financial review. Greg? Gregory Hanson: Thank you, Eric, and good morning, everyone. As I review the numbers, please note that all comparisons will be with the third quarter of 2024, unless otherwise noted. Net income for the third quarter was $29 million versus $45.9 million last year. I would note that last year's quarter had a $7.8 million onetime gain on asset sales that affected that number. EBITDA was $97.1 million for the third quarter compared with $119.1 million and adjusted EBITDA was $98.8 million versus $114 million. Distributable cash flow was $53 million compared to $71.1 million, while adjusted distributable cash flow was $53.3 million versus $71.6 million. Trailing 12-month distribution coverage remained strong as of September 30, with 1.64x coverage or 1.5x after factoring in distributions to our preferred unitholders. Turning to our segment details. GDSO product margin decreased $18.8 million to $218.9 million. Product margin from gasoline distribution decreased $19.3 million to $144.8 million, primarily due to lower fuel margins compared with the same period in 2024. On a cents per gallon basis, fuel margins of $0.37 were down 7% from the previous year. In the third quarter of 2024, we experienced strong fuel margins, in part due to Wholesale gasoline prices declining by $0.57 during the quarter. In comparison, in this year's third quarter, Wholesale gasoline prices declined only $0.11. Station operations product margin, which includes convenience store and prepared food sales, sundries and rental income, increased $0.5 million to $74.1 million, in part due to an increase in sundries. At quarter end, we had a portfolio of 1,540 sites, 49 fewer than the same period last year. The site count does not include the 67 locations we operate or supply under our Spring Partners Retail joint venture. Looking at the Wholesale segment, third quarter product margin increased $6.9 million to $78 million. Product margin from gasoline and gasoline blend stocks increased $18.5 million to $61.5 million, primarily due to more favorable market conditions in gasoline and the expansion of our terminal network. Product margin from distillates and other oils decreased $11.6 million to $16.5 million, primarily due to less favorable market conditions in residual oil. Commercial segment product margin decreased $2.5 million to $7 million, in part due to less favorable market conditions in bunkering. Turning to expenses. Operating expenses decreased $4.6 million to $132.5 million in the third primarily related to lower maintenance and repair expenses at our terminal operations. SG&A expense increased $5.8 million to $76.3 million, reflecting in part increases in wages and benefits and various other SG&A expenses. Interest expense was $33.3 million in the third quarter of '25, down $1.8 million from last year, in part due to lower average balances on our credit facilities. CapEx in the third quarter was $19.7 million, consisting of $11.9 million of maintenance CapEx and $7.8 million of expansion CapEx, primarily related to investments in our gasoline stations and terminals. For the full year, we now anticipate maintenance capital expenditures of approximately $45 million to $55 million, while expansion capital expenditures, excluding acquisitions, are anticipated to be approximately $40 million to $50 relating primarily to investments in our gas station and terminal business. Our current CapEx estimates depend in part on the timing of completion of projects, availability of equipment and workforce, weather and unanticipated events or opportunities requiring additional maintenance or investments. Turning to our balance sheet. As of September 30, leverage as defined in our credit agreement as funded debt to EBITDA was 3.6x. We had $240.6 million outstanding on the working capital revolving credit facility and $124.8 million outstanding on the revolving credit facility. Looking ahead to our Investor Relations calendar, next month, we'll be participating in 2 events, the BofA Securities 2025 Leveraged Finance Conference and the Wells Fargo 24th Annual Energy and Power Symposium. Please contact our Investor Relations team if you'd like to schedule a meeting during the conference. Now let me turn the call back to Eric for closing comments. Eric? Eric Slifka: Thanks, Greg. We remain focused on capital discipline and operational efficiency, continuously seeking opportunities to drive sustainable returns and long-term value creation for our unitholders. Our scale, integrated operations and talented team give us the flexibility to respond to market shifts and pursue growth opportunities that create lasting value for all of our stakeholders. Now Greg, Mark and I would be happy to take your questions. Operator, please open the line for the Q&A. Operator: [Operator Instructions] Our first question comes from the line of Selman Akyol with Stifel. Selman Akyol: Can you talk a little bit more about entering the bunkering market in Houston? Eric Slifka: Yes. I mean we're already obviously in the business. We felt that there was an opportunity, and we feel like the assets that we've entered into there are differentiated versus our competition. And so we're already, like I said, in that business, we already have the customer list. We already have the know-how and the knowledge, and we think it's a good fit for the company. Selman Akyol: Got it. And when you say sort of differentiated offering, can you just explain that a little bit? Eric Slifka: Yes, primarily just the location of the facilities and how we're going to go to market to supply that very busy corridor that is not always so easy to deliver fuel in. Selman Akyol: So you're on the Houston Ship Channel? Eric Slifka: We're outside of it, yes. Selman Akyol: Just outside Okay. Can you talk a little bit about the acquisition environment? And you noted that store counts were lower relative to where you were third quarter last year. And so I'm just curious to more to go there? Or do you think you can add stores from here? How should we be thinking about that? Gregory Hanson: Yes. Stifel, it's Greg Hanson. I can talk a little bit about the sites. I mean, I think we went through a pretty big optimization program on our sites last year. So year-over-year, we've -- in the last 12 months, we've sold 7 sites. We've converted 15 sites, and then we terminated some of our dealer relationships that were low margin. So we continue to optimize. I think that said, there's probably not that big a runway right now on sort of site divestitures for us. I think we're pretty happy with our portfolio in general. It still looks a little obviously down year-over-year because last year was a big optimization period for us. But we'll continue to, I think, move around the edges on that portfolio, but we're pretty happy where it is now. And then on the M&A side, I think overall, it was pretty quiet going into the fourth quarter on the retail M&A. I think we're seeing some signs of life and more deals that are out there on the fourth quarter on the retail side. And then the terminalling side, we continue to look at opportunities as we go through the year. But I think that we have seen a pickup on the retail side. Selman Akyol: Got it. So Parkland, which is north of the border, was recently acquired, but they have stores in the U.S. Do you face much competition from them? Gregory Hanson: We do not. No. We don't -- we're not in -- none of our retail, the GDSO segment operates in their footprint as of today. Selman Akyol: Got it. And then there's been reports of sort of the lower end consumer being under pressure. And I'm wondering if you're seeing that and if you have any thoughts going forward on that? Gregory Hanson: Yes. I mean we've -- I think not unlike a lot of other retailers out there, we've definitely seen it this year. There's definitely pressure on lower income. You see consumers trading down from more premium brands to more sub-generic brands. We continue to try and leverage our loyalty program that Eric mentioned earlier to grow promotions. But I think it's -- yes, they've definitely been under pressure overall. That said, we look at the quarter, we were pretty happy with this summer, how the C-stores did. We were actually up year-over-year, and that's not even adjusting for same site. That's just pure, and we were down 16 company-operated sites year-over-year. So to be above on the GDSO station operations is pretty good in our book. It was a decent strong summer. And where we're located in the Northeast, I think, continues to be trend towards a higher income consumer. So overall, we're pretty happy with how the summer went on the C-store. But yes, I would agree. I mean, I think it's pretty well recognized that the lower-end consumer continues to face pressure, but the higher-end consumer has been continuing to spend, which is good. Selman Akyol: Got it. And then the last one for me. Just how is labor going for you guys? Is it getting any easier? Gregory Hanson: It's the -- I would say the wage inflation has calmed down a little bit. But operating in a retail environment, you continue to face a lot of high turnover. But compared with the '22 and '23 time frame, I think we're still -- we're in a better place. I think what we're working on is trying to optimize around our labor hours and make sure we have the right associates in the right stores to optimize sales, and we'll continue to work on that. Selman Akyol: Got it. I guess what I was thinking about is, is it easier to get people now? Are you seeing more resumes, more people? I mean resume is too strong of a word, but are you seeing more applicants, that kind of thing? Gregory Hanson: Yes. I think we are overall versus the last couple of years, definitely. Operator: We have reached the end of the question-and-answer session. Mr. Slifka, I'd like to turn the floor back over to you for closing comments. Eric Slifka: Thanks for joining us this morning. We look forward to keeping you updated on our progress. Everyone, have a great Thanksgiving. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Operator: Good morning, and welcome to F&G's Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Lisa Foxworthy-Parker, Senior Vice President, Investor Relations and External Relations. Please go ahead. Lisa Foxworthy-Parker: Thanks, operator, and welcome, everyone. I'm joined today by Chris Blunt, Chief Executive Officer; and Conor Murphy, President and Chief Financial Officer. Today's earnings call may include forward-looking statements and projections under the Private Securities Litigation Reform Act, which do not guarantee future events or performance. We do not undertake any duty to revise or update such statements to reflect new information, subsequent events or changes in strategy. Please refer to our most recent quarterly and annual reports and other SEC filings for details on important factors that could cause actual results to differ materially from those expressed or implied. This morning's discussion also includes non-GAAP measures, which management believes are relevant in assessing the financial performance of the business. Non-GAAP measures have been reconciled to GAAP where required and in accordance with SEC rules within our earnings materials available on the company's investor website. Please note that today's call is being recorded and will be available for a webcast replay. And with that, I'll hand the call over to Chris Blunt. Christopher Blunt: Good morning, everyone, and thanks for joining our call. We delivered strong third quarter results with record AUM before flow reinsurance, fueled by one of our best sales quarters in history, the launch of our new reinsurance sidecar, and strong performance across the business as we execute on our strategy and make continued progress toward our 2023 Investor Day targets. F&G is uniquely positioned in the industry with a profitable and growing $56 billion in-force block. We generate spread-based earnings from fixed annuities and pension risk transfer, and we have multiple sources of fee-based earnings with the sidecar in place alongside our flow reinsurance, middle-market life insurance and well-performing own distribution portfolio. As our business grows, we're becoming a more fee-based, higher-margin and capital-light business, leveraging our position as one of the industry's largest sellers of annuities and life insurance. We are balancing this with continuing to grow our spread-based business prioritizing pricing discipline and allocating capital to the highest return opportunities. As we execute on our strategy, we expect both gross and net AUM to continue to grow. F&G reported a record $71.4 billion of AUM before flow reinsurance at the end of the third quarter, including retained assets under management of $56.6 billion. Compared to the third quarter of 2024, AUM increased 14% and 8%, respectively, driven by net new business flows. For the first 9 months of the year, we generated $11 billion of gross sales. This reflects $6 billion of core sales, which include index annuities, index life and pension risk transfer and $5 billion of opportunistic sales, including MYGA and funding agreements. Looking at the third quarter, we delivered one of our best sales quarters with $4.2 billion of gross sales and strength across all products and distribution channels. Core sales were half of the total at $2.2 billion, modestly above both the second quarter of 2025 and the third quarter of 2024. Highlights for our core sales include indexed annuities of $1.7 billion in the quarter and $4.8 billion year-to-date. FIA is our largest contributor to index annuity sales and with the launch of the reinsurance sidecar in August, we have started flowing a portion of our accumulation-focused FIA sales during the quarter. RILA continues to be a modest but growing contributor to our sales as we are gaining momentum. IUL sales were over $40 million in the quarter and $137 million year-to-date, up 10% over the prior year-to-date period as our life insurance solutions are meeting the needs of the underserved multicultural middle market. And PRT sales were more than $500 million in the quarter, including a multiple repeat client and $1.3 billion year-to-date, in line with the prior year-to-date period. The PRT market continues to see a robust pipeline for midsized deals between $100 million to $500 million where F&G competes well, and we're on track to achieve our targeted $1.5 billion to $2.5 billion of PRT sales for the full year. Opportunistic sales were $2 billion in the third quarter with over $1 billion of funding agreements and nearly $1 billion of MYGA sales. Opportunistic sales volumes will fluctuate quarter-to-quarter depending on economics and market opportunity. Here's a few details. We took advantage of an attractive market window and executed a record $800 million FABN issuance in the third quarter and expanded our high-quality investor base, bringing our third quarter and year-to-date funding agreement placements to $1 billion and $1.6 billion, respectively. Coming off a record second quarter, MYGA sales were nearly $1 billion in the third quarter and $3.4 billion year-to-date. We optimize our level of flow reinsurance in line with our capital targets by dynamically adjusting MYGA volumes up and down as market economics change. While short-term interest rates declined following the recent Fed cuts, the shape of the yield curve has a bigger impact on our business. We do not have significant exposure to changes in short-term interest rates as we have hedged the majority of our floating rate portfolio to lock in higher rates over the past couple of years. Our floating rate assets are now only $2.4 billion or 5% of our total portfolio, net of hedging. We expect continued strong demand for retirement savings products, including a growing demand for annuities by consumers and financial advisors for retirement security. Demographic trends remain a powerful secular driver as the growing retirement population seeks guaranteed lifetime income streams. And the continued macroeconomic volatility increases the relative attractiveness of fixed annuity products for consumers that want guaranteed tax deferred growth and principal protection. Next, turning to the investment portfolio. Our portfolio is diversified, well positioned and high quality with 96% of fixed maturities being investment grade. Credit-related impairments have remained low and stable, averaging 6 basis points over the past 5 years. Through the first 9 months of the year, credit-related impairments remained below our pricing. Given broader market concerns around credit exposure to bank loans, we don't have any direct holdings in First Brands, Tricolor or PrimaLend and our exposure to the subprime auto and regional bank sectors was a modest $20 million and $13 million, respectively, as of September 30. Our fixed income yield of 4.68% increased 10 basis points over the sequential quarter, primarily driven by a prospective floating rate asset model refinement. As a reminder, our fixed income yield excludes alternative investment income as well as variable investment income. Looking at our alternative investment portfolio, we saw improvement in our annualized return at 7% in the quarter, up from 6% in the sequential quarter and as compared to our 10% long-term expected return. Our alternative investment portfolios comprise 30% of all LPs with the remainder of more debt-like in nature. Next, turning to variable investment income. We reported $24 million of pretax, prepaid income in the quarter, which was above our run rate expectation as compared to $26 million in the prior year quarter and $6 million in the sequential quarter. As far as asset managers go, we really think we have the best of both worlds in terms of our competitive positioning and flexibility. This month marks that we are 8 years into our strong and seasoned relationship with a world-class manager in Blackstone. And we have the flexibility to work with other asset managers, whether for flow reinsurance or specialty asset classes that complement Blackstone's capabilities. In summary, F&G's results for the first 9 months of the year have positioned us well for a strong finish for the remainder of 2025. We are executing on our strategy, leveraging the strength of our distribution partners to continue to grow our spread-based business alongside our growing sources of fee-based, higher-margin and capital-light earnings through our flow reinsurance, middle-market life insurance and own distribution strategies. I'm excited about the future and our ability to continue to further expand our return on equity to deliver long-term shareholder value. Let me now turn the call over to Conor to provide further details on F&G's third quarter highlights. Conor Murphy: Thank you, Chris. I'd like to start by thanking our employees for their efforts in delivering an all-around strong quarter. Our solid foundation and focused execution continue to drive results across the business. Looking at our third quarter results more closely. On a reported basis, adjusted net earnings were $165 million or $1.22 per share in the third quarter. Alternative investment income was $67 million or $0.48 per share below management's long-term expected return for the quarter. Adjusted net earnings included two significant items, a $10 million or $0.07 per share benefit from a tax valuation allowance release as well as $4 million or $0.03 per share from an actuarial reserve release. Additionally, our third quarter adjusted net earnings benefited by approximately $25 million as a result of two other items in the quarter, strong prepayment fees as well as a lower effective tax rate. We completed our annual actuarial assumption review in the third quarter. As a result, amortization expense was approximately $6 million after-tax higher in the third quarter and we expect higher amortization over the next year with approximately $5 million after tax in the fourth quarter, incrementally diminishing through the first half of 2026. Overall, as compared to the prior year quarter, third quarter adjusted net earnings reflect asset growth, growing fees from accretive flow reinsurance, steady own distribution margin and operating expense discipline driving scale benefit. Our results have generated sustainable returns. As reported, adjusted ROA on a last 12-month basis was 92 basis points, including short-term fluctuations from alternative investment income. This is stable and in line with the last 12-month period for the prior year and sequential quarters of 95 and 92 basis points, respectively. All else equal, we expect this is indicative of our current run rate for adjusted ROA on a reported basis. Our adjusted ROA reflects meaningful contributions from our fee-based flow reinsurance and own distribution strategies. As reported, our adjusted return on equity, excluding AOCI, was 8.8%, in line with the sequential quarter. Our fee income from accretive flow reinsurance has grown to $41 million in the first 9 months, up 46% over $28 million in the first 9 months of 2024. F&G launched its flow reinsurance strategy in 2020, which builds on our core competencies, enables us to scale in an accretive and capital-efficient manner and produces diversifying fee income which generates strong cash flows. Our flow reinsurance strategy, augmented by the new reinsurance sidecar effective August 1, provides third-party capital for a portion of F&G's FIA and MYGA sales. Today, we expect to reinsure the vast majority of MYGA sales depending on economics. As discussed on last quarter's call, the economics for FIA sales are relatively more attractive with the sidecar and we expect we will evolve toward 50-50 retained versus flow for FIA sales. Importantly, we will continue to grow retained AUM as we balance retaining business versus optimizing flow reinsurance and preserving capital flexibility. Our own distribution portfolio is performing well and creating value. We have invested nearly $700 million in our four own distribution investments and expect to generate over $80 million of EBITDA for the full year 2025. Our holdings are diversified by product and market and reflect growing businesses with strong leadership. Two of our holdings are life IMOs that produce about 50% of F&G's IUL sales as the majority of their sales mix. The other two holdings are annuity IMOs that produce approximately 15% of F&G's annuity sales as the minority of their sales mix. In the future, we have plenty of opportunity to expand the value of own distribution through our existing holdings. And as independent agent distribution continues to consolidate in the industry, we expect to be selective in expanding to additional strategic partners, being thoughtful about where it makes sense and where it's the right fit with our long-standing relationships. We are benefiting from increased scale as our ratio of operating expense to AUM before flow reinsurance has decreased to 52 basis points in the quarter, down from 62 basis points in the third quarter of 2024. We expect continued improvement in our operating expense ratio as a result of the expense actions we took earlier this year, moving from 60 basis points at year-end 2024 to approximately 50 basis points by year-end 2025. Further, we see the potential to decrease by an additional 1 basis point per quarter on average in 2026. Two years in, and we have made significant progress towards the medium-term financial targets we laid out at our October '23 Investor Day to grow AUM by 50%, expand adjusted ROA, excluding significant items to 133 to 155 basis points, increase adjusted ROE, excluding AOCI and significant items, to 13% to 14% and expand our multiple. We are well positioned to deliver on our targets as we move further toward a more fee-based, higher-margin and less capital-intensive business model, leveraging our position as one of the industry's largest distributors of annuities and life insurance. This concludes our prepared remarks, and let me now turn the call back to our operator for questions. Operator: Before opening for questions, I'd like to turn it back over to Chris Blunt for some additional remarks. Christopher Blunt: Thanks, operator. Early this morning, we issued a press release with FNF, our majority owner, announcing the FNF Board of Directors has approved a change in FNF's equity ownership stake in F&G. FNF plans to distribute approximately 12% of the outstanding shares of F&G's common stock to FNF shareholders. Following the distribution, FNF will retain control and majority ownership of approximately 70% of the outstanding shares of F&G. This will increase F&G's public float from approximately 18% today to approximately 30% after the distribution, strengthening our positioning within the equity markets and facilitating greater institutional ownership. Operator, please open the call now for questions. Operator: [Operator Instructions] And our first question comes from the line of Wes Carmichael with Autonomous Research. Wesley Carmichael: First question I had, maybe it's a bit broader of a question on capital allocation. But as I think about the stock, it's been under a little bit of pressure this year year-to-date. And I know you raised some growth equity earlier in the year. Now you have the sidecar. So I'm just wondering how you're thinking about prioritizing capital deployment and how are you thinking about share buybacks relative to things like allocation to own distribution or even just faster organic growth? Christopher Blunt: Sure. Thanks, Wes. It's Chris. I'll start. I know Conor will have some views here as well. I would say right now, obviously, we want to continue to grow our fixed index annuity business that's core for us. And so that's always going to be fairly high on the list. Own distribution is attractive and where we've got opportunities to either potentially add a platform, although we want to be selective there or add some capital to help some of our existing ownership stake scale, that's very high on the list. Index Universal Life is a high priority for us and continuing to grow that, although it's not a large consumer of capital right now. You probably also noticed, we increased the dividend by 13.6%. So we're trying to share some of the new capital-light model with our shareholders right away. I would say right now, buybacks would probably be a pretty low priority for us just because, obviously, the distribution of shares by FNF is to try to help us increase our float, not take float out of the market. But I don't know Conor... Conor Murphy: It's a little bit of a reiteration Thanks, Wes. We're seeing very attractive opportunities for our core products. Again, IUL, the FIA, the RILA and the PRT, we've continued to be active in the PRT market as well and expect that momentum across all of that to continue in the near term. So we're very comfortable. We've plenty of capacity from a capital perspective to continue to focus on those. The opportunistic will be just that. It was a pretty active quarter this quarter, but we're watching where MYGA returns are in the near term and we will write as much or as little there depending on the economic opportunity. And yet, we continue to really, really like the own distribution expansion opportunity as well. Wesley Carmichael: It makes sense on the float comments, Chris. Second question I had, I guess, on variable investment income outside of the alternatives portfolio. I think that was pretty strong in the quarter, but I imagine that will bounce around a little bit quarter-to-quarter. But just maybe if you could think about a run rate level of non-alt VII going forward. Is there any help you can give us on that? Conor Murphy: Yes, I'll give you a sense. So you're right. We were higher this quarter. I think we were in the $24 million pretax range and like our expectation near term. You're always going to have an element of this. Our expectation is probably at the high single digits, 10-ish roughly, maybe a little less, but it will move around a little bit, and that's fine, but they were certainly a little bit higher, which is why we called them out in the quarter. Wesley Carmichael: That's helpful from a modeling perspective. And just maybe one final one. Just on the investment portfolio. I guess in recent weeks, there's been more focus on, I guess, private letter rated assets and these private structures, particularly those that are rated by Egan Jones, I'm just wondering if there's any color you can provide on that exposure for F&G maybe as a percentage of the portfolio? And maybe if you would disagree with the spirit of these recent articles in the media on private credit? Christopher Blunt: Yes, maybe to in reverse order. I think, look, everyone is concerned about the same things in the private credit space. So there's been some kind of big, I would say, bold statements made on both sides of the argument here. I think the only thing we can speak to specifically is our own portfolio, which we're feeling quite comfortable with. With respect to Egan Jones, yes, I think like a lot of firms, we're increasingly utilizing two different agencies. Are -- the number of securities or loans that we have that are rated by Egan Jones is quite small, like quite small. And we're trying as a general rule to get two agencies and wherever possible, one of what you would call the big 3 to rate every single deal, not just because of the backdrop or concerns about any one rate -- one rating reliable, so to speak, but also you have turnover. We have an analyst on leave. And so it's always better to have two where you can have that. So I think we've made a ton of progress there. Operator: The next question comes from the line of Joel Hurwitz with Dowling & Partners. Joel Hurwitz: A couple of questions on the alternatives performance. First, can you provide some color on the moving pieces of the $67 million of unfavorable alts in the quarter? And I guess how much of that was just the LPs versus that direct lending? And then what are the targeted returns on the different pieces that fall in that $10.5 billion bucket of alternative assets? Conor Murphy: Yes. I'll give you a sense. I'm not sure we give a complete and full breakdown, but I kind of know what you're going after. And I would say this from an expectation of where we came out, we were pretty close on the whole loan and direct lending parts. And I think we talk about a $10 billion portfolio in total, of which about $3 billion of it is the LP. So the LPs had a stronger performance. And I would -- yes, I would say that the increased performance was broadly there as well, but they are also in the main, the area that are still falling short of the long-term expectation. We were pretty much there or thereabouts on the whole loans and on the direct lending side. Christopher Blunt: And Joel, as you know, some of the LPs, particularly on the PE funds, you get a lot of that information comes with a lag. So that's part of the issue, too. So obviously, the sense is that activity is picking up. Hopefully, that's true and that persists. Joel Hurwitz: Okay. I guess any color on what the targeted return is on the LPs? I guessing it's higher than the 10%, but can you... Conor Murphy: Yes. I mean, look, to get to an average of 10%, yes, I would say that's the case modestly, but it's -- there isn't a wide range when you consider all of the components, but on the margin, not on the statement, correct. Joel Hurwitz: Okay. And then, Conor, just on the base yield jump of 10 basis points. You guys mentioned a floating rate refinement. Just what exactly was that? And how much of the basis point quarter-over-quarter increase was that? Conor Murphy: Yes. I'm not sure if it was 10 basis points, I thought it was probably closer to $10 million and maybe 3 or 4 basis points in terms of the, what I would call, core fixed income impact. But yes, we did have a little bit of a change. We had a change. We were solely using the forward curve, and now we have sort of a decision tree methodology where anything that's like a placeholder or if it's not hedged or if it's an FP -- an FABN, et cetera, it's short, it's spot right, anything that's longer term is forward. So we were really calling out the fact that it was suggesting that the fixed income yield had ticked up a few points. Honestly, I think the fixed income yield in the quarter -- actually, no, I apologize I think it was 10 basis points. I think the fixed income yield in the quarter was pretty flat quarter-over-quarter if you really drilled into the core components. Operator: [Operator Instructions] And the next question comes from the line of Mark Hughes with Truist Securities. Mark Hughes: Conor, I think you had talked about kind of all else equal, a good run rate ROA for the business. On an adjusted basis, what would that number look like? Conor Murphy: We've been -- that's -- on an adjusted basis, we've been in the like kind of high 120s right around that lower end. Remember, we had this -- the target that we put out a couple of years ago at the Investor Day to get into the 130s to 150 range. And we're right around that bottom end of that range currently. So over the last 12 months, adjusted basis, yes, I think we're probably around that 129, 130 mark. Mark Hughes: Okay. And then maybe a two-part question on RILA. Just looking at the Q3 stats out of LIMRA, says that RILA is up 20%, FIAs down a little bit. Just sort of curious, any observations on that dynamic? What's causing it? Is that likely to persist? And then just any update on your progress in the RILA product? Christopher Blunt: Yes, Mark, this is Chris. I'd say a couple of things. I think what's driving it, probably a little bit as rates has come down a bit and cap rates lower on fixed product, markets have obviously been outperforming quite well, equity markets. And so yes, you're always going to see everyone's well some sentiment shift between RILAs and FIAs, which is why we like the product, we want to have it in our portfolio. I would say, as we've acknowledged before, it's taken longer to get on platforms. So once we're on platforms, we're getting good flows and good adoption from advisors. So yes, it's continuing to grow. It's continuing to grow at a healthy clip just off of a small base. And again, given the number of opportunities that we have in FIAs, particularly FIAs that we can utilize the sidecar for, that's been pretty high on our list. So we haven't felt particularly constrained by the growth of it, but it's a strategic product for us, and we want to continue to grow it over time. Mark Hughes: Very good. Maybe another two-parter. The $80 million in EBITDA and own distribution, how does that compare to the prior year? And then you're seeing much private equity activity there. Competition for other deals, how does that stand now? Christopher Blunt: Yes. So the EBITDA number, I think, a couple of quarters ago, we were maybe projecting about $85 million. I'd say it's down a little bit. But honestly, every single month, it's going to bounce around by a little bit. I would just say the portfolio is performing really well, like ahead of our expectations. So we feel great about that in terms of the growth rate going forward. So that's been, I would say, pretty terrific. In terms of activity, I would say it's the same as it has been. There's -- every platform that we purchased, there was private equity competition, either they had turned down one of the roll-up players or had offers from the roll-up players. So I don't think our competitive positioning and how we position ourselves relative to them has changed. So yes, we're still quite optimistic about it. Operator: The next question comes from the line of Alex Scott with Barclays. Taylor Scott: First one for you is just more of a broad question around the competitive landscape. And maybe if you could comment both on the liability side but also even on the asset side and just how you're viewing competition for loan origination and so forth. Conor Murphy: Let me start on the liability side. Again, back to the core versus the opportunistic. I think we're feeling comfortable near term and by near term, I'm kind of giving you -- we get out of a few months out as we kind of look into momentum heading into Q4 and where the markets are currently. I'd say it is okay in the FIA space. It's definitely competitive, but it's -- I think it's also reasonable. That's true of RILA and IUL as well. From a PRT perspective, I would say that's still -- it's fairly active. There generally is a fair amount of activity in the fourth quarter of every year. And I think the environment is still conducive to that. A little hard to predict that too far out. I think in terms of the volume and the pricing in the PRT space currently and that space that we play in the sort of $100 million to $600 million upwards to $1 billion space is pretty good as well. I think near term, from a MYGA point of view, and I alluded to this on an earlier answer as well. That's tighter. I would think that this is, again, back to the opportunistic element of it, I would say, near term, the appetite for that probably wanes a little bit compared with the other opportunities that we're seeing out there. Christopher Blunt: Yes. And on the sort of credit origination side, which is an important engine, right, from a competitiveness standpoint, obviously, that is tighter. There's more competition for deals for sure, but the market is just huge and continues to expand in terms of opportunities. So we've been able to find our spots. Probably takes a little bit longer to get some premiums invested, particularly in the private credit area. But yes, I would agree with Conor's assessment, tighter in spots, but overall, still pretty attractive. Taylor Scott: Got it. All helpful. Second one I have to you is just on the hedging and short-term interest rates. Could you help us think through like how that actually flows through earnings? Like is there a lag? Is it amortized? I mean was there an outsized impact maybe this quarter from rates coming down at the short out of the curve? I just -- I'm not as familiar with how that would flow into adjusted earnings. Conor Murphy: Yes. I don't know that there's anything really significant. I mean I think you know the overarching perspective really for us, it's just we have a floating rate component of the portfolio that's not on to -- and I think it's under -- less than $2.5 million or 5% of the portfolio, but... Christopher Blunt: Yes. And you always want some floaters in there, right? Because when great opportunities come up, this is stuff that's often easiest to move and reposition into something better. And yes, I'm not -- we'll follow up with you on that one, but I don't think there's any meaningful timing lags due to the hedging. Taylor Scott: Okay. And nothing -- like nothing notable in this quarter in terms of [indiscernible] gain flow through or something like that? Christopher Blunt: No. And again, the methodology change was really just trying to be more precise, right? Because we use floaters in different ways, right? There are some that are defeating a longer term, maybe call it a 5-year liability. There are some that are really placeholder assets as a cash surrogate. And so that -- it was just really trying to make sure that when people looked at movements in interest rates are tied to the portfolio results that we're seeing a little bit better. Conor Murphy: That's exactly right. I mean, yes, just to underscore that, it's really just -- it's tied to the purpose of the use of the asset. So it really was -- it was modest. The reason we highlighted it at all is we were really looking to illustrate that the -- from a core fixed income perspective because there's so much focus on the ROA that it was -- I mean it was positive, but it was a flat quarter. It remains the same. We weren't trying to suggest that it had gone higher because of anything we had done in the portfolio. That's why we called it out. Operator: The next question will come again from the line of Wes Carmichael with Autonomous Research. Wesley Carmichael: I just had a couple more for you. But one on operating leverage. If I look at the operating expense line, that's declined over the past couple of quarters, and I think that's a good development. I imagine part of that's related to the actions you took earlier in the year. But how are you thinking about that going forward? Is there more opportunity for reducing costs? Or should we just think about the spend is going to increase less than the pace of AUM going forward? Conor Murphy: Yes, I think it's the latter. Thank you, and I made some of these comments earlier as well. From our perspective, bringing the cost basis as a percentage of AUM down from 60 to 50 basis points. So that is essentially we -- we got to that track with the efforts in the second quarter. My expectation is that it will take down from 50 to 46 roughly over the course of next year. But I would say that's by maintaining, broadly speaking, in sort of inflation side, maintaining where we are now and continuing to grow. I think after that, it will continue to come down, but I think the pace will be more modest. I'm guessing maybe like 0.5 basis point a quarter. So 2027 maybe another 2 basis points after 4 this year. But that's -- so you could view it as an impact of continuously improving expense ratio rather than a declining level of core expenses. Wesley Carmichael: Got it. That's helpful. And just last one, I guess, on the press release with FNF spinning some of the F&G stock to FNF shareholders. I guess my reaction and maybe some of the investors was it's a pretty modest number relative to maybe actions they could have taken. But I just wondered if you had any comments on that from your perspective. Christopher Blunt: Yes. I mean, I guess it is and it isn't, in the sense that if you looked at the amount of free float, it's a very meaningful increase in free float. And I think from a dollar perspective, don't quote me, but I think this gets us over $1 billion now of free float. So we've heard from a number of particularly long-only investors that said, "boy, if you had a bit more float, we'd really like to take a position". So I think over time, it's going to prove to be quite meaningful for us from that perspective. And as to the amount, it was as simple as FNF really likes F&G, sees a lot of promise in our long-term future. And so there was a lot of speculation of, "oh, it's been 5 years, they're going to spin the whole thing out", and they clearly didn't want to do that. And so it was really how much can we spin out to help with the FG float while retaining a large percentage. So we took it as a great vote of confidence in where we are, our capital light strategy and the earnings we can drive going forward. So I think it's a really positive development, I think, for both shareholder basis, frankly. Operator: This will conclude our question-and-answer session. And I'd like to turn the call back to Chris Blunt for closing remarks. Christopher Blunt: Thanks again, everyone, for joining our call this morning. We had a really strong third quarter and have good momentum heading into the end of the year. I'm excited about the future and our ability to deliver strong returns for the shareholders of F&G in the years ahead. We appreciate your interest in F&G and look forward to updating you on our fourth quarter earnings call. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.