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Operator: Good day, and thank you for standing by. Welcome to SoundHound's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Scott Smith, Head of Investor Relations. Please go ahead. Scott Smith: Good afternoon, and thank you for joining our third quarter 2025 conference call. With me today is our CEO, Keyvan Mohajer; and our CFO, Nitesh Sharan. We will begin with some short remarks before moving to Q&A. We'd also like to remind everyone that we will be making forward-looking statements on this call. Actual results could differ materially from those suggested by our forward-looking statements. Please refer to our filings with the SEC for a detailed discussion of the risks and uncertainties that could affect our business and for discussion statements that qualify as forward-looking statements. In addition, we may discuss certain non-GAAP measures. Please refer to today's press release for more detailed financial results and further details on the definitions, limitations and uses of those measures and reconciliations from GAAP to non-GAAP. Also note that the forward-looking statements on this call are based on information available to us as of today's date. We undertake no obligation to update any forward-looking statements, except as required by law. Finally, this call is being audio webcast in its entirety on our Investor Relations website. An audio replay will be available following today's call. With that, I would like to turn the call over to our CEO, Keyvan Mohajer. Please go ahead, Keyvan. Keyvan Mohajer: Thank you, Scott, and thank you to everyone for joining the call today. Q3 marks another quarter of precise execution against our plan. Enterprise AI adoption is booming globally, and SoundHound is strengthening its leading position by anchoring its deployments in millions of endpoints across highly diversified industries and customers with much more potential remaining in the near- and long-term horizon. In just the first 3 quarters of the year, we have already achieved a record year in revenue of $114 million, up 127%, and we are raising our outlook once again. This quarter, we also celebrated our 20th year as a company. We started in a Stanford dorm room with the mission to voice enable the world with conversational intelligence. Our long-term focus, dedication and strategic execution has paid off as the opportunities before us are now advancing at an exponential rate. Two decades of technical innovation has given us the speed and agility to truly capitalize on these opportunities. Our deep understanding of AI has allowed us to achieve market readiness rapidly while many others are still experimenting. Indeed, we are already in the market, achieving real success and creating measurable value for our customers with our technology as a driving force. And we have a track record of groundbreaking work and being highly responsive to new technological advancements. We pioneered speech to meaning over 10 years ago, which combines speech recognition and language understanding in real time to deliver superior speed and accuracy. Likewise, we pioneered deep meaning understanding over 10 years ago, and we are the first voice technology company to enable the processing of complex and compound conversations while others were still delivering simple limited commands. Our work a decade ago paved the way to leading the world in the agentic experiences we are seeing today. We were the first to go into production with a voice-enabled generative AI assistant in automotive within weeks of LLMs becoming a proven architecture in language understanding and years ahead of big tech. And this year, we were one of the first in the world to introduce a fully agentic platform for enterprise businesses, Amelia 7. Importantly, thanks to our years of IP accumulation and our mature platform, we are able to combine deterministic flows with machine learning models where the latter still lacks the reliability to go from proof of concept into production. This advantage has enabled us to deploy faster and scale faster and also avoid the explosion in model costs that other companies are battling today. Now let me give you an update on Polaris, our most recent groundbreaking work. SoundHound's multimodal, multilingual foundation model, Polaris, continues to prove its superiority in accuracy, speed and cost. As we move more Amelia platform clients from third-party legacy vendors to use Polaris, we are able to reduce the error rate by as much as 3x. Our customers are thrilled and transitioning them to Polaris will help us drive down engineering and hardware costs and achieve faster iteration cycles to improve our speech foundation models. We also continue to add support for new languages and have innovated new methods to provide speech model customization with a rapid turnaround time and minimal deployment overhead. We've innovated new training methodologies that reduce the cost of training and the amount of data required while significantly improving model accuracy. Notably, we are one of the very few companies that can support our customers in the environment of their choice, whether it is in our cloud, in their cloud, on the edge or on-prem as well as the hybrid combination. Polaris, in our view, is another significant disruption that widens the gap between us and the competition in our journey to realize SoundHound's vision. And while innovation is clearly a major source of strength and the foundation of our growth story, we've also demonstrated repeatable success with our acquisition strategy. Within 12 to 18 months of our key acquisitions to date, we were able to convert their premerger decline to post-merger growth and turn them into leaders in their field as a fully integrated business unit within SoundHound. While acquisition is not a requirement for our success, it provides a unique opportunity for SoundHound to change the equation and accelerate our trajectory. We've been able to find great businesses with amazing teams, strong customer relationships and solutions highly aligned with our 3 pillars of business and arm them with what they needed to thrive, including SoundHound's strong IP, replacing their legacy tech dependencies with SoundHound in-house models that are more accurate, faster and less costly with 20 years of data and innovation behind them, improving their customer experiences while reducing their costs, strong financial backing for innovation and expansion and proven scale, strong brand and credibility. This quarter, we acquired Interactions, a pioneer in customer service and workflow orchestration, and we are already moving fast to combine functions to create a comprehensive and dynamic contact center and customer service offering that incorporates a full spectrum of automation and human-assisted capabilities. We have now demonstrated our M&A playbook multiple times, learning from each acquisition and getting faster and stronger every time. Just as we did with our past acquisitions, we are now integrating our strong IP and replacing their dependencies on third-party models with more accurate, faster and less costly SoundHound built models. And with our robust financial position, we can give them the resources they need for innovation and expansion. With this latest combination, we expect to achieve the results we achieved through previous acquisitions, harvesting cost synergies by moving their stack into our own cloud and realizing revenue synergies with cross-selling and upselling. With that, let me now talk about some specific customer highlights in Q3. In IoT and Robotics, we had a significant win, signing a deal with a large Chinese company that offers intelligence-based interaction in hardware and software products. We agreed to integrate SoundHound Chat AI into double-digit millions of AI-enabled smart devices, which will initially be distributed in the Indian market, leveraging our strong language capabilities in Indian languages. In automotive, we continue to see strong adoption and have begun to deepen our market penetration beyond global light vehicles. We are excited to now be working with a major globally renowned sports car brand to develop a unique personality for its in-vehicle assistant. Additionally, Jeep vehicles rolled out our category-leading Chat AI voice assistant in Europe and our work with existing EV customers, including Lucid, Togg and others are seeing promising results. Togg has just recently expanded throughout the German market. We've also signed multiple deals with prominent 2-wheeler companies based in the expansive Indian market as well as multinational commercial fleet vehicle companies based out of Italy that manufactures light, medium and heavy vehicles, including trucks, vans and buses. In financial services, we continue to work with 7 out of the top 10 global financial institutions with 3 buying additional services and 2 signing renewals. We also signed a new enterprise technology deal with a prominent organization supporting credit unions throughout the United States. In energy, we signed new contracts with a large utilities company that generate, transmit, distribute and sell electricity in the United States and a Texas-based electricity provider serving millions of customers. In retail and consumer goods, we had a net new upsell with a major multinational brand with an extensive product portfolio of food, beverage and consumer goods. And through our Smart Answering solution, we won deals with one of the fastest-growing global health clubs in the United States and a U.S.-based global franchise that offers state-of-the-art training facilities for elite athletes. In restaurants, one of our most established verticals, we are a market leader and continue to see strong adoption with our cutting-edge solutions. Notably, we signed a deal to deploy our AI ordering solutions with a nationally recognized full-service restaurant chain and had franchise wins with Firehouse Subs, Five Guys and McAlister's Deli. And we are now fully rolled out in all My Pizza, Habit Burger, Red Lobster and Torchy's Tacos locations in addition to existing brands, Chipotle and Casey's. Peet's Coffee expanded further with Employee Assist, which will now be deployed in all company-owned locations. Earlier this year, we introduced a new product called Voice Insights, targeting brands that require a precursor to full automation, for example, due to missing APIs and infrastructure. Voice Insights is our AI-powered solution that analyzes customer and employee interactions in real time in order to measure efficiency, satisfaction and other metrics that can help restaurants improve their operations. We are seeing strong interest from our customer brands and prospects with several brands already in process of rolling it out within just months of being introduced. In health care, we launched with a large precision medicine provider to pioneer an inbound and outbound Agentic AI solution, which is the first of its kind in the health care space. We also signed with a U.S.-based regional hospital system to deploy the Amelia platform, and we renewed our relationship with one of the leading health care companies for wholesale medical supplies. In insurance, French insurer, Apivia Courtage announced that it will deploy Amelia 7 to bring Agentic AI to its contact centers. We also renewed with a global insurance company that provides services to multinational corporations and a highly regarded Mexico-based insurance company specializing in auto insurance. In telecommunications, we signed a large well-known communications provider that offers fiber Internet, digital television and other services to residential and business customers in over 20 U.S. states. In IT services, we renewed a multiyear contract and upsold to one of the largest Internet domain registry and web hosting companies in the world. We also won a deal with a leading provider of managed cybersecurity services, cloud and IT infrastructure solutions based out of the United States. With channel partners, we entered into a strategic partnership with leading technology services distributor, Telarus, to bring Amelia 7 and Autonomics to their enterprise CX and EX landscape. Additionally, we signed a multiyear deal with a long-standing partner that specializes in CRM, AI and workforce engagement management. We entered into a reseller agreement with VOXai, a company that offers purpose-driven customer experience solutions and entered into strategic partnerships with 2 of the leading software and service providers of full suite studio gym, health and wellness cloud management. Many of these important deals and partnerships are a result of our success and growing leadership in enterprise AI. I'm excited to talk more about this increasingly important focus area for SoundHound as we lean in on Agentic AI with our differentiating Agentic+ framework. With our acquisition of Interactions, we've added a number of preeminent Fortune 100 companies across various industries to our already strong portfolio of global brands. For example, we now offer our solutions to one of the largest footwear and apparel brands in the world, to a Silicon Valley-based platform giants and to some of the major names in automotive, energy, financial services, insurance, health care, technology and telecommunications. Not to mention that we've added hundreds of new patents that we can leverage to increase our innovation moat. We see enterprise AI as one of the biggest near-term opportunities. So we are aggressively expanding our product suites and our customer engagement in that space. On that note, we've just updated the Amelia 7 platform to version 7.3, introducing some capability upgrades that have already been wowing customers and prospects, including major improvements to conversational latency and barging handling to deliver an even more natural and intuitive voice experience for customers. The Amelia 7 platform, which offers enterprise-grade Agentic AI is already making a real impact where it has been deployed, and we are now expanding its availability globally and already seeing brand-new logos in our pipeline. Much of this interest is driven by our unique approach to Agentic AI, what we call our Agentic+ framework. It's an agentic system designed for enterprises that balances the power of multi-agent orchestration and generative AI with essential business requirements and controls. While many internal AI projects stall in pilot phase, our approach consistently brings use cases to market within days or weeks rather than months. Within any given AI agent workflow, there may be certain functions that are more appropriate to complete with predictable deterministic automation, especially when personal security is in question. And there are times when human escalation is necessary or required by our customers. The complexity and sensitivity of enterprise use cases demand a highly intelligent, hybrid agentic system that delivers safe, efficient end-to-end orchestration. Agentic+ provides exactly that, a practical scalable framework that brings forward-looking AI use cases into real-world operation today. This is where we see the true value unlock in enterprise AI transformation. As with all of our solutions, this advanced technology has been built upon decades of R&D, troves of data and an understanding of what motivates our customers. Our platform is LLM agnostic with relevant enterprise integrations and SoundHound's trademark agility means we will adapt and upgrade Amelia 7 at the pace of AI innovation. We aim to always remain at the cutting edge for our customers. That brings me on to Voice Commerce. Voice Commerce is our highly anticipated solution that seamlessly brings conveniences like food ordering and recent additions such as parking payments and restaurant reservations into the vehicle for the convenience of drivers as well as other IoT devices like TVs. We've now taken POCs to advanced stages with a number of OEMs and merchants and have already successfully placed live voice orders from cars and completed the transaction. We are looking forward to seeing these go into full production in 2026. We have 4 OEMs showing strong interest in this groundbreaking technology with others following very closely. One of them in particular is poised to be the first to market together with a large QSR. We've also completed the integration with a larger paid parking service provider and a restaurant reservations company. We are on track to have some exciting announcements early next year. In addition, Voice Commerce is driving new conversations with smart TV manufacturers. And in particular, we are in talks with 2 prominent global manufacturers to enable consumers to order food or other services while watching TV simply by speaking to the device. More to come on that in the near future. We are nearly fully integrated with 2 tech platform giants in order to offer our voice ordering to their many millions of users. Going live to consumers is now imminent with more to come on this opportunity. We believe this is a proof point that our decades of relentless innovation is delivering technology that is ready for mass adoption even by big tech. We will have a prominent presence at CES once again in January, showcasing our solutions with participation from several partners. We look forward to seeing some of you there. In closing, we continue to deliver strong results. Some of the largest companies in the world are coming to us for solutions to address their AI goals. We are at the very beginning of addressing the massive market opportunity in front of us. We are a pioneer in voice and conversational AI and the expertise we've gained over the past decades are becoming recognized more and more every day. We are delivering value-driven agentic AI solutions to our customers, and we are ready to offer a voice commerce solution no other company has been able to bring to market. With that, I'll now turn the call over to Nitesh to talk about our financial performance, key growth drivers and business outlook. Nitesh Sharan: Thank you, Keyvan, and good afternoon, everyone. Q3 revenue was $42 million, up 68% year-over-year. We continue to deliver strong growth led by product and technological differentiation in a rapidly expanding market. Reflecting on our performance so far this year, we have now successfully delivered the Pillar 2 scaling that we had anticipated and communicated last year. From financial services to health care, to technology and retail, on top of our existing footprints in automotive and restaurants, we have embedded our leading-edge voice and conversational AI suite deeply into a wide cross-section of market-leading services. The disruptive innovation curve that extends from deep learning and transformer architectures to large language and reasoning models into Agentic AI solutions portends societal and economic transformation for decades to come. That said, the existing state of AI points vividly to call center and customer service disruption as a current epicenter of this transformation, and our solutions are strategically positioned to capitalize. Our organic and strategic investments have positioned us well to succeed here. From full automation that outperforms humans to human assist capabilities that drive contact center agent efficiencies, we now run the gamut to support enterprises as they deliver best-in-class customer support or outbound lead generation. We have an agentic-first architecture, leveraging our own state-of-the-art models alongside best-of-breed partners. With the acquisition of Interactions, we have now added workflow optimization capabilities to our enterprise agentic solutions, stitching the fabric needed to enable companies to effectively adopt AI and deliver productivity and returns. And our deepening broad-based partnerships are a testament that our offerings are resonating. We have said before, this is the era where natural language conversations will enable humans to more seamlessly interact with technology and voice AI is the killer app. Our heritage of innovation is our right to win. We continue to see that play out in Q3. In Pillar 1, we extended our penetration into China with a large IoT win as we capitalize on that country's lead in the global robotics race. In restaurants, another quarter of adding 1,000 locations, including most notably with a leading pizza provider and expansion beyond ordering with our Employee Assist and Voice Insight solutions provided both rapid unit and price expansion. In enterprise, our steady retention and expansion rates were supported by significant improvements in customer outcomes. In fact, relative to incumbent solutions, our early Agentic AI customers are seeing up to tenfold improvement in containment rates, 25% higher end user Net Promoter Score and 15% higher customer satisfaction. And we're achieving these results even faster with up to 35% less effort to design and deploy our Agentic AI service. And we are now consistently eclipsing 1 billion queries a month, up nearly 10x since we went public. Before I move to the quarterly numbers, I want to talk about our pace of investment. The speed of innovation has been rapid the past several years. Now it's about accelerating the adoption curve and customers' realization of AI's massive benefits. The winners will entrench themselves where value can be derived for many years to come, and that's why we are aggressively investing to fortify and expand our moats while deepening our customer relationships. This has been taking the form of go-to-market investments as well as product capability expansion, and we expect to continue to keep the foot on the accelerator. That said, from a financial profile perspective, we are also moving from our past where our investments were building the future and foreshadowing scale to our present where our growth and scale fully covers our costs. More specifically, as we exit 2025 and enter 2026, in part a result of executing on substantial acquisition synergies, we expect continued hyper growth to be coupled with a breakeven profitability profile. I'll share more when we discuss the outlook. For now, let me discuss the third quarter financial results in more detail. Q3 revenue was $42 million, up 68% year-over-year. All 3 pillars grew double digits, and we saw strength in both direct sales and through channel partners. We had a big IoT win for Pillar 1 and enterprise and restaurants helped drive outperformance in Pillar 2. While there was continued pressure in the automotive business, driven by global tariffs and the broader industry softness, there are signs of improvement, especially when considering the momentum we are seeing around Pillar 3 Voice Commerce. And as we have substantially diversified our industry mix the past 2 years, any individual sector's impact on our growth is much more muted now. Across our business lines, we also expanded geographic reach and product coverage, and we continue to see strong customer diversification, where year-to-date, we don't have any customers contributing greater than 10% of our revenue. In Q3, our GAAP and non-GAAP gross margins were both up from the prior quarter. Our GAAP gross margin was 43% and adjusted for noncash amortization of purchased intangibles and employee stock compensation, our non-GAAP gross margin was 59%. We continue to drive efficiencies in cloud spend as we deepened our acquisition integrations, and we continue to realize cost savings from shifting from third-party solutions to our own homebuilt ones. R&D expenses were $22.8 million in Q3, up 17% year-over-year, largely due to acquisitions and related headcount and data center costs. We continue to invest in innovation to maintain our technological leadership. Our speech foundation model, Polaris, is delivering outstanding results, and we're now deploying it broadly across our customer base. We're also advancing our Agentic AI capabilities and real-time speech-to-speech models, leveraging our deep expertise in conversational architectures and machine learning to deliver industry-leading speed and accuracy. Sales and marketing expenses were $16.4 million in Q3, reflecting a 96% year-over-year increase, primarily driven by acquisitions. As seen in our results the last few quarters, we have invested heavily in the channel, which is paying dividends. We have also continued to build up direct sales and are also driving demand and lead generation activities while speeding the journey from pipeline to close. G&A expenses were $24.3 million in Q3, reflecting a 43% year-over-year increase, primarily driven by our acquisitions. We had roughly $5 million in onetime M&A-related costs. Aside from that, we continue to drive operational efficiencies throughout the organization and improve our control environment. We had noncash employee stock compensation of $19.7 million and depreciation and amortization, including the amortization of intangibles of $8.6 million in Q3, all of which are included in our GAAP results. Adjusted EBITDA was a loss of $14.5 million. OI&E was $7.1 million of income for the quarter. GAAP net loss of $109.3 million and GAAP net loss per share of $0.27 were negatively impacted by the change in fair value of contingent liabilities of approximately $66 million. This relates to the acquisitions we have completed and is a nonoperating and noncash expense and primarily reflects the quarter-on-quarter increase in our stock price. As such, this item has been excluded in our non-GAAP results. Non-GAAP net loss was $13 million and non-GAAP net loss per share was $0.03 in the quarter. This adjusts for items such as noncash depreciation and amortization, M&A transaction costs and stock-based compensation. Our balance sheet remains strong with cash and equivalents at quarter end of $269 million and no debt. With that, let me discuss our financial outlook. I'll complete a thought I started earlier about where we are in the longer-term trajectory of this business. Keyvan started these prepared remarks by noting our recently celebrated 20th anniversary as a company. He and our founding team started on a path of breakthrough science, tackling the challenge of hard AI, innovation that provides more seamless and natural access so humans can harness the power of technology for our collective benefit, notably through pioneering advancements in voice AI. Breakthrough science is challenging. It takes time and requires tenacity and resilience to persist through the cycles of revolution, setbacks and further evolution. That was our company's existence for the first 15 years, and it manifested in financials that were heavy in R&D spend. The last 5 years as a company have been about commercialization, product deployment, customer traction and scale. That set the stage for the acceleration into the high-growth part of the S-curve where we are now. Within this high-growth stage, we are crossing the chasm to where we expect our inflows to exceed outflows. That transition, like all others, aren't linear or uniform, but they are progressive and ultimately compounding. That's the setup of our business as we look towards 2026. With that broad context, for the full year 2025, we now expect revenue to be in the range of $165 million to $180 million. For Q4, we expect to be adjusted EBITDA profitable at the higher end of the revenue outlook and in the single-digit millions of loss at the lower end. We see additional acquisition cost synergies of roughly $20 million on an annual run rate basis to be realized more fully in 2026, which will set us up well as we align our organization with the massive tailwinds behind us. Accordingly, our early expectations for 2026 are to continue delivering high growth commensurate with levels we have been compounding the past several years. And we expect to do so with near breakeven profitability levels because we want to reinvest when we foresee outsized returns. AI is fundamentally transformative. We have the assets and capabilities to deliver this transformation for our customers, but we will stay aggressive in our approach because we believe the potential value capture merits it, where expected returns are well in excess of the risk-adjusted cost of capital. With that, we will now move to Q&A. Operator: [Operator Instructions] Our first question comes from the line of Gil Luria from D.A. Davidson. Gil Luria: First, I wanted to ask about the 8-figure Chinese robotics deal. Is it too much for us to think of this as maybe a humanoid robotics? It seems like that may be a good application for low latency voice to meaning and therefore, a very interesting new development. And then the other part of that question is the double-digit millions over what time frame? Keyvan Mohajer: Yes. It is a robotic company. This particular product is not a human robot, but the deal does pave the way to experiences that you are imagining. This one is more of a device that can carry and like a wearable, but not actually a wearable, but in that category and in the double-digit million in the next 2 to 3 years. Gil Luria: Got it. Hope to be invited to the demo of the humanoid. Keyvan Mohajer: Yes, sorry to add that, it's actually a commitment number from them. It's not our -- just our estimates. Gil Luria: Got it. And then the second one on the Interactions acquisition. Where do you specifically -- which verticals do you think they will specifically have an impact? And then what do you expect the financial impact to be for the balance of the year and into next year? Nitesh Sharan: Yes. Gil, so the first part, there is nice adjacencies and sort of going deeper with our enterprise vertical. So they have strength across some of their customers overlap in our automotive and our tech services. They have a really deep retail footprint and several of the verticals that we're in. And the application of the technology, particularly around the workflow orchestration or they have sort of intent analyst that really complement some of the more complicated enterprise use cases. So you could think also financial services and health care. So there's really nice complement to the existing portfolio. In terms of contribution, I mean, this is, I think, sort of a pattern of our M&A that similar to what we've seen where we had brought companies that have amazing customer -- long-term contracts, customer relationships trust and -- but frankly, in some cases, legacy technology that we're able to partner and bring our own innovation on top of and recalibrate the growth curve. So this is one that we're pretty excited about how we can regrow them together. And so they're all contemplated in our outlook. I think you'll notice a little nudge up in our expectations, particularly with respect to next year. So it's an important acquisition. I think it's one that we're excited about what we're going to do. And most importantly, to your first part, just really excited the complement that it brings both on a tech product platform as well as sort of industry overlaps. Operator: Our next question comes from the line of James Fish from Piper Sandler. Caden Dahl: This is Caden on for Fish. I was just wondering, could you provide a percentage what you're seeing come from term license versus SaaS within Amelia at this point? And then anything to call out for onetime revenue this quarter? Nitesh Sharan: Sure, I can give you more of the general trending, and we know it continued to grow our recurring footprint with Amelia. And we have noted in prior quarters that there were sort of a greater onetime type license deals. We talked about that last time, much smaller footprint this quarter. So I think with respect to Amelia, it continues to be more heavily penetrated towards the recurring. But I think most importantly, as we look at the shift to agentic and just really what the technology is able to do now integrating LLMs with our deterministic flows is the footprint is you embed, you get a recurring basis, but it's more outcome-based contracts and pricing. So as we can continue to deliver outcomes, for example, at hospitality, we can book more reservations or in maybe a health care setting, book more appointments, like the economic model is one that is advantageous that we can scale. So it will be recurring plus outcome-based generative or incremental revenue. That's sort of the model also with respect to why we comment on restaurants and high order completion rates. Some of our pricing is just fixed per location amounts. And then more and more customers are seeing that there's real sharing of economic upside if we can say it's more based on real returns to the customer and the pricing will follow. Operator: Our next question comes from the line of Mike Latimore from Northland Capital Markets. Unknown Analyst: This is Vijay Devar for Mike Latimore. Could you tell me how many customers have committed to upgrading to Amelia 7 right now? I think the number was around 15 last quarter. Nitesh Sharan: Yes. We're continuing to grow it. The 15 was sort of a selected first set of customers, and that has progressed really, really well. That was an initial cohort and they were sort of our early adopter group. That group -- that number just continues to grow. We're migrating with others. We've expanded that set quite significantly. We're in active conversations with a number of them. Ultimately, our target here is that about 75% of our customers, we expect to be moving on to Amelia 7 probably by mid next year. So we're sort of thinking of the trajectory of moving towards that. And ultimately, all of our new customers are going to get into that -- are going to be migrated on to Amelia 7. So we're trying to make sure there's a fair migration path for all our customers. Obviously, every customer is different, and we need to be thoughtful about their journeys and be very sensitive to their own end customers. Ultimately, we're trying to orchestrate across all other platforms, so we make sure that there's interoperability with other agentic platforms, and we're really thoughtful about just onboarding and pace. So continuing to see great momentum, lots of exciting conversations. And most importantly, I mentioned in my prepared remarks, just the outcomes or the feedback we're getting, whether it's in Net Promoter Score, customer satisfaction or even just the containment rate improvements, like they're real positive outcomes early days, so we're trying to be aggressive in how we migrate. Unknown Analyst: That's pretty interesting. Second one, what percent of your revenue is recurring presently? Nitesh Sharan: The vast majority of our revenue is recurring, and there's just different -- well, I guess I'll group it. We talk about recurring and reoccurring. Like I've mentioned, I think, a couple of times around our automotive business where we have license recognition as cars are shipped, we get recognition for the voice capabilities, and we get a royalty on that. So maybe I'll count that reoccurring as long as these mega OEMs keep shipping cars under the contract duration, we get revenue. Then we have and to the prior question from Caden around Amelia, it's recurring largely. They're SaaS. Oftentimes, they're fixed price up to certain levels of interactions. And then if the customer activity grows above an interaction level, then we'll -- it gets priced to the next level up. And then we do, from time to time, have certain recognition. When we deploy an edge solution where our obligation to the customer is to pass over that license, then there is immediate revenue recognition. So the vast majority is recurring SaaS-like and -- but there's a diversification in the product suite. And as I mentioned in the other question you asked, more and more, we're finding the trends towards outcome-based. And again, the reason is the AI solutions work. They can deliver more value. They can align to the economic interest of the customer. And so it makes sense for us to price accordingly. Operator: Our next question comes from the line of Scott Buck from H.C. Wainwright & Company. Scott Buck: So you listed off kind of 8 or 9 industry verticals in the release and talked through them. I'm curious, do you feel like you're -- you have enough capacity across each of those to continue to grow them? Or if not, how are you kind of prioritizing where your attention goes near term? Nitesh Sharan: Sure. I can start and Keyvan can add. I mean, I guess to think about it, I get this question to be open, and we get this question a lot like are you doing too much or -- and I kind of not trying to be flippant, but like if you start hearing us talk about investing in nuclear energy, maybe that's the fair place to say we're extending a little too far. We're a horizontal platform. We start with the premise of like the pioneering vision was in voice AI. We believe that's the major shift that we are going to enable humans to interact with technology predominantly through natural conversations and voice, the way we're talking right now. And we'll be able to get many, many things done. And so we think, first and foremost, in terms of the ultimate vision, we are -- that can pervade across many, many industries. And again, we got traction in automotive restaurants moving into health care, financial services and setting appointments, booking reservations, doing money transfers, all of that just on the horizontal platform. So when we're deploying our technology, and we've mentioned it previously, whether it's Polaris or some of the other capabilities, we're best of breed. We're market-leading even against unlimited resource competitors, where we outperform on our speech recognition technology on how we bring real-time speech to speech for understanding and conversation. So that -- I think when you think of us as a platform provider, that's sort of like the premise. Again, I'd say that's where our focus is. If we -- that's where we determine as long as we're playing in the game of conversational and voice AI, that's the right focus. Now it is fair, yes, there are different applications, especially when you go into workflow integrations that different ecosystems have different appointment reservation systems or order taking or point-of-sale systems in the restaurant. And there are in many of these industries, fragmentation. So we do have to be thoughtful about how deep we can go and who we partner with. So we've talked in the past about our partnering strategy in restaurants, for example, where some of the drive-thru opportunity requires hardware partnerships, and we're excited that we work with the likes of Samsung and HME and PAR and others. So we think that's a great complement. We can go to market together. With respect to the integration with the menu structures, we're excited that we partner with the likes of Square, Toast, Olo, Oracle MICROS Simphony and on and on. And so that's an example of where we kind of go, here's where our software extends and here's where we want to use partners to go deeper. And that same application and some of the announcements we made today with some of the channel partners going deeper into health care, that's how we calibrate. So I think there's a lot of room. I take the premise got to your point of like, hey, we're hustling relative to the -- certainly the big tech, smaller scale company, we have to be very judicious with our limited resources. I actually think that's a strength of ours because it does force prioritization and it forces us to focus on where our main strengths are, but that's definitely something we're constantly calibrating around. Scott Buck: Great. I appreciate the added color there. Second, I'm just curious on the Voice Commerce launch in '26 laid out in the release. Is that something that you're sharing marketing responsibilities for? Does that fall on the OEMs? I guess what does that rollout look like? Keyvan Mohajer: Well, we talked about Voice Commerce for a number of years. We showcased it at CES of January of this year in 2025, end-to-end, and it was very well received. Immediately after that, we had multiple OEMs that started running pilots and POCs and several brands, merchant brands like national and global brands that were participating. And those are all going really well. It's moving forward. We're getting more traction, but there are some that are actually eager to go live. Some want to be the first to go live. So we feel very confident that it's going to happen. Not everything is in our control because the OEM has to do something, but a lot of the work is being done by us actually, the whole integration of the voice AI and the merchant experience is done by us. We have done an end-to-end. We are able to drive a car, talk to the car, place an order, go pick it up from the store. All of that is done. We'll have more to show at CES and hopefully, more to share about the timing of an actual go-live in production around that time. Operator: Our final question comes from the line of Leo Carpio from Joseph Gunnar. Leo Carpio: A couple of quick questions. First, on the competitive environment. Can you give us an update on the competitive environment? Are you still facing off against the vendors that we've talked about in the past? And how have the large LLMs compete in the space, I mean, that they started to encroach? But ultimately, how deep is your competitive moat? And then turning secondly on to the contracts that you've won, have you been seeing any pricing pressure at all? Or it's pretty much you're getting the pricing that you asked for at this stage of the adoption curve? Keyvan Mohajer: Yes. So I'll talk about the competition. First of all, the space is extremely attractive, and you hear more names, and that's more of a validation. And we've had competitors in our whole life of 20 years and we had bigger competitors in the past. The particular space you're going after, enterprise AI, customer service, we feel we are the leader because of the 20 years of innovation. We have our own technology. Most of the new players don't have their own technology. So they're using APIs and models from third party, and they have to kind of stick it together and make it work. And a lot of these models make really good POCs and good demos. But when you go to production, they have issues, but we are able to actually go from demo to deployment in production faster with a higher quality. And that's thanks to our 20 years of experience, having our own models, lower cost, higher accuracy, better latency, more integrations that we've accumulated over the years and some through the acquisition. So we feel very confident about the space. And some of the names that you may hear in the market could end up being our customers because they need models from companies like SoundHound. And as they go through their choices, they will learn that models like Polaris outperform the competition, right? We beat the big tech and some of the industry giants by as much as 35%, 40% in accuracy, several times in latency, and we can run at a lower cost. Nitesh Sharan: And I think your second question was around pricing. I'm going to make the general point, and Keyvan can certainly add color. I think in a lot of these sort of eras where we're shifting from old tech to new tech, people are really sort of -- there's pressure on if you provide legacy technology to drop prices, and it becomes a little bit of a price battle. And so the key is we're demonstrating our innovation is where you can showcase price value and alignment, and that's where you can protect on pricing. And we've shown that and said that, I think, in prepared remarks today and previously, around where we are seeing pricing expansion. A lot of that is because we're bringing innovation. We're layering on top generative AI intersection, the first company to bring generative AI into the vehicle, Stellantis early last year. We're seeing that with the generative capabilities. Like you need to be competitive in an ecosystem, as Keyvan noted, that's increasingly competitive. But the use case opportunities and expansions are so tremendous. So if you're a hospitality and you believe through a nice conversational engine that delights the customer, you can actually upsell a reservation or provide more services, then you're willing to pay more. And that's a little bit the transition we're in. So I don't want to disparage in certain parts, certainly because we're across industry, there's different stories for different sectors and different solutions. And there's macroeconomic dynamics that play into it. But I'd just say largely, there's a transition of pricing architectures. I think ultimately, for those who can provide real innovation and product quality, there's ultimate ASP expansion available. And so that -- there's a little bit of both sides of that equation from a pricing dynamic that we're navigating through right now. Operator: Thank you. This concludes the question-and-answer session. Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Greetings, and welcome to the Bridger Aerospace Third Quarter Fiscal 2025 Investor Conference Call. As a reminder, today's call is being recorded. It is now my pleasure to introduce your host, Eric Gerratt, Chief Financial Officer. Thank you. Mr. Gerratt, you may begin. Eric Gerratt: Good afternoon, and thanks for joining us today. Joining me on the call this afternoon is Chief Executive Officer, Sam Davis. Before we begin, please note that certain statements contained in this conference call that do not describe historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Since forward-looking statements are based on various assumptions, risks and uncertainties, actual results may differ materially from those expressed or implied by such statements. Factors that could cause results to differ materially from those expressed include, but are not limited to, those discussed in the company's filings with the U.S. Securities and Exchange Commission, including expectations regarding financial results for 2025. Management cannot control or predict many factors that impact future results. Listeners should not place undue reliance on forward-looking statements, which reflect management's views only as of today. We anticipate that subsequent events and developments will cause our assessments to change. However, we undertake no obligation to revise or update any forward-looking statements or make any other forward-looking statements. Throughout this afternoon's earnings release and call today, we refer to the non-GAAP financial measure adjusted EBITDA. The definition, calculation and a reconciliation to the financial statements of adjusted EBITDA can be found in Exhibit A of our earnings release, which is available on our website. We believe adjusted EBITDA is useful in evaluating our reported results as a supplement to and not a substitute for reported results under GAAP. With that, I'd like to turn the call over to Sam. Sam Davis: Thank you, Eric. This year has been an incredibly strong year for Bridger, both operationally and financially. Operationally, we saw record task orders that ran through October. Utilization measured in days on contract is up almost 10% year-over-year across the fleet. Our multi-mission aircraft have almost doubled their flight hours year-over-year and were extended beyond their guaranteed 150 days a piece to greater than 220 days a piece. Bridger Super Scoopers continue to gain recognition for their effectiveness as the ideal initial attack asset, and the Forest Service has been proactive in prepositioning our assets. Our scoopers have seen nearly a 9% increase in average flight hours year-to-date. The benefits of a proactive response to wildfire this year are clearly visible. Through October 10, according to the National Interagency Fire Center, or NIFC, wildfires have been above average in count with over 54,000 incidents this year up to date -- year-to-date, up 50% over last year and 15% above the 10-year average. Yet despite the increased number of fires, the NIFC reported only 4.7 million acres burned, which is down 40% over last year and down 29% from the 10-year average. This year's tremendous operational performance has lent itself to an incredible financial year as well. The more effective and tactical adoption of our assets has contributed to us surpassing our annual revenue guidance in the first 9 months of the year. Additionally, we remain on track to meet the high end of our adjusted EBITDA guidance. Bridger's 2025 financial performance saw the impact of our focus on developing long-term contracts with both the Forest Service and individual states. This concentration has led to another record-breaking quarter and another record-breaking year in spite of a statistically below average fire year. These third quarter results are a validation of the impact that these efforts are having on our business model. We see this as a strong indicator that as a nation, our assets are becoming increasingly important tools in the toolbox. And as a company, we are building resiliency in our revenue. As the threat of wildfire grows, Bridger remains ready to respond and focused on our mission to protect lives, property, critical infrastructure and the environment. These strong operational and financial results and our expectations for a second record year made it possible for us to complete a balance sheet transformation last week. We completed a $49 million sale leaseback of our campus facilities in Belgrade, Montana and entered into a new $331 million expanded debt facility with increased capacity for growth. Most importantly, we now have the financial flexibility to acquire the aircraft needed to support contract expansion opportunities and to serve all of our customers, whether federal, state, local or defense to further drive EBITDA growth and long-term shareholder value. Bridger's commitment to financial health and resilience is positioning us to better serve and protect this country. Let me now provide a quick update on FMS and Ignis. FMS contributed $2.4 million in revenue during the third quarter. In addition to partnering on the internal aircraft modifications to solidify our competitive edge, we continue to see a number of contracting opportunities, primarily with the DoD in active bids that Bridger and FMS are uniquely positioned to respond to. In addition to awarded work with our partner, Positive Aviation for the FF72 aircraft certification program, recent wins include a small award with the U.S. Air Force. While revenue in FMS business has seen delays due to federal budgeting uncertainties for the short term, we remain optimistic and FMS remains well positioned for a wide range of defense as well as commercial work. We're in the middle of repurposing our business development team to target this work. Much of the opportunities are fairly small and strategic with the potential to scale into larger volume of nonfire, nonseasonal complementary work to the services we already provide. We hope to add more year-round revenue growth to the business later this year and in 2026. A brief update on Ignis Technologies. Since launching its mobile platform to support firefighters in the field over a year ago, pilot programs utilizing the platform with counties, crews and incident management teams continue. We are now linking Bridger's real-time sensor imagery with the Ignis app, creating a seamless data flow from air to ground. During the third quarter, we live streamed video of the Dragon Bravo Fire in Arizona from our PC-12 to the Secretary of the Interiors office. This capability is unlocking new levels of situational awareness, supporting multi-mission aviation contracts and enhancing both operational effectiveness and safety. With the continued success of our sensor-enhanced aircraft in the field, the need for interactive live data streaming is stronger than ever, and we intend for this to be a critical part of our sensor-enhanced aviation contracts next year. Turning to the Spanish Scoopers, which are owned under a partnership agreement with MAB Funding LLC. The aircraft's return to service work by our Spanish subsidiary, Albacete Aero continues to progress. Having received the certificate of airworthiness, the first 2 aircraft have been flying this summer on contract with the government of Portugal. This has been supported by a lease arrangement between MAB as the owner and Avinci as the operator. With our recent financing completed, which provides funds for the aircraft acquisition, we now have the opportunity to potentially bring these 2 scoopers onto our balance sheet in the near future. The third and fourth scoopers continue to undergo the final stages of their respective return to service work and are scheduled to be ready in early 2026, at which time we will enter into discussions with MAB to potentially acquire these aircraft as well. Before I turn the call over to Eric, I want to reiterate the opportunity for Bridger given the recent federal initiatives to restructure our national Wildland firefighting system, which we view as the market shift for the entire industry. The establishment of the Wildland Fire Service Plan and passage of the Fire Ready Nation Act are focused on improving wildfire response and driving future growth. This comes on the heels of the executive order early in the year that called for the establishment of a national Wildland firefighting task force. We have already noticed faster response times, standards of cover and a more comprehensive mix of aviation assets being demanded. With Bridger's significant air attack fleet, including modern fire imaging and surveillance aircraft and the world's largest private super scooper fleet, we believe we are uniquely positioned as the nation refocuses efforts on preparedness and aggressive wildfire suppression to detect, prevent, contain and extinguish wildfires before they become the next catastrophic event. This commitment on top of the 2026 budget for the new U.S. Wildland Fire Service that calls for a threefold increase in funding to $3.7 billion will have a significant positive impact on the entire wildland fire community. We continue to actively look for opportunities with states to provide exclusive use of our firefighting assets, and we remain optimistic that our current budgeting and planning cycles will lead to future opportunities. It has been an incredible 2025 thus far, and I remain grateful I get to lead this exceptional team. Let me now turn it back to Eric, who will talk about our strong financial performance in the quarter. Eric Gerratt: Thank you, Sam. Looking at our results for the third quarter of 2025, revenue increased to a record $67.9 million, up 5% from $64.5 million in the third quarter of 2024. The third quarter of 2025 benefited from continued high levels of activity as multiple scoopers and surveillance aircraft were deployed throughout the quarter. Excluding revenue from the return to service work performed on the 4 Spanish Scoopers as part of our partnership agreement with MAB Funding, LLC, which was $2.1 million in the first quarter of 2025 and $2.1 million in the third quarter of 2024, revenue from ongoing operations, including FMS, grew 5% to approximately $65.7 million compared to $62.4 million in the third quarter of 2024. Cost of revenues was $21.1 million in the third quarter of 2025, and was comprised of flight operations expenses of $12.1 million and maintenance expenses of $9 million. This compares to $23 million in the third quarter of 2024, which included $15.1 million of flight operations expenses and $7.9 million of maintenance expenses. Cost of revenues associated with the return to service work on the Spanish Super Scoopers was consistent for the third quarter of 2025 when compared to the third quarter of 2024. Selling, general and administrative expenses were $7.7 million in the third quarter of 2025 compared to $8.6 million in the third quarter of 2024. The decline reflects lower noncash stock-based compensation expense and a decrease in earn-out consideration, which was partially offset by an increase in the fair value of our warrants. Interest expense for the third quarter was $5.8 million compared to $6 million in the third quarter last year. For the third quarter of 2025, we reported net income of $34.5 million compared to net income of $27.3 million in the third quarter of 2024. Earnings per diluted share was $0.37 for the third quarter this year compared to $0.31 per diluted share in the third quarter last year. Adjusted EBITDA was $49.1 million in the third quarter of 2025 compared to $47 million in the third quarter last year. A reconciliation of adjusted EBITDA to net income is included in Exhibit A of our earnings release distributed earlier today. Now looking at our results for the first 9 months of 2025. Revenue was $114.3 million compared to $83 million in the first 9 months of 2024, a 38% increase. Excluding return to service work, revenue was $101.1 million compared to $78 million in the first 9 months of 2024, up 30%. Cost of revenues was $57 million, which comprised flight operation expenses of $26.2 million and maintenance expenses of $30.8 million. Cost of revenues for the first 9 months of 2024 was $42.1 million and comprised $25.2 million of flight operation expenses and maintenance expenses of $16.8 million. Cost of revenues for the first 9 months of 2025 included an increase of approximately $9.6 million of expenses associated with the return to service work for the Spanish Super Scoopers compared to the first 9 months of 2024. SG&A expenses were $22.8 million compared to $28.2 million in the first 9 months of 2024, with the decrease again driven by lower noncash stock-based compensation expense and a decrease in our earn-out consideration, which was partially offset by an increase in the fair value of our warrants. Interest expense for the first 9 months of 2025 was $17.3 million compared to $17.8 million in the first 9 months of 2024. Bridger also reported other income of $1.8 million in the first 9 months of 2025, which was consistent with the $1.8 million reported in the first 9 months of 2024. Net income was $19.3 million in the first 9 months of 2025 compared to a net loss of $2.7 million in the first 9 months of 2024. Adjusted EBITDA was $54.8 million in the first 9 months this year compared to $40.2 million in the same period last year. Now turning to the balance sheet. We ended Q3 with total cash and cash equivalents of $55.1 million. After the end of the quarter, we completed our previously announced sale-leaseback transaction with SR Aviation Infrastructure for our Bozeman Yellowstone International Airport campus facilities. The sales price was approximately $49 million. In addition, last week, we also executed a new senior secured credit facility for up to $331.5 million. Together, these transactions were used to refinance Bridger's $160 million municipal bond with Gallatin County, consolidate the majority of our existing debt and most importantly, provide significant capacity and financial flexibility through a delayed draw facility designed to fund future fleet expansion to support the organic growth we are pursuing. Turning to our guidance. With the strong fleet utilization year-to-date, including record task orders for our Super Scoopers, we remain on track to end 2025 at the higher end of our guidance range of $42 million to $48 million of adjusted EBITDA. Revenue has already exceeded the top end of our previous guidance range of $105 million to $111 million and is now expected to be between $118 million and $123 million. The company also expects continued improvement in cash provided by operating activities in 2025. Now with that, I'd like to turn the call back to Sam for final comments. Sam Davis: Thank you, Eric. This year-to-date, we have flown in 21 states, provided support for 380 fires and dropped 7.3 million gallons of water. The increased focus on preparedness, early detection and suppression is making a difference from suppression on major fires to prevent the loss of structures to early detection, preventing small lightning strikes from becoming large incidents. Our team continues to execute. As we sit here today, 3 of Bridger scoopers and 4 air attack aircrafts are on standby for late call out, and we stand ready to finish the 2025 season strong and prepared for year-round work during these winter months. Three scoopers have entered winter maintenance to ensure we can provide flexibility within our fleet and be able to respond early in 2026, if necessary, and enable us to more fully utilize the excess capacity of our scoopers. And as Eric stated, with our record 9-month results, we have already exceeded our revenue guidance for the full year and remain confident we will hit the higher end of our annual adjusted EBITDA guidance after assuming the loss typically booked in the fourth quarter. With the monetization of our campus and the new $331 million debt facility, we have consolidated our debt and are now able to reinvest in the business. We have significant capacity and financial flexibility to fund future fleet expansion, drive our organic growth and build on our long-term vision to innovate and deploy the most advanced technology in our industry and deliver on our mission to protect lives, property, critical infrastructure and the environment. And with the support of our federal and government customers, legislation to prioritize early attack and suppression and additional budget dollars appropriated, we're incredibly well positioned to report another year of positive cash flows as we focus on generating solid returns for our stakeholders. I would be remiss to not express my appreciation and celebrate the success of the incredible Bridger team from our senior leadership to our pilots, from mechanics to drivers and all the folks behind the scenes, maximizing our safety and effective operations all around the country. Bridger's mission attracts and retains the best employees in the country, and they're all critical in delivering the results we've had quarter after quarter, and we're ready to answer the call to serve year-round. We're excited for and positioned to make 2026 yet another incredible year. And with that, I'd like to ask the operator to open the call for any questions. Operator: [Operator Instructions] Our first question comes from Austin Moeller with Canaccord. Austin Moeller: Nice quarter. So you have about $14 million free cash flow year-to-date. How much are you tracking towards by end of year? And what do you plan to use the cash for? Sam Davis: Austin, good to hear from you. I will turn that to Eric as CFO, to answer that question. Eric Gerratt: Yes, Austin, I think we'll end the year around that same amount or maybe a little north of that. As you know, fourth quarter, we go into the maintenance cycle. And typically, in the fourth quarter, we don't see as much revenue certainly as we saw in the third quarter or even the second quarter. So I expect it to remain at about that level. And what we'll be doing with that free cash flow is, again, we'll be looking at our fleet expansion opportunities in conjunction with the new credit facility and how best to deploy that capital. Austin Moeller: Okay. And now that the credit facility is in place and the sale leaseback is complete, do you expect the Spanish scoopers to be staying in Europe or coming to the U.S.A.? Sam Davis: That's a great question, Austin. We're exploring all avenues there. I can say that with that now being a reality, and us having those discussions right now to see how quickly we can move on that. We're going to go with kind of the best both strategic and economic benefit for us, and we'll run all those paths. It's hard for me to predict with a crystal ball what that's going to be. But I will say that the beauty of it is they're a very scarce asset and in high demand. So that gives us a lot of optionality to have those aircraft, especially with those two being airworthy and flying a partial season already, Bridger sees a lot of opportunity to put those to work. And we'll know a lot more through the winter months as we nail down the best opportunity. And the beauty of it is we have optionality of where we place them. Operator: [Operator Instructions] At this time, there are no further questions in the queue. I will now be turning the meeting back to Sam Davis. Sam Davis: Thank you. Thanks again for joining our conference call today. We look forward to updating you on our progress when we report our Q4 results in March. We're scheduled to participate in Sidoti's year-end Virtual Investor Conference on December 10 and 11, with our presentation scheduled for 4:00 p.m. Eastern Time on Wednesday, the 10. In addition to the presentation there will be 2 days of virtual one-on-ones. And hopefully, we can have -- connect with some of you then. Additionally, if anyone has any follow-up questions, as always, please feel free to reach out to our Investor Relations, and we can set up some further communication. Thank you, and we can close the call. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Chorus Aviation 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 LaPierre. Please go ahead. Matt LaPierre: Thank you, operator. Hello, and thank you for joining us today for our Third Quarter Conference Call and Audio Webcast. With me today from Chorus are Colin Copp, President and Chief Executive Officer; and Gary Osborne, Chief Financial Officer. We will begin today's call with a brief summary of the results, followed by questions from the analyst community. As there may be some forward-looking discussion during this call, I ask that you refer to the caution regarding forward-looking statements and information found in our MD&A. This pertains specifically to the results and operations of Chorus Aviation Inc. for the 3 months ended September 30, 2025 as well as the outlook section and other sections of our MD&A where such statements appear. Finally, some of the following discussion involves non-GAAP financial measures, including references to adjusted net income, adjusted EBT, adjusted EBITDA, leverage ratio and free cash flow. Please refer to our MD&A for further information relating to the use of such non-GAAP measures. I'll now turn the call over to Colin Copp. Colin Copp: Good morning, everyone, and thank you, Matt. I'm happy to report that we continue to execute well on our plans and delivered solid financial results in the third quarter. We recently announced our second SIB this year with the intent of repurchasing up to $50 million of common shares. Year-to-date alone, we've repurchased $35.2 million in share buybacks. And since we started the program in 2022, we have committed $124 million to share buybacks when you include the most recent $50 million SIB offering. Additionally, this past quarter, we completed the redemption of our Series B debentures, which substantially completes our debt repayment plans and balance sheet restructuring. And today, we announced our second dividend payment of $0.08 per share for the quarter. I'm also happy to confirm that we've executed agreements to sell all 9 of The Dash 8-400 aircraft that we've been marketing for net proceeds of approximately CAD 86 million, unlocking meaningful value. The acquisition of Elisen was also completed this quarter, building on our specialized MRO and defense capabilities. Elisen adds industry-leading expertise to our engineering capabilities and will enable us to capture higher value opportunities and further strengthen the Voyageur business. Let me turn to the operating side of the business now. Doug and the Jazz team performed exceptionally well from both an operational and financial perspective this quarter, delivering solid on-time performance for the quarter and generating strong and consistent earnings. On October 23, we were excited to see Air Canada's announcement on the expansion of transborder routes and enhanced domestic service from Billy Bishop Toronto City Airport. Jazz is a proud partner of Air Canada and looks forward to operating the newly expanded routes. On the labor front, Jazz also announced recently that subject to ratification, it has successfully reached a tentative agreement with its union AMFA for the heavy and line maintenance employees. Pilot recruitment at Jazz remains strong with a healthy intake of new pilots and training cohorts from Cygnet. And this past quarter, Jazz has seen operational performance continue to excel across all key metrics, reflective of Jazz's outstanding service delivery and the team's expertise. On the Voyageur front, Cory and the team have been very busy and continue to execute on their long-term growth plans. They've been principally focused on growing their higher-margin business in defense, specialty MRO and parts sales. With the change in geopolitical environment, the UN and World Food Program flying contracts have seen increased cost pressures. And while Voyageur has been transitioning away from these lower-margin contracts, this change has motivated Voyageur to expedite their move to higher-margin opportunities quicker than originally planned. While this had a small impact on revenue, the expedited shift enables us to further improve operating margins and generate greater free cash flow. As well as shift frees up a couple of assets, which we plan to sell, further strengthening the business and Voyageur's revenue is still up year-to-date by approximately $10 million. On the growth side, Voyageur was recently awarded a contract by the Department of National Defense to provide a specialized aviation support to the Aerospace Engineering Test Establishment, AETE, operating out of Ottawa. Under the terms of the contract, Voyageur will establish a dedicated maintenance capability within AETE's hangars and provide a leased aircraft to support pilot proficiency and operational readiness. We're happy to report that the Metrea Dash 8-300 aerial firefighter aircraft was successfully completing its first certification flying in North Bay and the second aircraft is well under production now. The Cygnet team under Lynne's leadership continues to grow nicely and expand its industry footprint. In July, Cygnet announced its partnership with Porter Airlines and CAE to launch a new pilot training program designed to support Porter's pilot recruitment needs. Additionally, Cygnet recently signed a referral program agreement with Air Tindi and Summit Air as part of its free agent program. This partnership connects our Cygnet trained pilots with the real-world careers at these airlines. Cygnet has also recently entered into an agreement with Canadore College to launch an integrated pilot training program beginning in the fall of 2026. The program will provide graduates with both a recognized academic credential and one that is Transport Canada certified. To support the program, Cygnet will establish a permanent training and maintenance base in North Bay, leveraging Voyageur's facilities and maintenance expertise. With the acquisition of Elisen, under the leadership of Taif and Stéphane and with Elisen's unique engineering and certification expertise, Voyageur and Elisen are collaborating closely and looking at new growth opportunities in the defense and specialty engineering areas. Our steady progress and determination over the past 24 months has been on repositioning Chorus and our balance sheet, strengthening the value of our business, improving our profit margins, growing our free cash flow and ultimately driving shareholder returns. With the business realignment substantially complete, we're now focused on steady accretive growth and on driving shareholder returns. We see Chorus as a global leader and trusted Canadian partner with a diversified and expanding portfolio of businesses, leveraging our deep expertise in aviation, aerospace and defense, we are well positioned to build long-term value and generate free cash flows, enabling creation for our shareholders. I want to thank our employees and leadership teams across all our businesses for their dedication and execution and for driving our success. To our investors, thank you for your continued support. We remain focused on delivering long-term value and building a resilient industry-leading business. I'll now pass it over to Gary to take you through the financials. Gary Osborne: Thank you, Colin, and good morning. We are pleased to report our Q3 2025 results that continue to generate positive and strong earnings and free cash flows. For the quarter, we saw adjusted earnings available to common shareholders per share of $0.60, a $0.17 or 40% increase over last year, primarily driven by lower corporate costs, including lower net interest expense. Adjusted EBITDA was $51.6 million compared to $53.6 million last year, a decrease of $2 million, which was primarily due to lower aircraft leasing revenue under the CPA. Free cash flow of $33.2 million, an increase of $0.7 million versus last year, and leverage came in at 1.5 for Q3 2025 in the middle of our targeted range of 1 to 2. As Colin noted, this quarter, we continued to execute on a balanced and sustainable capital allocation strategy. We returned a combined $10 million of capital to shareholders through dividends and share repurchases, invested in strategic M&A through Elisen to support long-term growth and completed the paydown of our remaining Series B debentures for $28.7 million, further reducing future net interest expense. Prior to the quarter end, we also announced a substantial issuer bid for $50 million, which will expire on November 10. Our liquidity remains strong with $217 million available at quarter end, and we expect to realize net proceeds of approximately USD 20 million from the sale of 3 Dash 8-400 aircraft by the end of this year. Sales of the remaining 6 Dash 8-400s are expected to close between March and July 2026 with net proceeds of approximately USD 42 million. In October, we entered into currency forward contracts to hedge exposure on the net proceeds of these 9 aircraft sales at an average of about 1.39. Our U.S. to Canadian rate has been updated in the MD&A outlook section for Q4 2025 to reflect the forecast U.S. to Canadian foreign exchange rate of $1.38 from the previous $1.35 related to aircraft leasing under the CPA revenue and U.S.-denominated debt. The underlying lease amounts denominated in U.S. dollars remain unchanged from our last forecast. Our 2026 forecast rate of $1.35 remains unchanged. As Colin noted, we've seen a year-over-year increase in Voyageur's revenue for the first 9 months of 2025 of approximately $10 million. Included in that increase is an accelerated reduction in contract flying operations at Voyageur with United Nations and World Food Program, which is forecast to be approximately $13 million for this year. This reflects our shift in focus to higher-margin areas of the business. As a result, Voyageur's total revenue is expected to be in the $140 million to $145 million range, which includes about $8 million of intercompany revenue. Intercompany revenue is not included in the revenue figures in the MD&A. Our operating -- on the operating margin side, we are focused on Voyageur's bottom line, and we have seen an increase in operating margins for the first 9 months of this year versus the full year 2024 of about 100 basis points, moving from approximately 7.25% to 8.25%. As part of our focus on improved operating margins, Voyageur plans on selling or parting out 2 aircraft that were tied to the work at the UN and World Food Program. We are now ready to take questions. Operator: [Operator Instructions] Our first question today comes from Konark Gupta, Scotiabank. Unknown Executive: My name is Nathan. I'm filling in for Konark today. Congrats on a great quarter. Just have a few. To start, I wanted to mention -- you mentioned that Voyageur margin year-to-date is 100 bps better than full year 2024. Is that margin before or after depreciation and amortization? Gary Osborne: It's operating expense, so -- operating margin. So it's after depreciation. Unknown Executive: After depreciation. Okay. And then secondly, the follow-up is, how would the pro forma EBITDA margin look like going forward relative to your prior expectations you've shared with us? Gary Osborne: Yes. Voyageur even today is still producing at about 24% margins on its EBITDA. That hasn't changed. We don't really foresee that really changing at all. But our focus is on the bottom line with Voyageur, and that's why you can see in our disclosures, we put out the operating margin because the reality is the UN flying was marginal, and we're moving away from it, but it's a focus on the bottom line, not just cash generation. Unknown Executive: Okay. Okay. That's helpful. You also mentioned that you exited those lower-margin contracts amid some geopolitical uncertainty. Was it your voluntary decision to exit or also customers' willingness to make such changes? Colin Copp: Yes, it was -- it's Colin. Yes, it was our decision to essentially move out of that. We've been doing that in kind of a transition over a period of time and looking at the margins where they sit. But they've worsened quite a bit over the last little while, and we just made a conscious decision to make move quicker than we were originally planning. Unknown Executive: Okay. So it was a bit accelerated? Colin Copp: Yes. It's a bit accelerated, and it was our decision to do so. Unknown Executive: Okay. And just lastly, how do you feel about the rest of Voyageur's book of business considering some of the geopolitical stuff? Gary Osborne: Very good. There's very little in there that has any kind of downside. There's an awful -- that's less other than the -- talked about the UN and so on, but there's an awful lot of upside if you consider the current political environment and the growth and the recent budget announcements and the focus of the government. So I think what we would say on that point is that there's definitely more upside than there is anything at Voyageur for sure. Operator: Our next question today comes from Alexander [indiscernible], CIBC. Unknown Executive: I just wanted to touch on the November 2027 lease expiries, the 6 Dash 8-400s. So I see the minimum covered fleet is 80. So can you expect those to be re-leased? And when they do expire, can you remind me if they're fully unencumbered aircraft upon expiry? Colin Copp: Yes. So if you look at our fleet table, we have 80 is the minimum that Air Canada has in the fleet post the end of next year, and that's where we expect -- we're starting next year and certainly by the end of next year. And the 9 aircraft that are coming out today are planned to come out and they're not included in that 80, so the 9 Q400s. Thereafter, we do have some lease expiries. I think you're noting that we're in the end of 2027 and 2028. We don't have a commitment from Air Canada. But as we've said, the fleet that remains after these 9 aircraft exit are required in order to meet the 80 aircraft minimum. That's the only one. So we feel pretty good about it, but we don't have anything in hand. Unknown Executive: Okay. And sorry, can you just remind me, are they fully unencumbered when they come out of the lease? Gary Osborne: Yes, they are. All the -- so the debt is fully unencumbered at the end of the first lease. Unknown Executive: Okay. Perfect. And I also see that you had 2 fewer CRJ200s under Voyageur, and you also changed your CRJ200 from 15 to 8 in your other covered aircraft. Just do you have any color on that as well? Colin Copp: Yes. So I guess, so I'll start with the CRJs at Jazz. That's the planned reduction as part of the fleet reduction down to 80. So those CRJ200s have been parked or inoperative for a while. So there's really not a lot of news there. It's just the movement. And then on the Voyageur side, they've been -- we've talked about 2 aircraft that have been they're earmarking to sell as a result of the removal of the -- or the reduction in the UN and World Food Program business. So that's really what you're seeing in there. It's just more optimization of the capital stack down at Voyageur. Unknown Executive: Okay. Yes, that makes sense. And last thing. So that sounds like a lot of cash is coming in. Can you maybe disclose some of your capital allocation priorities with all that? Gary Osborne: So on the capital allocation priorities, I mean, we've been buying back stock. I think Colin alluded to it over $120 million committed at least with the $50 million SIB, so -- which is due to expire there early next week. So that's certainly a use of capital. We've also got certainly pay down of debt, which has been part of it. And then we've also -- we're looking at growth, and we continue to look through our M&A pipeline, and Colin can speak a bit about that, but it's in good shape, and we're hoping to continue to grow, but also look at return of capital programs like we've had. Operator: Our next question today comes from Jasroop Bains, TD Cowen. Jasroop Bains: Just one question for me. What opportunities do you see for Voyageur beyond 2025? With the release of the Canadian budget, do you guys see any opportunities within there? Any additional color would be helpful. Colin Copp: Yes. It's Colin. So there's significant opportunities. I think we've been kind of alluding to that as we've been going along here with growth side with Voyageur. I think the Canadian budget and the plans that they have there show that there's going to be a fairly big push within Canada to have Canadian businesses grow in that defense sector. So we're heavily involved in that, looking at that quite aggressively. We're really bullish on the growth opportunities there. And when you look at the amount of spending and the existing competitors in Canada that are in that defense sector, there's very, very few. So Voyageur is extremely well positioned, and we fully anticipate some growth here. I can't tell you when. I'd be speculating, but we fully anticipate growth as we move forward in that area. Operator: Thank you. There are no further questions at this time. I will now turn the call over to Matt LaPierre. Please continue. Matt LaPierre: Thank you, everyone, for joining today's call. Please have a good day. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, and welcome to the GigaCloud Technology Third Quarter 2025 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Larry Wu, CEO. Please go ahead. Lei Wu: Thank you, operator, and welcome, everybody, to today's call. This quarter's performance is a strong testament to GigaCloud's resilience and adaptability. Despite the challenges brought by global trade uncertainties, a cooling housing market and wavering consumer confidence, we delivered a robust 10% year-over-year growth, returning to 2-digit increase and setting new records of $333 million in quarterly revenue and $0.99 in quarterly EPS. These results reflect our ability to move fast, stay lean and execute with precision even in the face of macroeconomic headwinds. We're navigating today's environment with confidence, guided by the disciplined execution to our long-term strategy, staying agile, continuing to diversify for resiliency. Our Nova House optimization is delivering fantastic results. strategically adding new products and phasing out underperformers has fueled our first year-over-year revenue growth, since we completed the acquisition. We are excited for the future value that we expect this portfolio to unlock as we continue our optimization effort. As we have discussed many times before, we view our M&A as a part of our long-term growth strategy. Noble House is a powerful validation of the strategy by combining product, channel, vendor resources from Noble House with operational efficiency and transformative marketplace of GigaCloud. We have not only been able to turn a bankrupt company losing nearly $40 million in 2023 to a profitable growing assets in less than 2 years, but also expanded our product line and the channel outreach. This result is exactly why we view M&A as a cornerstone of our long-term growth. As we look forward, this successful playbook gives us tremendous confidence in our strategy to continue unlocking new value for the future. With that said, I'm very excited to share our plan to acquire New Classic Home Furnishing scheduled to close on January 1, 2026. As a traditional brick-and-mortar focused wholesaler, New Classic is a perfect strategic fit for GigaCloud to further diversify our business and reach beyond e-commerce. As many of you know, GigaCloud ecosystem has historically been more concentrated towards e-commerce of big and bulky. This acquisition represents our strategic move to recalibrate our focus, making brick-and-mortar wholesale a more significant and complementary part to our ecosystem, an area we see tremendous opportunities in. We have already proven the viability of our marketplace. The next step of evolution naturally is to bridge the digital and the physical world. For truly channel, agnostic ecosystem that empower buyers and sellers to trade seamlessly with unparalleled reach and flexibility. Executing this next phase of evolution in the current economic climate is a deliberate choice. While no company is immune to macro pressures, our focused execution, strong balance sheet and use of diversification as a hedging strategy allows us to navigate this turbulence more effectively than most, securing competitive advantages today that will fuel our next chapter of growth. To that end, I will now turn the call over to Iman, who will provide more detailed update on the progress we continue to make against our key operational goals. Iman Schrock: Thank you, Larry. Hello, everybody. Our marketplace continues to gain momentum, delivering another strong quarter of growth. For the trailing 12 months ending September 30, 2025, marketplace GMV rose approximately 21%, reaching nearly $1.5 billion, underscoring the scalability and resilience of our platform. Our active 3P seller base continues to expand, up 17% year-over-year to 1,232 with GMV for this cohort climbing more than 24% on a trailing 12-month basis to over $790 million. Buyer growth also accelerated, increasing 34% to 11,419 as more businesses looked for new efficiencies and risk optimization in a challenging environment. Our global revenues increased by 10% in the third quarter on a year-over-year basis. While the domestic U.S. market faced headwinds, our international markets acted as a powerful hedge, driving growth and offsetting domestic softness. Diversification and having a balanced portfolio is a core tenet of our strategy, ensuring we are not overly reliant on any single market. Europe continues to be a powerful growth engine with year-over-year revenues up 70% to a record $100 million, making a major milestone in our global expansion. Our diversification efforts, however, is not limited to geographical expansion. We're also looking to create a more dynamic marketplace supported by a broader range of product offerings and distribution channels. To accelerate this strategy, we leverage M&A to acquire key capabilities. Our playbook has a two-pronged approach, deepening our core capabilities through acquisitions and leveraging our ecosystem to make the acquired assets more efficient, competitive and profitable. Our 2023 acquisition of Noble House is a prime example. It's not just an addition, but a strategic integration that deepens our product catalog and capabilities. We have made substantial progress with our Noble House portfolio optimization. Since last quarter, we have introduced another 2,300 new SKUs and retired 1,100 underperforming SKUs, shaping a more streamlined, high-performing portfolio built to scale. As shared earlier this year, our SKU rationalization efforts have successfully returned the portfolio to profitability, while temporarily impacting our top line. I am pleased to report that in Q3, this disciplined approach has paid off with the portfolio not only maintaining its profitability, but also returning to growth. We have effectively reset our foundation and now reigniting growth from a much healthier foundation. Looking ahead, we plan to build on this momentum. Our strong balance sheet positions us to be highly active and disciplined in pursuing inorganic opportunities that align with our long-term strategic goals, and our pending acquisition of New Classic is a great example of the type of value-creating asset we are looking for. New Classic is a well-respected, long-standing U.S. wholesaler with deep roots in the brick-and-mortar furniture space. The company has over 1,000 primarily brick-and-mortar retailer relationships, over 2,000 active SKUs, a high-performing team and a wide network of vendors that specialize in products tailored for this specific channel. The acquisition is strategically targeted to dramatically widen our distribution and channel reach. By pairing New Classic's network with GigaCloud's marketplace ecosystem and logistics capabilities, we can accelerate growth and unlock new efficiencies. We expect to close the transaction early in the first quarter of 2026 and expect 4 to 6 quarters of strategic initiatives to be reflected in our financial performance. Now I'll turn things over to Erica for a discussion of third quarter financials. Erica Wei: Thank you, Iman, and hello, everybody. A quick note before we get into our results. All figures I cover today are rounded and unless otherwise noted, comparisons are against the same period last year. Now let's take a look at this quarter's results. We delivered a great quarter, including double-digit growth revenue of 10% to $333 million, a new quarterly high. Now let's break this down by revenue streams. Our service revenues declined 2% year-over-year, primarily driven by reduced U.S. ocean shipping and drayage revenues. The uncertainties seen in recent months has resulted in significant declines in the demand for ocean shipping services to the U.S. for many industries. Lower demand has suppressed ocean spot rates, which translates to lowered ocean service revenues for us. U.S. revenue pressures were partially offset by strong year-over-year growth in similar services delivered to our European market sellers. Service margin came in at 9.1%, down 2.3% sequentially, primarily driven by higher last-mile delivery costs in the U.S. following pricing adjustments implemented by some of our ground transportation fulfillment partners. In response, we are actively recalibrating client pricing to reflect these updated cost structures. Total product revenue grew 16% year-over-year, driven by our strong performance of 69% growth in Europe. Growth was partially offset by a 5% decline in the U.S., which is reflective of the challenging macroeconomic pressures in the region. But more importantly, it is a direct outcome of our disciplined strategy. As communicated last quarter, we have implemented targeted price increases to address rising tariff costs. Our strategy is to prioritize margin integrity over pure volume, ensuring the growth we deliver is sustainable and valuable. Our commitment to margin integrity was put to the test this quarter and proved effective. We faced a significant margin headwind from the sale of products sourced in Q2 under tariffs exceeding 100%, which we successfully navigated with strategic price increases, protecting our baseline profitability. Beyond this mitigation, we delivered a sequential product margin expansion of 70 basis points to 29.9% as we grew our higher product margin channels and benefited from lowered ocean shipping costs. For GigaCloud as a whole, gross margin was 23.2% for the third quarter, a 70 basis point sequential decline from the second quarter of 2025. Operating expenses declined 1.7% sequentially to 11%, primarily driven by lower G&A expenses. This is a reflection of lower stock-based compensation this quarter as most stock-based comp is granted and vested in the second quarter of each year. Selling and marketing expenses remained flat sequentially at 8% of sales. This brings net income to $37 million or 11.2% of revenue, an expansion of 50 basis points sequentially. I am also pleased to report a new record for quarterly EPS of $0.99 per share, driven by our team's focused execution and amplified by our ongoing share repurchase efforts. For the third quarter, we generated operating cash flows of $78 million, ending the quarter with total liquidity, which includes cash, cash equivalents, restricted cash and short-term investments of $367 million. We remain debt-free and continue to execute on our capital allocation strategy of pursuing strategic acquisitions such as New Classic, while simultaneously returning capital to shareholders through buybacks. Since the announcement of our $111 million share buyback plan in August, we have executed approximately $16 million in buybacks to date or 15% of our latest plan limit. This brings our cumulative buyback total to $87 million as of date, since our IPO in 2022, and we plan on continuing to execute opportunistically using buybacks as a flexible tool to return value to our shareholders. Finishing with our fourth quarter outlook, revenue is expected to be between $328 million and $344 million. Operator, we are now ready to begin the Q&A session. Operator: [Operator Instructions] Your first question today comes from Tom Forte from Maxim Group. Thomas Forte: Congratulations on the quarter. I have 1 question and 1 follow-up. So you talked about a new M&A acquisition. Can you talk about your thoughts on additional M&A acquisitions? Recently, you've talked about looking for opportunities to expand in Europe and then also looking for opportunities, I think, to add technology, perhaps on the software side, things of that nature. So that's my first question. Lei Wu: Yes. We'll keep looking on different opportunity by focusing on any opportunity that can bring us more product or the fulfillment capability. But right now, I think we're more focusing on concluding -- the closing of New Classic. But our team is definitely concurrently looking for new opportunity, but it's unlikely that this can happen in the coming few months because we'll be focusing on new classes at this moment. Thomas Forte: Okay. And then for my second question, thank you, Larry, for the answer on that one. The good news for the housing market is that the Fed has now had multiple rate cuts. I recognize that the housing market is still very challenged. Do you think any of these rate cuts are starting to translate into greater interest in home merchandise and then the possibility for some sort of sales catalyst over the next 12 months? Lei Wu: Yes. That's -- obviously, this is Larry. We were hopeful about the bouncing back of the housing market, but we're trying to keep ourselves more focused on the execution on a micro level, because we do have the toolbox of more diversified revenue avenue that we can really enjoy the [indiscernible] ability to avoid any kind of reliance on any of the macro positive other factor to happen to really provide the opportunity to grow that we are trying to deliver the growth regardless of what the macroeconomic is doing. Operator: Your next question comes from Joseph Gonzalez from ROTH Capital Partners. Joseph Gonzalez: It's great to see you guys kind of transform Noble Health. I want to see, if you guys can unpack that here a little bit. Is there any chance you can just give us a cadence of how the quarter went and kind of the drivers for that growth there in 3Q? Erica Wei: Thanks, Joseph. Yes, Q3, I think, overall went really well. The main drivers here are Noble Health outperforming in the U.S. and also Europe, it's nothing new, continuing to perform very strongly. Joseph Gonzalez: Got it. And as it pertains to your core business -- like excluding Noble House, any drivers there you'd like to unpack for us as you come out with about double-digit growth in the fourth quarter through your guidance. Just kind of what you guys are seeing in your early innings of 4Q and the confidence there? Erica Wei: I think as of today, we're seeing kind of Q4 going well kind of as expected, and this is reflected in the guidance that we gave just now. And this is, of course, inclusive of the expectation of Europe, which is mostly -- it is entirely organic, continuing to perform strongly, Noble House and then, of course, our original non-acquired parts of the business, all 3 combined. Joseph Gonzalez: It's good to hear you guys are able to navigate during a dynamic environment. We'll go ahead and leave it there. Operator: Thank you. There are no further questions at this time. And with that, that does conclude our question-and-answer session. This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings, and welcome to Orion Properties Third Quarter 2025 Earnings Call. As a reminder, this conference is being recorded. I would now like to turn the call over to Paul Hughes, General Counsel for Orion. Thank you. You may begin. Paul Hughes: Thank you, and good morning, everyone. Yesterday, Orion released its results for the quarter ended September 30, 2025, filed its Form 10-Q with the Securities and Exchange Commission and posted its earnings supplement to its website at onlreit.com. During the call today, we will be discussing Orion's guidance estimates for calendar year 2025 and other forward-looking statements, which are based on management's current expectations and are subject to certain risks that could cause actual results to differ materially from our estimates. The risks are discussed in our earnings release as well as in our Form 10-Q and other SEC filings, and Orion undertakes no duty to update any forward-looking statements made during this call. We will also be discussing non-GAAP financial measures such as funds from operations, or FFO, and core funds from operations or core FFO. These non-GAAP financial measures are not a substitute for financial information presented in accordance with GAAP, and Orion's earnings release and supplement include a reconciliation of our non-GAAP financial measures to the most directly comparable GAAP measure. Hosting the call today are Orion's Chief Executive Officer, Paul McDowell; and Chief Financial Officer, Gavin Brandon. And joining us for the Q&A session will be Chris Day, our Chief Operating Officer. With that, I am now going to turn the call over to Paul McDowell. Paul McDowell: Thank you, Paul. Good morning, everyone, and thank you for joining us on Orion Properties third quarter earnings call. Today, I will highlight the substantial progress in executing on our business plan and provide an update on our ongoing leasing, disposition and acquisition activity for the quarter. Following my remarks, Gavin will review our financial results and improved guidance outlook for the rest of the year. We had another very productive leasing quarter with 303,000 square feet of space leased at a weighted average lease term or WALT of over 10 years and an additional 57,000 square feet signed after quarter end. Our primary focus remains on continuing to enhance the quality and durability of our portfolio and its associated cash flows. One critical metric we use to measure that success is the weighted average lease term for the portfolio, which is now 5.8 years or approaching 6 years. This is a material improvement from the roughly 3.5 years at the time of our spin. This substantial progress reflects the steady execution of our business plan and the increasing stability of our tenant base. Year-to-date through November 6, we have completed 919,000 square feet of leasing, which is in addition to the 1.1 million square feet we leased last year, reflecting the improving market backdrop. Included in the total for the third quarter is a 5.4-year new lease agreement for 80,000 square feet at our Kennesaw, Georgia property that we mentioned on the last call. We also signed several renewals during the quarter, including a 15-year extension with AGCO Corporation for 126,000 square feet in Duluth, Georgia, a 7-year extension with T-Mobile for 69,000 square feet in Nashville, Tennessee and a 15-year extension with the United States government for 16,000 square feet in Fort Worth, Texas. Importantly, rent spreads on lease renewal activity were again positive in the third quarter, up over 2% for renewals and over 4% for total leasing activity. Overall, leasing momentum remains constructive heading into year-end and 2026. Our pipeline, which includes transactions in both the discussion and documentation stage, is over 500,000 square feet and includes several longer duration renewals and new leases with terms greater than the average of our portfolio. Orion's operating property occupancy rate was 72.8% at quarter end as compared to 73.7% at December 31, 2024. The year-to-date change is impacted by lease rollovers during the year and resulting vacancies we are holding on the balance sheet, which we intend to sell or lease in the reasonably near term. Adjusted for operating properties that are currently under agreement to be sold or have been sold since quarter end, our property occupancy rate would be 74.5%. We continue to expect that our portfolio occupancy will rise materially next year and even further the next as we lease space, sell vacant properties and selectively recycle capital into new assets. When talking about our occupancy expectations, it's important to note that our heavy lease rollover has improved markedly year-over-year. For example, in 2026, we have only $10.8 million of rent subject to rollover as compared to $39.4 million of rent that was subject to rollover risk last year in 2024. As further evidence of our active business plan execution, so far this year, we have closed on the sale of 7 vacant or soon-to-be vacant properties and 1 stabilized traditional office property totaling 761,000 square feet for a gross sales price of $64.4 million or about $85 per square foot. We also have agreements in place to sell another 4 properties, including 3 vacant or soon-to-be vacant properties and 1 stabilized traditional office property totaling over 500,000 square feet for $46.6 million or about $92 per square foot. These transactions are expected to close in the fourth quarter of 2025 and first quarter of 2026. Combined, that is close to 1.3 million square feet with gross proceeds of more than $110 million. Collectively, we have sold 27 properties since the spin, totaling 2.7 million square feet, which equates to more than 25% of the inherited portfolio's rentable square feet, saving an estimated $39 million of cumulative carry costs. Even with all this progress, we continue to evaluate our portfolio with particular focus on obsolete buildings and those assets requiring substantial capital investment. This includes the former Walgreens campus in Deerfield, Illinois, where we are close to completing the demolition of the outdated office buildings, and we expect to sell the 37.4-acre site in the coming quarters. 2025 marked a year of accelerating portfolio transformation, which positions us well for next year and beyond. We believe the sale transactions we've completed and are continuing to work on provide very attractive exit points for these properties and avoid the uncertainty and significant capital investment and carrying costs to retenant the assets. The stabilized asset sales we have announced will also allow us to continue to shift our portfolio away from traditional office properties. These transactions demonstrate our continued ability to monetize noncore assets and redeploy capital while improving the overall quality and durability of our remaining portfolio as demonstrated by our increasing WALT. We are also evaluating a number of opportunities to recycle the proceeds from our disposition activity as we continue to shift our portfolio concentration away from traditional suburban office properties and towards dedicated use assets or DUAs, where our tenants perform work that cannot be replicated from home or relocated to a generic office setting. These property types include medical, lab, R&D flex and non-CBD government properties, all of which we already own. Our experience is that these assets tend to exhibit stronger renewal trends, higher tenant investment and more durable cash flows. We are continuing to look carefully at limited targeted acquisitions of DUAs to recycle capital, stabilize rental revenues, increase portfolio WALT and further enhance portfolio quality. At quarter end, approximately 33.9% of our portfolio by annualized base rent and approximately 24.6% by square footage were DUAs, and this percentage will increase over time through disposition activity and targeted acquisition. Orion has also been very proactive in managing leverage while maintaining significant liquidity to support our ongoing leasing efforts. To do so, we have sold vacant properties, used sale proceeds and cash flow to pay down debt, manage G&A, have been highly selective on acquisitions and aligned our dividend policy. As a result, our net debt to annualized year-to-date adjusted EBITDA was a relatively conservative 6.7x at quarter end. We will continue disciplined execution focused on portfolio stabilization and enhancement with the goal of further unlocking long-term value, which we believe will make Orion attractive to investors and potential strategic partners alike. We've made very significant progress derisking the portfolio and executing the business plan this year with a portfolio WALT now approaching 6 years, more than 900,000 square feet of leasing and 12 properties sold or under contract for sale totaling 1.3 million square feet for over $110 million. Net of lease-related termination income, we believe 2025 should be the bottom for core FFO per share and that next year and subsequent years should show accelerating earnings growth, coupled with rising occupancy. With that, I'll turn the call over to Gavin. Gavin Brandon: Thanks, Paul. Orion generated total revenues of $37.1 million in the third quarter as compared to $39.2 million in the same quarter of the prior year. Core FFO for the quarter was $11 million or $0.19 per share as compared to $12 million or $0.21 per share in the same quarter of 2024. Core FFO results for the year-to-date 2025 period were $33.1 million or $0.59 per share and include approximately $0.05 per share of lease-related termination income. Included in the $0.05 per share is $0.02 per share associated with the simultaneous sale and early lease termination of a traditional office buildings in Fresno, California. We will recognize an additional $0.03 per share of lease termination income from this transaction in the fourth quarter. Adjusted EBITDA was $17.4 million versus $19.1 million in the same quarter of 2024. The changes year-over-year are primarily related to vacancies, a smaller portfolio and timing of leasing activity. G&A in the third quarter came in as expected at $4.6 million compared to $4.5 million in the same quarter of 2024. CapEx and leasing costs in the third quarter were $18.3 million compared to $6.1 million in the same quarter of 2024. The increase in CapEx in the 2025 period was driven by the acceleration in leasing activity. As we have discussed previously, CapEx timing is dependent on when leases are executed and work is completed on properties. We expect to allocate more capital to CapEx over time as leases roll and new and existing tenants draw upon their tenant improvement allowances. Turning to the balance sheet. At quarter end, we had total liquidity of $273 million, comprised of $33 million of cash and cash equivalents, including the company's pro rata share of cash from the Arch Street joint venture and $240 million of available capacity on the credit facility revolver. We intend to maintain significant liquidity on the balance sheet to fund expected capital commitments to support our ongoing leasing successes and provide the financial flexibility needed to execute on our business plan for the next several years. We ended the quarter with net debt to gross real estate assets of 33.4% and total outstanding debt of $508.9 million, including our nonrecourse $355 million CMBS loan that is a securitized mortgage loan collateralized by 19 properties maturing in February 2027. $110 million of floating rate debt on the credit facility revolver maturing in May 2026, $18 million under the mortgage loan for our San Ramon property maturing in December 2031 and $25.9 million, representing our share of the Arch Street joint venture mortgage debt maturing in November 2025. The joint venture has exercised the option to extend this debt obligation for an additional 12 months until November 2026 and the lenders are in the process of confirming all extension conditions have been met. We further reduced our borrowings under the credit facility revolver to $92 million during October. Regarding our credit facility revolver, as mentioned, the scheduled maturity date for this obligation is in May 2026, and we have no remaining extension options. We continue to have productive discussions with our lenders about extending and/or refinancing this debt obligation in keeping with our current business plan, and we fully expect to be successful. Extending and restructuring our credit facility continues to be among our highest priorities, and we will share updates on our progress on this front in future quarters. There are additional disclosures regarding our credit facility in our Form 10-Q. On November 5, 2025, Orion's Board of Directors declared a quarterly cash dividend of $0.02 per share for the fourth quarter of 2025. Moving to guidance. We are improving our outlook for core FFO, net debt to adjusted EBITDA and G&A in 2025. We are raising our full year core FFO guidance to a new range of $0.74 to $0.76 per share, up from our prior range of $0.67 to $0.71 per share. The increase is primarily caused by lease termination income from a negotiated early termination of the lease at our Fresno property in conjunction with the property disposition. The termination payment was agreed to in the third quarter, and the income will be straight-lined through the disposition date, which occurred in October, and we will generate approximately $0.05 per share of lease termination income for 2025. We are also improving our outlook for net debt to adjusted EBITDA which is now anticipated to range from 6.7x to 7.2x, down from 7.3x to 8.3x. The improvement is primarily driven by our continued net debt reduction efforts through expected property disposition proceeds as well as the lease termination income I discussed earlier, benefiting adjusted EBITDA. Lastly, we are improving and tightening our G&A range to $19.5 million to $20 million from $19.5 million to $20.5 million. While we are not providing formal 2026 guidance yet, we do expect 2025 to represent a trough for our core FFO, excluding a total of $0.08 per share of 2025 lease-related termination income as our recent leasing and capital initiatives begin to translate into improved recurring earnings next year and beyond. With that, we will open the line for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Mitch Germain with Citizens Bank. Mitch Germain: Just I want to talk about some of the puts and takes of guidance. You get the benefit of the lease term income, you're selling some vacancy, which helps with some of the expense drag, though it seems like in effect, if I look at last quarter, the lease term income actually went down. So just maybe kind of describe some of the puts and takes that helped you kind of shape where your outlook is today. Paul McDowell: Gavin, do you want to take that? Gavin Brandon: Mitch, Yes. So the lease termination income was a result of the negotiated termination settlement with one of our tenants in the Fresno building. The puts really is driven by that and then as well as our leasing efforts that are taking place in the fourth quarter and the third quarter of leases that we signed in the prior year and the prior quarter as well for the free rent bridge now coming to an end. And then from an interest perspective, our interest rates are coming down, and so we're not paying as much interest expense. So we believe that, that also helped us in the fourth quarter. Mitch Germain: Okay. Your leasing pipeline went down quarter-over-quarter. Does any of that have to do with some execution? Obviously, a little bit of a smaller portfolio as well. Is there anything that we should be thinking about behind that with regards to demand? Paul McDowell: Well, I think it's a couple of things, Mitch. The answer is no on the demand scale. We've seen continued improved demand for our properties. So we feel pretty good about that. Some of it is exactly what you just mentioned, that is some of the properties that we talked about on the last call that were sort of in the pipeline have -- we've now got leases signed up. And I think the second thing is that's a little different is we have less rollover coming next year. So we have a somewhat smaller portfolio. We've been selling vacancy, and we have less expected vacancies for next year. So all that combines to probably shrinking the pipeline slightly. But the pipeline we do have, we feel pretty good about. Mitch Germain: Got you. Last one for me. You did one acquisition last year. Obviously, you want to change the composition of the types of assets that you're owning over time. It's not going to be an overnight thing. Curious about the pipeline of deals. Are you seeing deals? And is pricing and demand, what could be slowing your ability to acquire here? Maybe just provide some perspective, please? Paul McDowell: Yes. Well, I think that on the first -- on the last part, we are seeing a pretty strong pipeline of potential transactions. Of course, we are highly sensitive to a number of factors, pricing being probably the biggest one, of course. But then, of course, it's property location and lease duration. So it's a -- it's a little like Goldilocks. We kind of got to find the right temperature for the acquisition that we're looking for. But we do see some good transactions. We're being highly selective, but we do think it makes sense for us to recycle some of the capital -- some of this capital into new assets with long-duration WALT's and with higher quality cash flows. We're just not going to do it willy-nilly. We're going to be highly selective. We expect to add some assets in the next 12 months, but it will not be -- it will be a relatively modest number. Operator: Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. McDowell for any final comments. Paul McDowell: Thank you all for joining us today, and we look forward to further updating you in the months and quarters ahead. Thank you. Goodbye. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, ladies and gentlemen, and welcome to Amadeus Third Quarter 2025 Results Conference Call. [Operator Instructions]. I would now like to turn the conference over to Luis Maroto, President and CEO of Amadeus. Please go ahead. Luis Camino: Good afternoon. Welcome to our Q3 results presentation, and thank you for attending today. I'm joined by Caroline Borg, our CFO. So let's begin. We'll start on Slide 4. Amadeus had a strong third quarter full of momentum, which drove revenue growth acceleration and margin expansion. Year-to-date, group revenue has grown by 8% and adjusted EBIT increased by 9%, both at constant currency. Our prospects remain strong, and we entered the last quarter of the year with confidence to deliver on our outlook for the year. Amadeus is a B2B technology partner of reference in travel, and it is deeply integrated into the travel ecosystem. Many of the world's most important travel players leverage on us for their core technology. In the quarter, we continued to span our relevance. We grew our customer relationships with airlines, hotels, travel sellers and airports. We won new customers across our portfolios and broaden our offering. We are pleased to announce we have won the Ascott Limited as a new customer for Amadeus Central Reservation System in hospitality. Ascott is Singapore based and its portfolio expands more than 230 cities in over 40 countries through Asia, EMEA and North America. ACRS market leading attribute-based selling capabilities will empower Ascott to deliver uniquely personalized merchandising, enhance guest experiences and drive growth across its portfolio. The current scope of our ACRS agreement covers Ascott's global portfolio, excluding Quest-branded properties and those located in China. Further expansion is expected as Ascott continues to execute its global growth strategy. Investing for the future has been key to our success. In the year, we have deployed over EUR 1 billion in R&D into our solutions, technologies and capabilities to extend our reach in travel and to further connect the travel ecosystem. Today, we want to take the opportunity to serve some further insights into how we are leveraging AI to generate further opportunities. As you know, as a leader in the travel and technology space, we have been evolving and applying AI into our products and solutions for almost 20 years. Our journey began with operations research, machine learning continued with deep learning and introduction of generative AI, revolutionizing essential functions like flight scheduling and search, airport resource management, passenger disruption handling and revenue management systems. We use AI to optimize airplane usage to reduce the impact of disruption on passengers, to improve hotel occupancy forecasting and to improve the creation of shopping recommendations among others. We use AI at an enormous scale. We have been investing for an AI-driven future, and we are building the technological foundations to excel at Agentic AI in travel. As we complete our cloud transformation, we are also creating the first data mesh in travel, a trusted industry data source with several insights across domains and solid governance. For the potential of Agentic AI to be realized across travel, this is key. We are embedding Agentic AI as a capability of our platform for the benefit of our portfolio and we are uniquely placed to infuse Agentic AI across the travel ecosystem in the years to come. At Amadeus, we are also leveraging on strategic partnerships with world-leading technology players to boost our strengths. We are focused on our strategic partnership with Microsoft and Google to propel our AI innovation, deploy effective multi-public cloud operations and develop unique business collaborations. Garv is a recent example of AI co-innovation. Garv is an AI agent built on top of our airport data platform. Airport employees with Microsoft teams can ask questions using natural language and Garv reasons through problems, make decisions and learns from experience. Please turn to Slide 5 now for a strategic update. Amadeus is leading the airline retailing transformation with Nevio, our AI powered next-generation airline IT platform. Nevio's leading capabilities are being recognized by existing and prospective customers, increasing our competitive advantage and further deepening our customer proximity. Nevio has a distinct value proposition. It allows us to offer our customers the possibility of doing much more, and it also allows Amadeus to better attract new customers, thanks to its modularity. We are active in numerous RFPs. We continue to advance negotiations and we aim to expand our group of Nevio customers. In the quarter, we continued to deliver new Nevio capabilities. Finnair has introduced a significant step in airline retailing becoming the first airline to launch native ancillary combos, powered by Amadeus Nevio product catalog. This is part of our offer management offering and consolidates our products and services into one catalog. It is a single repository for all content that an airline can offer to travelers. These products and services can then be provided by the airline directly or by third parties, and they can be offered individually or bundled into an offer tailor to the traveler, and they can also be self-service purchases by the traveler. In hospitality, we have become a leading IT provider to the hospitality industry. We believe the Amadeus platform offers the most comprehensive portfolio of core capabilities to the hotel industry and is the most probably connected ecosystem of partners. We are uniquely placed to address industry needs and expand in this large and growing market. We are progressing well with the implementation of Marriott International and Accor to the Amadeus hospitality platform. The first Marriott International properties are now live in -- on ACRS and progressing well with more to be rolled out around the world over the next few months. Feedback on capabilities has been positive. InterContinental Hotel Groups, MGM, Marriott International, Accor and now the Ascott Limited, we are creating a global community platform of world-leading hotels and a mission to transport relationships with guests. Amadeus' travel platform is a platform that enables travel providers around the world to retail through third parties everywhere on the globe. This quarter, we expanded its reach by adding new travel sellers and increasing our share of wallet with existing travel seller customers, for example, with Trip.com. We also expanded the content bookable on our platform, for example, with low-cost carrier flyadeal, enhancing the platform's attractiveness. We also continue to sign new NDC agreements. Our goal is to become the undisputed aggregator of NDC content and we believe Amadeus has the most advanced and compressive NDC technology in the industry, and we aim to do NDC at scale. Finally, regarding our technological capabilities, including AI, Agentic AI promises to transport travel in positive ways, bringing increased personalization to travelers as well as productivity and efficiency gains across the value chain. We are uniquely placed to deliver Agentic AI functionality into our installed customer base and into new customers. Amadeus can build solutions for the travel industry that others cannot easily replicate. Our technology is natively integrated into travel players covering critical end-to-end flows and managing vast amounts of extensive data in travel. We have identified over 500 potential use cases whereby applying generative AI, we can bring value to our vast customer base through the announcements of our products or the creation of new ones as well as for internal efficiencies. We are enhancing our solutions together with our customers with very positive feedback. Some that had been launched already are Cytric Easy AI assistant for employees to plan and book personalized corporate travel with the Microsoft teams, Amadeus Advisor for leveraging business intelligence in hospitality. We have trained and deployed several productivity boosting AI agents for travel sellers on top of our selling platform, Connect. We are additionally investing in call center automation for airlines. We have received huge interest for this and it is a clear opportunity for all travel providers and travel sellers to gain efficiency and productivity at call centers. We are expanding our hospitality platform as well with Ascott for an AI automated call center powered by Amadeus and Salesforce. And we are also actively engaging with AI platforms to assess how we can best serve them within the travel industry. Please turn to Slide 6 for our most recent developments in Air IT Solutions. We continue to see great success in revenue management through the quarter. Amadeus innovative modular AI power and data-driven revenue management technology enables customers to optimize pricing, enhance operational efficiency and respond dynamically to market changes. Qatar Airways, Vietnam Airlines and Jazeera Airways have contracted for Amadeus Revenue Management solutions. Also as part of its acceleration towards modern retailing, Singapore Airlines has implemented Amadeus Dynamic pricing. We expanded our Altéa customer base in Asia with both Sun PhuQuoc Airways and Air Borneo contracted for our Altéa PSS. Several customers expanded the scope of solutions adopted from our portfolio, including Wizz Air, Aeroitalia, Malaysia Airlines, FireFly and Air Sial. In Airport IT, we continue to deliver innovative solutions. As I previously mentioned, we introduced Garv, an AI agent that enables better decision-making. Also together with Lufthansa, we successfully tested the biometrics enabled EU Digital Identity Wallet. This is an initiative led by the EU Commission that aims to have a digital version of EU ID, passport and driving license in an EU Digital Identity Wallet by the end of '26. We also have commercial wins with customers such as Manchester Airport, Changi Airport, Aeropuertos Mexicanos and Alyzia Handling who added solutions from our portfolio. Moving on to our volume performance in the first 9 months of the year, Amadeus PB grew by 3.7% or 4.3%, we exclude the leap year effect in the base driven by the global traffic evolution in the period, supported also by the Vietnam Airlines implementation, which slapped in [ April '25 ]. All of our regions, excluding North America reported solid growth. Asia Pac was our fastest-growing region, reporting 8% PB growth. In North America, Amadeus PB evolution was impacted by soft performance of some of our customers in the region. Western Europe and Asia Pac were our largest regions. In the third quarter, Amadeus PB grew 2.2%, moderating slightly relative to quarter 2, mirroring global traffic growth but with an improving trend within the quarter. You will see PB volume growth moderation in the quarter was more than offset by revenue growth by an accelerating revenue per PB. In the first few weeks of October, we have seen our PB volume growth trending ahead of quarter 3. Slide 7 for our developments in hospitality and other solutions. In the first 9 months of the year, the segment's revenue grew 8% at constant currency, supported by positive trends and evolutions by new customer implementation and increased volumes at both hospitality and payments, particularly in quarter 3, which supported revenue growth acceleration in the quarter. We have commercial wins in the third quarter across our business domains. I was saying before, we are pleased that the Ascott Limited has contracted for Amadeus Central Reservation System, represents a step forward in Amadeus' journey to transform the hospitality industry through its ACRS community and it demonstrates the value of our open and scalable technology for hoteliers of different sizes and needs. We'll also span our hospitality platform with Ascott with our AI power automated call centers for hoteliers. Our Business intelligence solutions continue to attract new customers, such as EOS Hospitality and Scandic Hotels. Our Business Intelligence solutions include Amadeus Advisor and AI agent designed to simplify that access and empower hoteliers with smarter insights to drive more informed decisions. Further on the AI front in hospitality, we have built an AI power solution within meeting broker to automate and accelerate hotelier's responses to group and events RFPs. Trip.Biz part of Trip.com Group expanded its hotel distribution agreement with Amadeus to support its continued growth outside of China, and Abu Dhabi's Department of Cultural and Tourism, and Adeera Hotel Group based in Saudi Arabia are adopting Amadeus Digital Media Technology. In the quarter, we expanded our partnerships. We have partnered with Shiji, a global provider of hospitality technology solutions to offer hotels a combined offering, including industry-leading reservation, property management, guest experience solutions through a single provider. We have also partnered with Sensible Weather, the leading weather warranty provider for travel and hospitality to integrate automatic reimbursement capabilities for unexpected adverse weather conditions into the Amadeus iHotelier Central Reservation System. In payment, Outpayce has made progress in scaling our payments offering. We have initiated the issuing of prepaid virtual cards and implemented various new customers such as HBX Group, who are now in production. Also Sweden-based tour operator Sembo and Hong Kong-based Junting Travel has expanded their B2B wallet agreements with Amadeus. Please turn to Slide 8 for our distribution highlights. During the third quarter, we signed 14 new contracts or renewals of distribution agreements with airlines, including low-cost carrier flyadeal, taking the total to 43 for the first 9 months of the year. To date, we have signed 75 NDC agreements with airlines, including Riyadh Air in the third quarter and 35 airline services in content accessible to the Amadeus travel platform. We had great commercial developments with major travel agencies. We expanded our travel seller customer base with travel management companies such as Corporate Information Travel in Malaysia an UOB Travel in Singapore as well as with leading French tour operator Voyageurs du Monde. All of these travel sellers will benefit from access to the broadest range of travel content, including NDC. We strengthened our relationship with online travel agencies such as Trip.com, which expanded its agreement with us and Fareportal, which continues to scale its NDC option through the Amadeus travel platform. Retail travel agency, Internova Travel Group and tour operator Cercle de Vacances expanded their partnership with Amadeus to also include NDC content. To review our volume performance in the first 9 months of '25, Amadeus bookings grew by 2.7% or 3.1%, excluding the leap year effect supported by continued commercial gains across regions most notably in Asia Pac, which was our fastest-growing region, growing 12% over prior year. In third quarter, Amadeus booking growth accelerated to 4% from a softer Q2 growth backed by a more stable overall global environment compared to first half. Growth accelerated across most regions, particularly the Middle East and Africa, Asia Pac and Western Europe. The volume growth acceleration in the quarter offset the expected moderation we saw in revenue per booking growth in quarter 3, which can sometimes be lumpy. And to the first weeks of October, we have seen a moderation in our booking growth relative to quarter 3. With this, I will now pass on to Caroline to review our financial performance. Caroline Borg: Thank you, Luis. I'm delighted to be presenting our strong Q3 results today. So please turn to Slide 10 to review our solid financial performance to date with high single-digit revenue and adjusted EBIT growth at constant currency coupled with steady free cash flow generation, reinforcing our expanding relevance in travel. Given that the first 9 months of the year, the U.S. dollar has depreciated significantly in relation to the euro, we are displaying our performance of revenue, EBITDA, adjusted EBIT and free cash flow versus prior year also at constant currency to facilitate understanding of Amadeus' underlying financial performance. More details on our exposure to FX on our constant currency calculations as well as complete information on our IFRS figures and their evolution are available in the appendix of this presentation and in the Amadeus' January to September 2025 management review. In the first 9 months of the year, we've delivered strong growth across many of our key financial metrics. Revenue of EUR 4,895 million, 8% growth at constant currency, 6% reported growth. Operating income of EUR 1,420 million, 8% reported growth. Adjusted EBIT of EUR 1,471 million, 9% growth at constant currency, 8% growth reported. Profit of EUR 1,088 million, 10% growth and diluted EPS at 11% growth. Adjusted profit of EUR 1,109 million, 8% growth and diluted adjusted EPS of 9% growth. Free cash flow of EUR 955 million and expected 2% below prior year. Leverage at 0.9x net debt to the last 12 months EBITDA as at the end of the period. And as you know, we've been ongoing -- we have an ongoing share repurchase program for a maximum investment amount of EUR 1.3 billion, which I can announce just completed yesterday. Our 2025 outlook at constant currency remains unchanged. So now let's go to Slide 11 for our revenue evolution at constant currency. Our group revenue grew by 8% as a result of revenue expansion across all of our segments. Air IT Solutions revenue growth of 7.9% was driven by the PB volumes that Luis has just described previously and a 4% higher revenue per PB, which is fundamentally resulted from positive pricing impacts from new agreements and renegotiations, upselling of our incremental solutions, including those from Nevio and inflation. And in addition to that, we delivered strong growth of our airline expert services and our airport IT businesses. These effects were partially offset by a negative platform mix as Navitaire New Skies outperformed Altéa. We expect that revenue per PB growth to moderate in Q4 relative to Q3. Hospitality and Other Solutions revenues grew 8.1%, which was largely driven by the hotel IT, hotel distribution and business intelligence domains, supported by customer implementations and increased volumes. As we communicated in H1, Digital Media revenue growth showed an improvement in Q3. Revenue growth was also driven by payments where both our merchant services and payout services businesses expanded notably. As we have communicated previously, we expected revenue growth for this segment to accelerate into the second half of the year. In Q3, we have delivered faster revenue growth relative to the prior quarter, and we expect this growth to continue to accelerate again in Q4. Air Distribution revenue growth of 8% was driven by the booking evolution that Luis has just described previously, coupled with a strong revenue per booking growth of 5.2%, primarily resulting from positive pricing effects, including contract renewals, new agreements and inflation. As Luis mentioned, these effects can be lumpy in nature. And as we communicated in our half 1 results, revenue per booking growth in Q2 was exceptionally high with revenue per booking growth in Q3 moderating as expected and we expect that moderation to continue into Q4. So now let's go to Slide 12 for a review of our adjusted EBIT evolution. At constant currency, our adjusted EBIT grew 8.7% resulting from the 8% revenue evolution discussed on the previous slide. And in addition, our cost of revenue growth of 3.1% is fundamentally driven by an increase in transactions such as in air distribution and hotel distribution bookings and in payments due to the B2B wallet expansion. Reported fixed cost growth of 8% mostly resulted from, firstly, an increase in resources, particularly in our R&D activity, coupled with a high unitary cost. Secondly, higher cloud costs due to a combination of our own volume growth and also to our progressive migration of solutions to the public cloud as we continue to mature. And thirdly, to the Vision-Box consolidation impact in Q1. Fixed cost growth is expected to moderate in Q4 relative to Q3. Ordinary D&A expense increased by 4.2% as a result of higher amortization of internally developed software, partially offset by a lower depreciation expense at our data center given the migration of our systems to the public cloud. At constant currency, EBITDA margin was 39.1%, slightly below prior year, and adjusted EBIT margin was 29.8%, a small expansion versus last year. So now on to Slide 13 for a review of our adjusted profit evolution. Adjusted profit grew by 8.2% as a result of our adjusted EBIT growth, lower net financial expenses and higher taxes than last year. Diluted adjusted EPS grew by 8.9% in the period. Net financial expenses declined driven by lower average gross debt and cost of debt and taxes increased as a result of higher taxable income and a higher effective tax rate at 22%, which was impacted by the changes in local tax regulations and lower tax credits expected for the year. Adjusted profit evolution in Q4 2025 will be impacted by the unusually low effective tax rate that we had in the same period last year, Q4 2024, resulting from positive effects coming from previous years compared to the 22.1% tax rate expected for Q4 2025. Now on to Slide 14 to review our R&D and capital expenditure. As Luis was saying before, reinvesting into our business is the #1 priority for us. To evolve our technology capabilities and solutions for the benefit of our customers is something we are proud of, and it is hugely important to continue to enrich the competitive advantages we have built through the years of leadership in travel. At September, our year-to-date R&D investment grew by 10.6%. Half of our investment was dedicated to the expansion of our portfolio and the evolution of our solutions and AI capabilities, including Amadeus Nevio, Navitaire Stratos for airlines, our hospitality platform, NDC technology for airlines, travel sellers and corporations and solutions for our airports and payment services. 1/4 to 1/3 was dedicated to customer implementations across our business such as Marriott International and Accor for ACRS, our new Nevio customers, as Luis was previously saying and airline portfolio upselling, and customers implementing NDC technology as well as efforts related to bespoke consulting services provided to our customers. The remainder was dedicated to our migration to the cloud and our partnerships with Microsoft and Google as well as the development of our internal technology systems. In the 9-month period, our capital expenditure increased by EUR 80.5 million or 15.3%, mainly driven by higher capitalizations from software development. Capital expenditure represented 12.4% of revenue in the first 9 months of the year. And now on to Slide 15 for a review of our free cash flow generation and net debt evolution. In the first 9 months, we generated EUR 955.2 million of free cash flow. Free cash flow was slightly below our prior year by 2.1% as we expected and as a result of increase in our capital expenditure, as I just previously discussed, deployed to elevate our portfolio of solutions and to strengthen our value proposition. We also had an increased change in working capital outflow and taxes, partially offset by our EBITDA expansion and a reduction in interest payments backed by lower gross debt and cost of debt versus prior year. In Q4 and the full year free cash flow growth will be impacted by nonrecurring tax collections that increased free cash flow in 2024 by EUR 107 million in Q4 and EUR 116.2 million in the full year, as we described in the full year 2024 management review. Net debt amounted to EUR 2,219.9 million at the end of September, EUR 108.6 million higher than at the end of December due to the acquisition of treasury shares under the share buyback programs, including our ongoing EUR 1.3 billion program, which, as I said previously, has just completed as well as the dividend payment and a small acquisition in the Travel Intelligence space, partially offset by our free cash flow generation and the conversion of bonds into shares. Our leverage is 0.9x net debt to EBITDA as at the end of September. And finally, please turn to Slide 16 for our current views on 2025. In the first 9 months of the year, we've delivered steady and profitable growth, demonstrating the resilience and diversity of our business. We entered the last year of the year with confidence to deliver our group results within our 2025 outlook guidance range at constant currency, with revenues growing at the lower end of the range and EBITDA and adjusted EBIT growing faster than revenues. With that, we have finished the presentation, but before we open to questions, I'd like to share that this year we'll be presenting our full year 2025 results in person in London at the London Stock Exchange. We will be publishing a save the date on our website and circulating the information soon. We look forward to seeing you there. With that, we can now open the call to take any questions. Operator: [Operator Instructions]. We'll take our first question comes from Alex Irving with Bernstein. Alexander Irving: Two from me, please. First, on our distribution. Do you see the LLM, ChatGPT and so on, becoming a major distribution channel for airlines? And what steps are you taking to position for this? Second, if you do see this becoming an important channel, then does this create the ability for airlines to reduce their dependence on GDSs given the LLMs should have both the scale and the technological competence to plug directly into airline APIs. And would you expect airlines to offer content parity with GDS channels or to advance their own channels when selling through LLMs? Luis Camino: Okay. Look, let me see how I see things. Of course, we will need to see how things evolve. But you know the travel space is complex. There is a lot of content fragmentation that in my view, needs to be aggregated and standardized and if we also think about the transition to offer an order and dynamic pricing capabilities, this will even add more complexity in the future in the way to really connect to travel providers and to really get the content. So whoever wants to consume travel, we'll need to work in my view, with people that can provide this content in a perfect way. I mean we are not just talking ourselves. We are talking about the need to be service and we also need to see that the look-to-book ratio is reasonable. You know that with NDC is already a challenge in terms of the number of transactions per booking. And with AI, this could be even more costly. So based on all that, we don't believe the goal of the AI platforms will want to become merchants, to be content aggregators and deal with all this complexity, we feel that these platforms will need real-time pricing, not static content. And you have seen many of them reaching today agreements with online TAs to get this content. So yes, there will be changes. This is a constant in our industry. We will target that as an opportunity. I mean, as you probably know, we are the largest provider of airline.com engines. We are the largest processor of online travel agency, and we work a lot with metasearchers. So this is -- the metasearch was also something that appear and we work with the majority of them. So our goal really is to keep our role. Of course, as an IT provider. And as I mentioned during my presentation, we have a lot of cases. This is going to be normal for any technology company, and we also feel in distribution we can play a role to orchestrate what is coming. And yes, the AI platforms will be a new channel of getting into the final booking, and we are engaging with them as we do with the metasearches to see how we can play a role. So we feel quite confident about that, but also we need to see how things evolve in the future and what is the final intent of the AI platforms. Operator: The next question comes from the line of Adam Wood with Morgan Stanley. Adam Wood: Maybe first of all, you made an interesting comment about the opportunity in call center automation. Maybe first of all, could you just talk a little bit about how far along you are from a technology point of view on that? And then maybe more importantly, from a strategy point of view, I guess that's a very labor-intensive industry today. It's not going to be a technology replacement cycle immediately. There's going to be a need to move from one to the other. I guess you don't want to hire a lot of labor to help manage that transition. So can you just talk a little bit about what the strategy is to help people move from your labor incentive call center operation to one that could be powered by your technology. And then secondly, we're obviously seeing flight restrictions in the U.S. Would that be included in the guidance range that you've given? Or would that potentially create downside if that was to persist through the end of the year? Luis Camino: Okay. Again, we don't know what will be the impact in the U.S. But with our current figures year-to-date, I mean, we feel confident we can manage I mean again, it depends how things evolve, but it's already assuming that in the U.S., there may be some impact. As you know, we have more or less 20% of our volumes in the U.S., less in PBs. Hopefully, this will be short. But again, I think an impact may happen. Of course, this may impact us in that part of the world, but we expect to be within the range that we have provided to you. With regards to the call center automation, we are working in pilots and working very closely with customers. We believe this is an opportunity. Again, I mean, is not new to us because we have been delivering technology on this front, and there will be a transition to things that we are delivering, both for our customers, but also internally in the way we operate. So we are quite advanced in working with airlines. And of course, in many cases, we are in pilot mode. In other cases, we have launched the technology, but all that is moving well. That's what I can say. Operator: The next question comes from the line of Sven Merkt with Barclays. Sven Merkt: Maybe one on hospitality. Obviously saw a very good improvement in growth in the third quarter, and there are reasons to believe that we should see a further improvement in Q4. That said, you still need a substantial acceleration in the fourth quarter to hit the low end of the full year guidance. And therefore, it would be great if you could comment on your confidence on getting there? And then secondly, could you please give us an update on the cloud migration. Is there anything you can say more precisely when this will be completed? And what impact we need to take into account in our cost and cash flow modeling for the upcoming quarters? Caroline Borg: Yes. Great. I can take both of those. So let's start with the hospitality acceleration. We've seen well, firstly, we mentioned that half 2 would accelerate beyond half 1. We also mentioned that we would be starting to see some recovery in our media slowdown from half 1. So elements of our hospitality business that have really benefited in the Q is our Hospitality Distribution business. As I said, recovery of Media, our Business Intelligence operations and our operations in payments around our merchant services and our B2B Wallet. So we've been very pleased with the improvement and the growth in hospitality. And we do expect that to continue to accelerate into the future -- into Q4, particularly. We also mentioned, Luis mentioned our implementation of Marriott, and we're starting to see that ramp up come through within Q3 and Q4. So we do feel confident in our Q4 projection for hospitality to continue to accelerate its growth. With respect to your cloud migration cost, we are in the high 90s percent complete, I think about 96% complete. We expect to complete early in 2026 and we're starting to see the evolution of our cost base as we transition through our cloud migration. It is true that there'll be some costs that we will not recur once we move to the cloud migration. Those costs are costs that are purely related to the migration activities. But given our ethos of reinvesting ourselves into our solutions and product offerings, we expect to redeploy a lot of those people into other activities. So the impact, we will see fixed costs growth moderating, continue into Q4, but the impact will not be that big from the cloud migration per se in terms of cost evolution. Operator: And the next question comes from the line of Toby Ogg with JPMorgan. Toby Ogg: Perhaps just on the growth side. So you've been running at 8% year-to-date ex FX revenue growth so far, and you're continuing to steer towards the lower end of the 2025 growth guidance. Just thinking about the midterm growth guidance of 9% to 12.5% growth CAGR that, I think, implies that growth next year should accelerate. Could you just give us a sense for how confident you are around that acceleration? And then what gives you that confidence? And then just secondly, just on the comments around the first week of October. You mentioned an improvement in the PB growth versus Q3, but a moderation in the air bookings growth versus Q3. We're now a week into November. Is there any color that you can share just on how those metrics have been trending through the remainder of October? Luis Camino: Okay. Look, it's -- again, there are seasonality matters. What we have seen overall is that October was a bit weaker. But again, there are some seasonality effects, mainly in Asia Pac as we had in India, some holidays and in Korea, some specific volumes. So you always have these kind of cases. So this was the main reason, which is not happening in November. It is true that in November, and in the last part of October, we have seen some impact in the U.S., as I mentioned before, not much, but yes, some weakness there. So I will say bookings underlying are healthy. We don't see in the rest of the regions, any change compared to what we have seen in the previous months. But again, in October, there were some specific matters just in Asia. And in November, this was not there, but we have seen some weakness in the U.S. So if we exclude these effects, the volumes will be quite positive. Caroline Borg: Yes. And if I take the question on our FY '26 growth trajectory. Look, firstly, we're not going to give '26 guidance today. We will come back in February with our 2026 guidance. However, to your question, we did communicate our midterm guidance, which covered 2026 at our Investor Day a number of years ago. We've delivered a strong 2024. We are on track to deliver a good 2025. So we are quite confident in our midterm guidance at a group level to maintain those CAGRs of 9% to 12.5%. But as I said, we will come back with more details on segments in February and tell you more about our evolution on how we see things once we've closed FY '25. Operator: And the next question comes from the line of Victor Cheng with Bank of America. Hin Fung Cheng: Maybe, first of all, do you see potentially more risk maybe from Direct Connect given NDC is now maturing at version 24.1 and AI is helping build these pipelines. I think in Q3 earlier, there is one large tech savvy TMC that switched from using GDS to direct connect for NDC content. So is that -- do you see that as a risk of more of that happening? Or is it more of a one-off scenario? Luis Camino: We don't see an increase in direct connect to be honest. And I think I have mentioned myself that I don't believe on direct connect in general, it is expensive for both parties, requires adaptation. And if we think about NDC, there are new versions, that, of course, both parties will need to really support airlines and the travel agencies and adapt to that. There are not so many travel agencies that have global systems. And that means that, yes, when you deal with one system different in each country, you need to connect and try to really do this direct connect per country. Of course, you need to aggregate all these direct connects and then the rest of the content. So -- and then yes, I mentioned already the look-to-book ratios and the fact that the GDS has optimized that, and we are working really in trying to see with NDC and also with AI, how this is going to be handled in the sense of having intelligent search that is not hitting the inventory of the airlines every time there is a request because otherwise, this will be difficult to manage. So I don't think direct connects will be the norm. Again, we have said there are some specific reasons for some specific parts of the inventories that can work. But in our conversations, we don't think there is any push today in general, of course, there could be exceptional or specific cases in general from the travel agencies to really move into that direction and deal with the airlines. So we feel the contrary. There are more conversations about how we can bring back part of this content with the right technology and in the right way. Hin Fung Cheng: Very clear. And if I can have one more follow-up. I think you have detail of interesting AI developments from Amadeus. But maybe can you help me understand on a high level, how you view Agentic AI can disrupt the distribution market either from a workflow perspective or from a structure or an economics perspective, any potential channel shifts or how Amadeus can participate and position itself in the new workflow? Luis Camino: I mean, again, I tried to explain before, probably without much success. But I mean, again, we feel -- it depends how things move, of course, but we are extremely well positioned to really deal with whatever technology, including that. There will be a new channel. Yes, there will be a new channel of search and shopping. This has happened. Again, if you think about the way the metasearch works, including Google, of course, we will need to see how the AI platforms move and what is their intention. We don't think they will become a merchant, as the metasearchers are not doing so. And therefore, we are in a position to really provide them with the content that is required. I mean, moving -- because they don't need a static content, they need real pricing if they really want to move ahead and we don't think it's in the interest to really integrate vertically and try to really deal with all the complexity of the servicing and all the complexity of the pricing that is required, which is not an easy task. Therefore, our goal is to really be content aggregation to really orchestrate the needs of the AI platforms. But of course, yes, there will be a new channel of sales and inspiration and they will need to really go through the process with providers. Some of them are already working with some travel agencies, some of them, we can provide IT services as we do. I mean, we also announced in the last quarter our partnership with Google to deal with our Meta Connect, and this is a proof that both as they deal with metasearch and now the Agentic AI, we'll need to work with partners, and we feel we have this capability. And again, I was mentioning, of course, the huge amount of transactions that this may generate if -- I mean, this is not for free. As you know they need to use a lot of data, a lot of hits to the system and therefore, we aim to be orchestrating all that as the key technology provider. And that's our goal. And again, we engage with AI platforms. We engage with airlines about all that and as we have done at the times of other technology changes, we aim to be playing that role in the middle. Operator: The next question comes from the line of Charles Brennan with Jefferies. Charles Brennan: Great. Maybe I'll just start with a clarification on the hospitality side, actually. You seem to attribute the revenue increase more to the media side and maybe payment side. In the prepared remarks, I didn't hear you reference Marriott. Can you just confirm that Marriott did start as planned in Q3? Or were there any delays in that contract? And then with Ascott, we've seen these hotel chains take years to come on board and contribute to revenue. Should we assume that's the same for Ascott. Is it more of a '27 revenue event than '26? And then separately, can I just ask about pricing and the pricing algorithm that we should expect more broadly across the group. I think you're flagging in both Air IT and Distribution, we're going to see pricing per booking and PB declining in Q4 relative to Q3. I know you said you weren't going to give us guidance for 2026, but can you just talk through the broad algorithm that gets us to the pricing dynamics for '26 between underlying inflation and perhaps the non-volume-related revenues that feed into that pricing equation? Luis Camino: Let me deal with hospitality. I mean we didn't mention as a key impact because the impact is already happening, but it's small. We started to really work with properties, but it's completely according to plan. And in the coming months, well, as we speak, we keep rolling into more properties. But the main impact, as we said for months will happen in '26, so there is no delay. Everything is moving according to the plan, but we started slower than we will have in the coming months when we see everything is working properly, which is the case. With regards to Ascott, yes, we will start the migration in '26. So it will not take so much time because the platform is much more mature, but we should expect the impact in '27. Caroline Borg: Yes. And then in relation to the revenue growth, maybe I'll bring it a little bit more into the FY '25 because we wanted -- we want to deliver FY '25 first as a jump-off point for '26. And as I said, we'll give some FY '26 information in February. I think Luis adequately said that there is still some volatility in the macroeconomic environment, so we could see a moderation in group revenue growth in the Q4. And that's driven by what we're already seeing in terms of booking volume moderation that we've started to see in October. We've also seen some softening of our revenue per booking due to the timing of our customer, negotiations and renewals. We are seeing some softening revenue per PB due to pricing dynamics and we will -- we do expect to have a lower growth in service -- in our service revenue in Q4, but all of that is offset, as Luis was mentioning, by the acceleration that we are delivering in hospitality. We are seeing some really good implementation on our customer implementations and ramp up. And I apologize if I missed that off the script, but that's definitely a key part, recovery of our media business and the activities and commercial momentum that we gain across our payments businesses. Operator: And the next question comes from the line of Michael Briest with UBS. Michael Briest: Great. It's good to see distribution back at, I guess, nearly 90% of 2019 levels. But looking at the regional color, it's very diverse. So I mean, Europe is still maybe 30% below Latin America, nearly 40% below, while Asia is over nearly 25% above 2019. Can you talk to the dynamics in that market? Is that your win rates and competitive dynamics? Is it the way the airlines and the agents have adopted NDC and direct connects? That would be the first question. And then on the buyback, you're almost 80% done, leverage is the same as it was at the start of the year. Presumably you're completed in Q4, conceptually, do you feel comfortable if there's no M&A that we could maybe see further buybacks in 2026? Luis Camino: Okay. In terms of volumes, again, it's difficult to really come back to 2019. But as we have mentioned, there can be in the distribution business as in the past, the fact that low-cost carriers were growing faster during many, many years, including in '25, in many parts of the world, okay? I don't remember exactly where all the details of the comparison with '29. We also move out of Russia at one point. So there are a number of effects where we have been impacted. And yes, there has been a move that has happened in the previous years of full service carriers selling more direct and less to the travel agency. So some of the most easier in the disintermediated volumes have moved to alternatives, mainly the direct sales more than really direct connects, okay? Some direct connects, but the majority of that has been the normal way of airlines pushing more direct sales. So that has been mainly what has happened when you talk about 6 years not very, very different when you compare 2019 with 2012, to be honest, we have always seen this disintermediation effects. We are seeing less in '25, as you see from the volumes that we are reporting and when you see the growth of passengers. But still, yes, I mean there are some of these dynamics that are still there. And that's clearly a reality despite that fact. I mean we have been able to really offset part of that with share, with bringing back some volumes and we feel optimistic about this business moving forward. Caroline Borg: Yes. And maybe I'll take the question on buybacks, which effectively talks to our capital allocation policy, which, as you know, and you will expect me to say, we do have a disciplined capital allocation policy, prioritizing the investments that we're making to drive organic revenue growth. I think we mentioned that a lot. In addition to the dividend policy, we also completed the buyback this year and M&A still remains and has been a really key relevant part of our growth strategy. So we continually review all of those pillars and what other potential uses of our funds moving forward. And we will come back in February when we're in the process of setting our budget expectations at the moment and we'll come back in February with any changes to that dynamic. Operator: The next question comes from the line of James Goodall with Rothschild. James Goodall: So firstly, just sort of coming back to Investor Day, where you outlined your medium-term targets. You also gave us a TAM for all of your various business segments of EUR 41 billion. I guess, since then, we've seen a fairly material evolution in terms of the products that you're offering and where you're sort of headed. Does that mean that you'd see a larger TAM today than you did back at Investor Day? And then secondly, on Nevio and Stratos, we haven't seen a new customer for a while and Nevio was still waiting for one on Stratos. Are you comfortable with the current pace of agreements there? Is there any color you can give us in terms of how conversations are going with network airlines and LTCs and what we should sort of expect over the next sort of 12 to 18 months? Luis Camino: Let me start with the last one. Yes, I mean, we have a lot of engagements as we speak. So the probability of having something close is high. I will say. But more than that, it's difficult to say because nothing is done until it's really done, okay? So hopefully, this will happen. But what I can say is that engagement is high. We feel and we believe the potential of that is very good for airlines. And therefore, there will be a natural move into offer an order in the medium term. The question is when but we have the feeling things are accelerated in terms of engagement with carriers. But of course, from that, we need to get the agreement with them and sign a contract, but the prospects are positive. And with regards to the TAM, I mean, in theory, you are right. I mean we are expanding our solutions in many parts of our business. We have not revisited that number, so I cannot give you what will be the number today. We don't have that -- but in theory, yes, I mean we are addressing more parts of the travel industry. So in theory, this should extend the EUR 41 billion. Operator: The next question comes from the line of Laurent Daure with Kepler Cheuvreux. Laurent Daure: I also have 2 questions. The first is on the Air Distribution business. You commented on the higher pricing and in particular, renegotiation and new agreements. I was wondering how in this kind of environment, what are the pillars to convince your customer to pay higher prices. And my second question is on Nevio. I understand it's tough to estimate the closing of some deals, but I was wondering whether the long sales cycle in your view, mostly comes from a tough environment. Or do you believe some of your potential customers are looking to see how the first implementation will be going in the near future? Luis Camino: I mean, look, I think it's a matter of priority. This is not just about our sales providing the technology. It's also about the way the airline is aiming to really deal with our retailing capabilities. Again, I mean if you see and you listen some of the presentation of the airlines, what they talk about that, I mean they are objectives that they have. So it's a matter of when they are ready to really jump into the pool. It is also true we are developing and implementing some of the solutions. Some others are ready. So I really feel that will be traction. And then as we implement some of these carriers to really get the full benefits, of course, there will be some need for -- especially with the ones that they are working in the same alliance or with the partners that they have to really in the same logic. Otherwise, we need to be reaching between the new times and the old times. And therefore, there will be an additional pressure between them to really move into this logic. So that's why I said, look, I'm optimistic. We have seen already in our P&L already in the third quarter some revenues coming from the Nevio implementations. So progressively, we will see revenue upside in the years to come. But of course, it will depend on the timing of the signatures and the timing of the implementation. Caroline Borg: And I can take the distribution question. So you asked a question about what's the commercial kind of foundations around distribution. Well, clearly, things like commercial success, market share gains, contract renewals, agreement, inflations all affect the pricing dynamic. We also have said that traditionally, quarters can be lumpy because of the combination of those things happen. But another criteria that can also affect the pricing dynamic is really the content that is being provided. So as we transition -- as the industry has transitioned from full content agreements into relevant content agreements, we offer more discount to -- for our providers with the more content that gets provided. So there's a mix also in terms of the dynamic of content that's being shared and what the pricing drives that as well. Operator: And the next question comes from the line of Thomas Poutrieux with BNP Paribas. Thomas Poutrieux: I just have one, please. And I was wondering if you could elaborate on the nature of the expansion of your relationship with Trip.com in particular. I think this one is interesting given their own relationship with Travel Fusion. So are you basically adding NDC concerns or LCC concerns? Or is it just that geographical expansion of your historical relationship? Any color here would be helpful. Luis Camino: Yes, it is both. I mean, we are expanding with them. We have a very close relationship with them. We are increasing our set of wallet, expanding in different countries. So it's increasing the volumes we are having with them. They have been extremely -- yes, they have the ownership with Travel Fusion, but we have been independently of that, working very closely with them and getting very healthy volumes from Trip.com, and we have a very close relationship with them, definitely. So it's an expansion of a relationship, but we have had that should translate into incremental volumes for us. Operator: And that concludes our question-and-answer session. I would like to turn it back to Luis Maroto for closing remarks. Luis Camino: Thank you very much for attending the call and your questions, and we're looking forward to meet in London at the end of February. Thank you very much. Operator: And the conference has now ended. Thank you for participating. You may all disconnect your lines.
Operator: Good afternoon, everyone. Thank you for standing by. Welcome to the CytomX Therapeutics Third Quarter 2025 Financial Results Call. Please be advised that today's call is being recorded. I would now like to hand the call over to your host for today, Chris Ogden, CytomX's Chief Financial Officer. Please go ahead. Chris Ogden: Thank you. Good afternoon, and thank you for joining us. Before we begin, I'd like to remind everyone that during this call, we will be making forward-looking statements. Because forward-looking statements relate to the future, they are subject to inherent uncertainties and risks that are difficult to predict and many of which are outside of our control. Important risks and uncertainties are set forth in our most recent public filings with the SEC at sec.gov. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future developments or otherwise. Earlier this afternoon, we issued a press release that includes a summary of our third quarter 2025 financial results and highlights recent progress at CytomX. We encourage everyone to read today's press release and the associated materials, which have been filed with the SEC. Additionally, the press release, recording of this call and our SEC filings can be found under the Investors and News section of our website. With me on the call today is Dr. Sean McCarthy, CytomX' Chief Executive Officer and Chairman. Sean will provide an update on our pipeline and company progress before I cover the financials for the quarter. We will then conclude with a Q&A session. With that, I'll now turn the call over to Sean. Sean McCarthy: Thanks, Chris, and good afternoon, everyone. We're very pleased to be here today to provide an update on our third quarter developments and our strong continued company momentum at CytomX. I'd like to start by welcoming Rachael Lester to the team as Chief Business Officer. Rachael's broad strategic planning and business development experience will be highly valuable as we shape our pipeline and corporate development strategy towards realizing our ambition of building CytomX to commercial stage. Rachael is a terrific addition to a wonderful team that I'm privileged to work with every day. Our goal at CytomX is to make innovative medicines for people with cancer that are substantially more effective than currently available treatments. Our most advanced drug candidate, CX-2051, is currently focused in colorectal cancer, one of the biggest unmet needs in oncology today with more than 1.9 million new cases annually worldwide, expected to exceed 3 million by 2040. I'll refer to colorectal cancer as CRC from here on. CRC is also increasing in younger patients and is the second leading cause of cancer death. 5-year survival for metastatic CRC is only 13%. At CytomX, we have used our proprietary PROBODY therapeutic platform to attack this problem in a new and different way. The PROBODY approach is a masking technology that allows us to hit cancer cells hard and with stealth, sparing normal tissues, opening up therapeutic strategies that were previously impossible. Specifically, with CX-2051, we have deployed our platform to bring the power of an antibody drug conjugate to the treatment of CRC. ADCs are transforming the treatment of many cancers. There are currently more than a dozen approved in the United States, but thus far, ADCs have not broken through in CRC, a notoriously difficult cancer to treat. There's an enormous opportunity here to meaningfully impact patient lives and access a global multibillion-dollar market, and our ambition at CytomX is to build an integrated commercial stage organization around this exciting opportunity. CX-2051 is a masked PROBODY ADC targeting EpCAM. This drug candidate has been intentionally designed by selecting the optimal target, tumor type and cell killing mechanism to deliver potent anticancer activity. CX-2051 is, we believe, a truly differentiated molecule being the first and only EpCAM-directed ADC in development. EpCAM is a very highly and consistently expressed target in CRC. While certain locally administered EpCAM strategies have shown promise in cancer treatment, systemic approaches have consistently failed due to toxicities in normal tissues where EpCAM is also expressed. To solve this problem and realize the potential of EpCAM, CX-2051 leverages our masking strategy to reduce normal tissue binding and maximize activity within tumor tissue. The CX-2051 payload is a topoisomerase-1 inhibitor known as CAMP59, selected because of the well-established responsiveness of CRC to this mechanism of cell killing, underscored by the widespread use of irinotecan in CRC therapy. Our CX-2051 product design strategy was quickly validated with our positive interim Phase I data reported in May this year from a highly focused dose escalation study in late-stage unselected metastatic CRC. This first look at data from our Phase I study demonstrated robust clinical activity and the potential, we believe, for CX-2051 to become a new standard of care in this setting. To briefly recap the data, CX-2051 demonstrated meaningful tumor reductions, including confirmed objective responses or disease control in nearly every patient as well as preliminary median progression-free survival of 5.8 months, a potentially substantial improvement over currently available treatments for late-stage CRC that provide only 2 to 3 months of benefit. Patients included in this initial data set had a median of 4 prior lines of therapy with all patients previously having been treated with irinotecan. Encouragingly, anticancer activity was observed across a wide range of clinical characteristics, including in patients with liver metastases and KRAS mutations. The activity we've seen across this broad late-stage patient population, together with the fact that we don't need to select the EpCAM expression in CRC suggests that CX-2051 could become a pan-CRC drug. CX-2051 was generally well tolerated, including a notable absence of safety events such as pancreatitis and liver toxicity that have limited prior EpCAM therapies, strongly suggesting that our masking technology is working as designed. We were encouraged with the hematologic safety profile of CX-2051, which could be favorable for future chemotherapy combinations. The most common adverse event in early Phase I was diarrhea, a known side effect of TOPO I-based therapies such as irinotecan. We're currently focused on better characterizing and managing gastrointestinal adverse events as part of our ongoing development program. Based on these very promising initial results, we're now well into the expansion phase of the Phase I study with our next data update planned for Q1 2026. With that, let's review our progress with CX-2051 this quarter as well as next steps. In August, we announced that the CX-2051 dose expansion cohorts at the 7.2, 8.6 and 10 mg/kg doses had reached our enrollment goal of approximately 20 patients each. Since August, we've continued enrollment in the dose expansion cohorts, and we now expect total enrollment in the CX-2051 Phase I study to be about 100 patients by our planned data update in the first quarter next year. As we work towards our goal of initiating a potential registrational study for CX-2051 monotherapy in late-line CRC, we expect this expanded Phase I patient enrollment will further inform dose selection, including FDA dialogue regarding Project Optimus. Additionally, given the momentum within the program, we expect to initiate a Phase Ib study with the anti-VEGF antibody, bevacizumab in the first quarter of 2026. Bevacizumab is a core component of CRC therapy across multiple lines of treatment, and we anticipate this combination data will unlock broad additional potential. Beyond CRC, we continue to see potential for CX-2051 across many other cancers where EpCAM is also expressed. Given our compelling initial results in CRC, we're currently assessing additional indications for future development, and we expect to provide an update on non-CRC indications in 2026. Now turning to CX-801, our masked interferon alpha-2b program currently being developed in combination with KEYTRUDA in advanced melanoma. The metastatic melanoma landscape continues to evolve rapidly as checkpoint inhibition moves to earlier-stage treatment, leaving considerable unmet need in later-stage settings. Advances are being made, for example, with cell therapy and oncolytic virus strategies, but new approaches are urgently needed. We are very excited about the potential for CX-801 in melanoma as illustrated by the positive initial biomarker data we will present at SITC this weekend. In designing CX-801, we have applied a similarly focused set of design principles as we did with CX-2051 by selecting a validated pathway, a potent effector mechanism and a focused initial clinical development path centered on clear unmet medical need. Interferon alpha-2b is a well-validated powerful immune system modulator that has previously been approved for cancer therapy, but that has been limited in use due to poor tolerability. Our masking strategy for CX-801 is highly novel and includes masks on both the cytokine domain and an Fc masking domain to really minimize activity in the periphery while directing activity towards the tumor microenvironment. Conceptually, what we're aiming for here is to harness the potent ability of interferon alpha to selectively activate the tumor immune microenvironment, allowing for synergistic antitumor activity in combination with checkpoint inhibition. We treated our first patient in the CX-801 Phase I study in September last year, and we've made excellent progress thus far in the clinic. Monotherapy dose escalation has reached the fourth dose level, including multiple dose levels that exceed the approved clinical dose of unmasked interferon alpha-2b. Now this is important since it already suggests that masking is working as designed. Our SITC presentation this weekend encompasses biomarker data from 5 melanoma patients treated with monotherapy. CX-801 has been generally well tolerated through the first 3 dose levels and is inducing robust interferon signaling within the tumor microenvironment. Specifically, our initial data includes gene expression analysis of pre- and post-treatment patient tumor biopsies, demonstrating consistently increased expression of interferon-stimulated genes, evidence of T-cell activation and upregulation of immune checkpoint inhibitors such as -- checkpoint genes, including PD-1 and PD-L1. We also observed evidence of sustained chemokine elevation in the tumor microenvironment with stable chemokine levels in the blood, suggesting preferential 801 activation in the tumor. Furthermore, CX-801 is activating cell populations of both the innate and adaptive immune systems as anticipated and consistent with interferon alpha's broad mechanism of action. This initial progress with CX-801 is exactly what we aim for in assessing the initial monotherapy performance, and it lays a strong foundation for the potential of the combination with KEYTRUDA, which we initiated in May of this year. We currently expect initial data for the CX-801-KEYTRUDA combination by the end of 2026, and we look forward to sharing those results. Before handing over to Chris for financials, I'd like to also briefly highlight a second poster presentation we have at SITC this weekend, introducing a new program at CytomX, CX-908, a masked T-cell Engager targeting CDH3, also known as P-cadherin. In addition to our work on masked ADCs and cytokines, we continue to be active in the T-cell Engager space, and this preclinical data highlights the power of masking to substantially widen therapeutic window for this modality. We also continue to be active in T-cell Engagers and bispecifics in our collaborations, including with Astellas and with Regeneron. With that, let me hand over to Chris. Chris Ogden: Thank you, Sean. Reiterating Sean's earlier sentiment, our third quarter was characterized by continued momentum with our clinical development programs, and we continue to drive towards our key milestones in a capital-efficient manner. Having completed a $100 million financing earlier this year with a strong group of investors, we are positioned to rapidly advance 2051 towards later phase development and build value in CytomX over the near and long term. As Sean mentioned earlier, we are on track to provide a CX-2051 data update in Q1 of next year, and investing behind a potential first approval will continue to be our top capital allocation priority. We also will begin focused investments to drive additional value in CX-2051, including initiating a combination study with bevacizumab in the first quarter of next year. And we are also in the process of evaluating additional EpCAM-expressing indications for CX-2051 development. With that, I'll now walk through our third quarter financial results. As of September 30, 2025, we ended the quarter with $143.6 million in cash, cash equivalents and investments versus $158.1 million in cash at the end of the second quarter of 2025. We continue to project that our cash balance, will be able to fund CytomX operations to at least the second quarter of 2027. As a reminder, our cash guidance does not account for any additional milestones from existing collaborations or any new business development, and we continue to make progress with our partners and expect to remain active in business development to extend the reach of our technology. Looking at revenue and operating expenses for the quarter. Total revenue was $6 million compared to $33.4 million in the third quarter of 2024. The decreased revenue was primarily attributed to the completion of our performance obligations in our Bristol Myers Squibb collaboration. Operating expenses for the third quarter were $21.7 million compared to $29.3 million in the third quarter of 2024. R&D expenses were $15.3 million during the third quarter, representing a decrease of $6.1 million versus the third quarter of 2024, primarily due to a reduction in CX-904 expenses as well as reduced research expenses. G&A expenses decreased by $1.5 million during the 3 months ending September 30, 2025, to $6.4 million, driven by lower personnel costs as well as patent and legal expenses. As we look ahead to 2026, we will continue to employ a disciplined approach to capital allocation, focused on delivering on our key program milestones for CX-2051 and CX-801 and advancing the pipeline towards later-stage development. With that, I'll turn the call back to Sean for closing remarks. Sean McCarthy: Thanks, Chris, and thanks, everyone, for joining us today. 2025 certainly continues to be a highly productive year for CytomX. Our PROBODY masking platform is really coming into its own with 2 exciting programs in the clinic that build on everything we have learned over more than a decade about how to optimally deploy this strategy that we have pioneered. CX-2051 and CX-801 both utilize validated mechanisms. And in both cases, the clinical problems we're addressing and the potential value we can create are very clear. We remain focused on our objective of building CytomX around these and future innovative programs and moving them further into development and ultimately to commercialization. Regarding CX-2051, our planned Q1 2026 update will encompass broad progress with the program as we look to position the initial registrational path while initiating combination strategies to support use in earlier lines of CRC therapy. This is a major opportunity. CX-801 is also off to a promising start, and we're excited to see KEYTRUDA combination data in 2026 in melanoma. Before I wrap up today's call, I wanted to sincerely thank all CytomX stakeholders for your support. We are here to make the biggest difference we possibly can. With that, operator, let's go ahead and open up the call for Q&A. Operator: [Operator Instructions] And your first question today comes from the line of Edward Tenthoff from Piper Sandler. Edward Tenthoff: And really great update. I'm excited to hear all the progress with 2051 and looking forward to the 801 and the new program at SITC this weekend. My question really has to do with respect to expectations for the 2051 readout, and I appreciate that you're up to around 100 patients. What should we be expecting from an ORR? Is there a chance for that to deepen? And I know that the PFS was immature at 5.8 months, what do you guys sort of see as a win here for PFS in the late-line pieces? Sean McCarthy: Yes. Thanks for the questions. So just to recap our data in May, which we were super excited about. As you know, across the 3 relevant dose levels that we're currently expanding, the 7.2, 8.6 and 10 mg/kg doses, we saw an integrated confirmed response rate of 28%, which very substantially beats the current standard of care in the late-line setting, where, as you know, response rates are in the single digits. So that gives us a lot of room to maneuver. Similarly with progression-free survival, the 5.8-month preliminary estimate based on that early data set compares to 2 to 3 months in the late-line setting for current standard of care. So our feeling is a lot of room to maneuver on the data set as it continues to mature from this larger expansion phase, and we're excited to have the update in Q1. Edward Tenthoff: Yes. And I totally agree with all that. And a quick follow-up question. Will you break out dose -- or will you break out efficacy by dose? And do you think you'll have enough data at that point to really select the dose or doses in [indiscernible]? Sean McCarthy: Yes. We absolutely would expect to be breaking the data out by dose in this next update. I think that's going to be very important from an efficacy and safety standpoint as we continue to work towards dose selection for the next studies. Absolutely. Operator: Your next question comes from the line of Roger Song from Jefferies. Nabeel Nissar: This is Nabeel on for Roger. Maybe 2 from us. Excited to hear about the enrollment picking up. What do you attribute that to? And is there any more feedback you have maybe from your trial partners in terms of what you're hearing from them and anything regarding the prophylaxis and how that's going? And then another follow-up would be just regarding the ESMO data that we saw from some other competitors that did not differentiate from standard of care, if you had any thoughts on that as well? Sean McCarthy: Yes. Great. Thanks for the questions. In terms of enrollment, I'd take you back to the comments we made during our August updates where we were able to rapidly increase enrollment during Q2 and Q3 after the initial May disclosure to 73 patients. And that really was a reflection of the high interest from our investigators and patients to come on to the study. And that's been continued in Q4. We continue to see a lot of demand for 2051, and we felt as we moved through this quarter that it will be helpful to continue to enroll patients and continue to gain additional experience with this drug as we work towards dose selection for our next stages of development in 2026. Regarding prophylaxis, that continues to be an important area of investigation. We are highly focused on really the one adverse event that we need to actively manage with the drug, which, as you know, is the diarrhea. We have implemented prophylactic measures at the early stages of the expansion phase, and we would anticipate that we will continue to learn about the AE management protocols over time. And we feel that we'll have a much better understanding of many aspects of this adverse event as we move into 2026. And I can assure you that we're very much on it. In terms of ESMO, it was a busy conference, wasn't it? And there was quite a lot of news in CRC after such a long time of very little innovation in this space. It's really exciting to see multiple mechanisms, pathways, targets strategies being used to try to make inroads into this very difficult-to-treat cancer. We didn't really see anything that gave us any concern. We continue to believe strongly that 2051 is a highly differentiated molecule and approach. Of course, as an antibody drug conjugate is bringing the concept of the ADC into CRC, which we think is going to be really, really important. So we are as excited about 2051 as we have ever been. Operator: Your next question comes from the line of Olivia Brayer from Cantor Fitzgerald. Olivia Brayer: Congrats on all the great progress here. What is the strategy for the combination approach with bev? Are you looking at enrolling third-line patients? Or is it really more about exploring second line? And would you wait until the next CX-2051 monotherapy update to actually inform a dose escalation strategy for the combo? And then I've got one follow-up. Sean McCarthy: Yes. Thanks, Olivia. Thanks for the question. So the strategy initially, of course, we will be beginning by looking at a few doses of 2051 to explore the combination with bev as we -- because we're beginning this study in Q1. We think it's important to get this study going. It's a crucial part of the development plan as we broaden out the 2051 strategy to bring the drug into earlier lines of therapy. So -- but starting in Q1, it will be concurrent with continued evaluation of dose selection for monotherapy. So I anticipate that we'll be looking at more than 1 dose of 2051 with bev. Obviously, the goal ultimately is to get into the second-line setting. Specifically, which patients we enroll into the very earliest phases of the combination, that remains to be determined. In terms of the data update on the combo, too early to tell. We want to get the study going, and we'll see how it's -- timing-wise, we'll see how it aligns with future updates on the monotherapy. Olivia Brayer: Okay. That's helpful. And then what can you tell us at this point just around the percentage of patients who you actually expect to receive loperamide in the dose expansion phase for the monotherapy? Are there any parameters that you guys have put in place in terms of which patients can or can't receive it? Or is it really truly at the investigator's discretion? And then just to kind of sneak in a point of clarification on that. Can that loperamide regimen, can it actually be used both proactively for prevention, but also reactively at first onset of diarrhea? Sean McCarthy: I'll take the second question first. And the answer there is yes. I mean loperamide is used -- it's a common drug to be used to manage diarrhea for any medicine that has that adverse event. So that's a very normal thing to do. But it's also been shown to be effective, as you know, for example, in the PRIME study with TRODELVY, where upfront treatment of patients with loperamide was effective in reducing the rates of Grade 3 diarrhea in patients treated with that particular TOPO I ADC. In terms of our study, as we've said previously multiple times, we instituted loperamide prophylaxis in the protocol concurrent with initiating the expansions in April. We did leave the investigators some level of discretion there. Loperamide, as we've commented before, does not come without its own side effects. And so that has to be used thoughtfully and deployed thoughtfully. And so we felt it was important to give investigators the flexibility because, of course, they're managing their patients on the ground as it were. Over time, and again, just to really emphasize, we are laser-focused on this question of learning more about the onset, the timing, the overall etiology of diarrhea in these patients and learning how to get ahead of it with loperamide. And over time, as we learn more, I would anticipate that our AE management plan will continue to evolve and continue to be refined as we move into 2026 and towards discussions with FDA relating to dose selection and, of course, navigating Project Optimus. Operator: Your next question comes from the line of Matthew Biegler from Oppenheimer. Matthew Biegler: Thank you so much for the update here. I just wanted to ask a follow-up one on your current thinking of the regulatory strategy, particularly as a monotherapy. Do you think you can go head-to-head against bev-Lonsurf in the third line? Or are you thinking monotherapy would more likely be a fourth-line trial against, I guess, physicians' choice? Sean McCarthy: Yes. Thanks, Matt. Look, I think everything is still on the table. So we're generating now an even more substantial data set with the continued enrollment into the Phase I. And I think we feel, as we commented previously, pretty confident that the very first look at the profile of 2051 showed us that this drug has the potential to comprehensively beat standard of care in the fourth line. So that seems clear from the very early data set. In the third line, of course, we know that bev-Lonsurf has a PFS of 5.5-ish months. And we need to see our data mature to have a better handle and understanding of how competitive monotherapy 2051 can be in the third-line setting. So that remains to be determined, but it's very much still on the table as we collect more data, we follow our patients for longer. And by the time we get to Q1 of 2026, just to further build on one of the earlier questions asked, we do anticipate that we'll have estimates of PFS at all 3 of the expansion doses. So that will be, I think, very helpful and informative in helping us lay out what our thinking is at that time about the go-forward potential registrational path. Operator: Your next question comes from the line of Anupam Rama from JPMorgan. Unknown Analyst: This is Joyce on for Anupam. I understand there's a host of other tumor types outside of colorectal where 2051 could have potentially meaningful benefit. What are your thoughts on which tumor types you're most excited for? And then what should we expect in terms of timing or cadence next year of new proof-of-concept studies in these other tumors? And just how are you balancing that with your development plans in CRC? Sean McCarthy: Yes. Thanks. Great question. And in a similar way to how we like to refer to 2051 as potentially being a pan-CRC drug. It really has pan-tumor potential given the widespread expression of EpCAM on so many solid tumor types. We're eager to get going in additional cancers, and there are many of them, gastric, endometrial, uterine, pancreatic, lung, it's a long list. And so we're enthusiastic to get going. At the same time, we've got so much work to do in colorectal that we need to be thoughtful of timing. But I do anticipate that we'll have updates on the initiation of additional cohorts and additional tumor types in 2026. We are working towards that. Operator: Your next question comes from the line of Etzer Darout from Barclays. Etzer Darout: Just a couple of ones for me. On the over enrollment that you're seeing, just wondered if any of the additional enrollment is skewed to any of the 3 doses that you're exploring? And then of sort of this 100 patients or so, are we going to get a breakout maybe of maybe less pretreated patients versus sort of the 4 median prior therapy patients we got in the initial update? Sean McCarthy: Yes. Thanks, Etzer. So in terms of enrollment, I mean, I can say that we're enrolling patients at similar dose levels or within the same dose ranges that we've been expanding. Not quite ready to comment on specifically which doses that we're adding additional patients, but we're really thrilled that with the speed and rate of continued enrollment during Q4, it's going to give us a lot of additional information, important information as we move towards dose selection in the early part of next year. In terms of breaking out less or -- it's a really interesting question, less heavily pretreated or more heavily pretreated. We may look at that, but I can say that the patient population that we're continuing to enroll is pretty consistent with what we saw in the first 20 to 25 patients that we shared in May. So still pretty late-line CRC. So if you're wondering whether we'd have, for example, some initial suggestions of maybe some second-line patients that may have squeezed into the study or a large number of third line. I don't anticipate that to be the case. I think we're really still going to be, at least for now, in the pretty late-line setting. That said, of course, we're -- we always want to try to analyze and squeeze as much information out of every patient and data set as we can. Operator: [Operator Instructions] And the next question comes from the line of Mitchell Kapoor from H.C. Wainwright. Mitchell Kapoor: Congrats on the progress to date. Just wanted to ask if you could elaborate on your interactions with the FDA so far and what they have indicated their feelings are about what would be registrational or positive in the fourth-line setting. Would that -- have they said anything like 20%, 25% ORR and 6 months PFS would be impressive to them? Anything that you could say about what their alignment has been like with you all to date? And what was the last time you spoke with them about the registrational plans? Obviously, there's been a lot of changes with the FDA, but I just want to know when the last communication was and when you plan to meet with them again? Sean McCarthy: Yes. Thanks, Mitch. So obviously, regulatory strategy is something we're going to be super focused on as we move into 2026. We anticipate those discussions to happen next year. Mitchell Kapoor: Okay. Great. And then just secondly, if you could talk about your updated thoughts on BioAtla's EpCAM bispecific. What are the puts and takes there in terms of read-through, but also differentiation where we should think about your strategy in a different way? Sean McCarthy: Yes. We think that it's an interesting strategy as the EpCAM CD3 conditional activation approach. We obviously know that -- all know there's a lot of EpCAM in colorectal cancer and leveraging that particular effective strategy, I think, could make some sense. We feel like -- at CytomX, we really feel like the ADC strategy is the right one. Operator: I'm not showing any further questions in the queue. I would now like to turn it back over to Dr. Sean McCarthy, Chairman and CEO, for closing remarks. Sean McCarthy: Thanks very much, and thanks, everyone, for tuning in today. It's been great to give an update. We're super excited about our progress in 2025 and the direction that CytomX is headed with our clinical programs and our platform overall and our collaboration. So thanks for your time and look forward to following up. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and welcome to the AdvanSix 3Q '25 Earnings Conference Call. [Operator Instructions] Please note, today's event is being recorded. I would now like to turn the conference over to Adam Kressel, Vice President, Investor Relations and Treasurer. Please go ahead. Adam Kressel: Thank you, Rocco. Good morning, and welcome to AdvanSix's Third Quarter 2025 Earnings Conference Call. With me here today are President and CEO, Erin Kane; and Interim CFO, Chris Gramm. This call and webcast, including any non-GAAP reconciliations, are available on our website at investors.advansix.com. Note that elements of this presentation contain forward-looking statements that are based on our best view of the world and of our business as we see it today. Those elements can change, and the actual results could differ materially from those projected, and we ask that you consider them in that light. We refer you to the forward-looking statements included in our press release and earnings presentation. In addition, we identify the principal risks and uncertainties that affect our performance in our SEC filings, including our annual report on Form 10-K, as further updated in subsequent filings with the SEC. This morning, we will review our financial results for the third quarter of 2025, and share our outlook for our key product lines and end markets. Finally, we'll leave time for your questions at the end. So with that, I'll turn the call over to AdvanSix's President and CEO, Erin Kane. Erin Kane: Thanks, Adam, and good morning, everyone. We appreciate you joining us here today for our quarterly call. As you saw in our press release, AdvanSix continued to navigate challenging industry dynamics in the third quarter with a focus on optimizing operational and commercial performance. Our team executed with agility and discipline as we seasonally entered a new fertilizer year in plant nutrients, with a strong fall fill program amid higher raw material input costs, while continuing to realize the ongoing benefits from our sustained growth program. Given the protracted downturn in nylon solutions and demand softness in chemical intermediates, we're making the strategic choice to moderate production rates to manage inventory levels, with a keen focus on free cash flow. Utilization across our integrated value chain was down roughly 4 percentage points sequentially from the second quarter to the third. Operationally, we experienced a site-wide electrical outage at our Chesterfield nylon plant in mid-September. While there was minimal impact to 3Q results, we did have an isolated fire upon restart that impacted polymerization line of the plant and was fully contained. There were no injuries or environmental impacts, and the majority of our plant operations continue as normal. So while we were already tactically opting to reduce production levels, this incident is expected to impact 4Q EBITDA by $7 million to $9 million, primarily related to the negative impact of unabsorbed fixed costs. On a positive note, our fourth quarter planned plant turnaround centered around our sulfuric acid and OEM plant at Hopewell, was completed successfully at the low end of our target range. While our domestic nylon solution margins over benzene once again expanded year-over-year, we are seemingly operating in a lower-for-longer macro environment. In times of uncertainty, we're focused on delivering on controllable levers. This includes continued optimization of production output and sales volume mix while driving productivity to support through-cycle profitability. Taking a disciplined approach to cash management is critical, reflected in our prioritization of base capital investment and anticipated tailwinds in 2026, from 45Q carbon tax or tax credits and recent tax legislation. 2025 CapEx is now expected to be $120 million to $125 million, reflecting $30 million full year cash conservation through refined risk-based prioritization and execution. Our select and targeted investments for growth are continuing to progress. The sustained growth program, which unlocks 200,000 tons of granular ammonium sulfate has been favorably tracking roughly 15% below its capital budget, with the final 2 projects remaining to be completed over the next year. In addition, our planned investment to upgrade our enterprise resource planning system went live in the third quarter, which will help streamline key processes across the organization while enhancing management tools and data analytics. Finally, we added 2 new members to our Board of Directors this past quarter, Dana O'Brien and Daryl Roberts. Their deep industry and professional backgrounds and proven expertise in global manufacturing will be invaluable to our Board's role in ensuring strong corporate governance practices and supporting advancement of our strategic growth priorities. With that, I'll turn it over to Chris, to discuss the financials. Christopher Gramm: Thanks, Erin. I'm now on Slide 4, to discuss our results for the quarter. Sales of $374 million in the quarter decreased approximately 6% versus the prior year. Sales volume was approximately half of that change, driven primarily by softer demand in both chemical intermediates and nylon end markets. Raw material pass-through pricing was down 5% following a cost decrease in benzene, which is a major input to cumene, our largest raw material and key feedstock to our products. Market-based pricing was favorable by approximately 2%, driven by continued strength in plant nutrients, reflecting favorable North American ammonium sulfate supply and demand conditions. Adjusted EBITDA was $25 million, down $28 million from last year, while adjusted EBITDA margin was 6.6%. The decline in earnings versus last year was primarily driven by a reduction in acetone price raw spreads as we anticipated, the impact of lower nylon and chemical intermediates sales and production volume and higher utility costs as a result of increasing natural gas prices. On a sequential basis compared to the second quarter, we saw a nearly $20 million earnings decline due to typical ammonium sulfate seasonality with the start of the new fertilizer year. In addition, our results reflect the impact of moderated production rates amid softer demand for nylon solutions and chemical intermediates. Now let's turn to Slide 5. Erin Kane: Here, we are illustrating our quarterly sales contributions by product line, as well as price and volume breakdown, both year-over-year and sequentially. We believe this double-click into the underlying dynamics of our financials provides insight into our commercial sales and performance. Plant Nutrients continues to positively stand out. While we navigated typical seasonal pricing considerations, our continued strong performance in Q3, including the higher year-over-year pricing of our fall fill program and favorable sales mix supported by our sustained growth program are further proof points to the resiliency of sulfur nutrition demand. Broader nylon markets continue to face pressure here in the U.S. and abroad. However, our domestic market-based pricing across nylon solutions is holding steady, while raw materials pass-through pricing saw declines on lower benzene input prices. And lastly, acetone pricing has moderated as expected from the multiyear highs witnessed in 2024. Let's turn to Slide 6. Our end market exposure remains a strategic advantage. It provides a source of diversification, which helps insulate the company from significant variability in any one industry, as demonstrated by our results in various environments. We've highlighted our exposure in descending water, with agriculture and fertilizer at the top. This is an area that continues to grow. We estimate sulfur nutrition demand growing 3% to 4% per year on average, and where we are leveraging our expertise as leaders in the space. There continues to be robust acceptance of the sulfur value proposition amid underlying increases in global nitrogen pricing, primarily driven by supply side impacts. Given current corn futures, this is a positive reinforcement that the value chain believes in software to improve economics for the same acreage. We believe stock-to-use ratios globally continue to support fertilizer demand over the long term. Moving to Building and Construction. Dynamics here remain largely unchanged. Across this end application, we have direct and indirect exposure across nylon and intermediates through flooring, oriented strand board, and paints and coatings to name just a few. Our view is latent demand will build and begin to recover through 2026, assuming moderating interest rates going forward. Plastics does remain challenged, reflecting broader macro softness. We had previously communicated that the auto sector was a watch out, including impacts of tariffs uncertainty and trade policy. We've continued to see a drawdown in auto inventories, as well as weakness across consumer durables and other industrial applications. Solvents likewise have been mixed. We've seen moderated growth into construction, pharmaceutical and electronics industries. In the semiconductor space, our Nadone sales demand was down year-over-year in the third quarter, but is anticipated to improve sequentially into 4Q and 2026. Lastly, we continue to monitor and track trends in food packaging, where beef is the largest category. Nylon 6 is preferred here due to its excellent barrier properties and its puncture resistance. Our inflationary pressure and tariffs are impacting demand in this space, notwithstanding the relative resilience we are seeing in packaging. Let's move to Slide 7. Christopher Gramm: Cash flow generation remains a critical focus area for us. We believe it's important to view our business performance on a trailing 12-month basis given the linearity considerations, primarily driven by the timing of the fertilizer season. Trailing 12-month free cash flow through Q3 2025, is approximately breakeven, and we continue to target positive free cash flow for the full year of 2025. There are a number of levers that we're focused on to bolster sustained and improved cash flow generation moving forward, including working capital initiatives, risk-based prioritization of capital investments, cost productivity, and tax optimization. Our balance sheet is positioned to provide optionality and the ability to weather the challenging macro environment. We expect strong free cash flow in the fourth quarter supported by working capital tailwinds, including the ammonium sulfate pre-buy cash advances. As Erin mentioned earlier, we're able to capture a roughly $30 million reduction to our full year 2025, capital plan. We expect CapEx for 2026, to be in the range of $125 million to $135 million. We're also actively managing our cash tax rate, which we anticipate being below 10% over the next few years, supported by the continued progress on the 45Q carbon capture tax credits and 100% bonus depreciation. Now let's turn to Slide 8, to wrap up before moving to Q&A. Erin Kane: Our strategic initiatives, unique combination of assets and business model are core to our durable competitive advantage and long-term positioning. Our global low-cost position in vertically integrated caprolactam production serves us well. In addition, ammonia and sulfuric acid platform integration, coupled with a leading granular crystallization technology position underpins our sustained ammonium sulfate growth and how we win in plant nutrients. These capabilities, combined with our asset utilization agility and product mix, position us to navigate cycles and capitalize on emerging opportunities. 2025 has been a dynamic year, but we remain well positioned as an American manufacturer of essential chemistries. We have been operating with structural tariffs in place globally across our value chains for quite some time. So we are adept at navigating an environment like this. We are largely insulated from first order impacts of reciprocal tariffs, with nearly 90% of our sales in the U.S. and our key product lines in a net import industry position. Our U.S. footprint has allowed us to optimize our tax position with a meaningful impact on cash flow going forward. Recently, we've seen a number of industry actions with announced European capacity rationalization in phenol and acetone, as well as caprolactam and ammonium sulfate. We believe we're reaching an inflection point in several markets. And as we've discussed today, we're positioning ourselves to win long term. With that, Adam, let's move to Q&A. Adam Kressel: Thanks, Erin. Rocco, can you please open the line for questions? Operator: [Operator Instructions] Our first question today comes from David Silver, Freedom Capital Markets. David Silver: I apologize. I always like to build up the suspense there. And I apologize. Let me just get a tiny bit organized here, sorry. Okay. So I did have a number of questions. I think, first, I was hoping maybe you could provide a little additional color on the chemical intermediates market and pricing environment. were the revenue declines and the margin pressures, was that primarily acetone? Or did the weakness extend to other key products or end markets? So maybe just a little more color on the falloff in Chemical Intermediates results this quarter. Erin Kane: Yes. Certainly. And we recognize that we provided some new formats here today, and we did go ahead and include the specific line of business industry spreads and KPI updates in the appendices for reference. But yes, on the acetone side, as you well know, David, represents roughly 50% of our sales in Chemical Intermediates. And we would characterize Q3 as really more in line with our expectations, right? As we headed into the year, we've been saying that we did expect phenol demand overall to remain subdued, right, that would keep acetone supply and demand balanced, but that we were expecting that we would come off the highs of 2024, and certainly probably moderate back to cycle averages. And that's where we continue to see the market play out. Our portfolio is well balanced between small, medium and large buy that allows us quite a bit of flexibility to go where the value is in the market. And while the moves were significant kind of year-over-year, right, they are sort of moderating as we think about the adjustments to those cycle averages sequentially. But when you look across the rest of the portfolio, as you say, we hear in a number of other end markets, whether it's electronics, paints and coatings, adhesives, you kind of think about ag chemicals, the full space. In general, we would say that there's continued views of softness. I think this is thematic what you're seeing across the entire chemical sector, not necessarily anything unique to us. We did call out the semiconductor space and Nadone demand. We're seeing signs that that's picking back up in Q4, with some sight of improvement into 2026. So I'd like to say that there's some opportunities in different places. We continue to stay focused in the right areas with favorable long-term trends, and that's what we're seeing there on intermediates. Hopefully, that helps. David Silver: Great. I'm sorry, I should have reviewed the appendix page details there. I would like to talk about the ammonium sulfate results this quarter. So the revenue number is quite striking. I believe that's your highest third quarter revenue total ever for that segment. And the summer quarter is typically, I guess, when you try to -- you typically sell a little bit more of the standard product and into international markets. But maybe just looking at the third quarter results, I mean, was there a disproportionate amount of products sold into the U.S. market? Or was there maybe some advanced purchasing? I mean, just maybe just a little more color on the strength in ammonium sulfate. Erin Kane: Yes. So as you point out, right, prior to the SUSTAIN program, that would have been the trend we would have expected sort of Q2 into Q3. For us now, right, the additional granular volume that we are producing is coupled with a good fall pickup, we did have less standard to sell across the board, right? So that mix differential is not as perhaps, I would say, geographical mix consideration is not as great as it used to be. So certainly, 3Q year-over-year granular volume was up 20%, right? And so again, that is really at the heart of the intent behind sustain and obviously, with the year-over-year prices for fill up led to that revenue generation you saw. David Silver: Great. Next question would be probably about raw material cost trends. So you have cited some of the data, again, in the appendix slides. But sulfur, as you noted, continues to track upwards and natural gas has recently kind of shot up a bit maybe on anticipated winter demand here. Should we just assume that you are a spot market purchaser for the fourth quarter? Or would there be the case where maybe you were able to do some hedging, or other prebuying ahead of the quarter? So maybe just a sense of how we should look at the spot market, or the recent changes in some of your raw materials and the flow-through to your fourth quarter results? Christopher Gramm: Yes. That's a great question. I would say, generally, we typically don't execute hedges on a regular basis. Sulfur is probably not as widely traded. And so the hedging process there would command a premium. But I think for natural gas, generally, we've elected to not enter a hedging strategy. What we've seen from gas, obviously, from a year-over-year perspective, the price has gone up from, let's say, an average of $2.30 a Decatherm to $3.40 here this year. So obviously, super sensitive to that, watching for that. Most of these 2 molecules do end up in ammonium sulfate. And while ammonium sulfate is generally based on value pricing, input cost does have a tendency to put pressure on the least marginal producers. So it does have some indirect effect. I would say as well, particularly on the natural gas side with our formula pricing that there is natural gas components there. And so even though we don't, let's say, execute a financial or a synthetic hedge, we do have some coverage in our formula-based pricing in the nylon business as well. So hopefully, that gives you sort of a bit of color there, David, and kind of how we think about and react to some of these changes. David Silver: Great. Maybe another one for Chris, but I was looking or hoping to get a bit of an update on the Section 45Q carbon capture credits that you've applied for, and you may apply for in the future. So maybe just your sense of the timing for capturing, I guess, the first $20 million of credits that you've filed for, I guess, in the first half of the year? And then maybe is there an early read on what you may be filing for next year? Christopher Gramm: Yes. No, that's a great question. Obviously, 45Q is a significant value driver for us. And just as a reminder, we perfected the 2018 claim last year, and 2019 and 2020 this year. Based on those perfected claims, we filed amended returns. Those amended returns, as you can imagine, trigger an audit process that we have to work through. We're confident based on all the upfront work that we've done both with the Department of Energy and with the IRS, that we'll be successful through that audit process. What I would say is due to the government shutdown, I think the timing of when we would expect to receive the credits that we have applied for, looks like that that's going to be shifting to 2026. I would point out that our early comment on positive free cash flow for the 2025 year does take that shift into account. So we still believe we're going to be positive free cash flow in 2025. We do expect a cumulative benefit once again of $100 million and $120 million across the life of the program. Just as an update, we filed the 2021 life cycle assessment, and that needs to be reviewed and approved by the Department of Energy and the IRS. Under normal circumstances, that would take probably 3 to 4 months. So we're hoping that in short order once things sort of get back to a bit normal that it wouldn't be too long until we get approval for that. So we're going to continue to obviously, provide you updates as we move forward and move along, but we continue to push the opportunity there and make progress as well. David Silver: I think this one is also for Chris, but I have seen how your carbon capture credits flow through your income statement. Can you just remind me regarding bonus depreciation? Is that something that will impact your GAAP, or GAAP and non-GAAP results? Or is that something that strictly shows up on your tax filings? Just the impact of bonus depreciation is on how I should think about my estimates for next year. Does that impact them? Or is the impact solely going to be reflected on your tax-based filings? Christopher Gramm: Yes. No, great question. Just as a reminder, the 100% bonus depreciation is really affects our cash tax rate. So if you think about our effective tax rate, it looks at and tries to book the expected, I'll call it, tax consequences of what our U.S. GAAP financial statements are. So I would expect the changes in the One Big Beautiful Bill Act won't have a significant impact on the effective tax rate, but it does have a very significant impact on our cash tax rate. So and to just give you a little color, the biggest benefit on bonus depreciation is on acquired and placed in service assets after January 19 of this year. So the dollar benefit of projects that qualify for both of those is $2 million for the calendar year '25. As we move forward to 2026, the benefit is going to grow as more of the projects qualify for those criteria. And we expect that number to be sort of mid- and the high single digits from a cash tax basis. And we would expect '27 to be even larger than that. So hopefully, that gives you a sense there of how it will get expressed in sort of the order of magnitude as we move forward. David Silver: I did get my CPA, but it was a long time ago. And thank you for walking me through that lapsed CPA. I know I admit it. All right. Yes. So this one has to do with Slide 7, and in particular, the next to the last bullet point where you talk about inventory management, and then you say cost reduction initiatives for 2026. And I think it was touched on briefly in the prepared remarks, but just wondering if you could maybe talk about some of the buckets that go into that category of cost reduction initiatives for 2026? Erin Kane: Sure. I mean, as you would expect, our normal course focus on productivity includes things like optimizing yield, certainly inflationary energy environment, energy utilization programs like this. Here specifically, David, we're programmatically setting up to really address non-manpower fixed costs. You may see this across other companies when they announce these types of programs. We believe that there is a meaningful opportunity for us to, I would say, target that programmatically. And that's what we're really pointing to here. So we would be in a position as we continue to set ourselves up for that. It's likely a 2-year type of a program. But in February, we'd be happy to come back and certainly clarify and quantify what we expect to be our 2026 targets, and sort of what our full run rate opportunity set would be for that program. David Silver: Let me just ask, but am I -- if I'm the only one here, I just have 1 or 2 kind of additional questions. Would that be okay? Or is there some -- if not, I can get back in the queue. Erin Kane: Sure, David. Go ahead. David Silver: Okay. Earlier this quarter, you did put out a press release regarding the, I guess, settlement over the -- your intellectual property for, I guess, EZ-BLOX. And I read the release with interest. I don't have it right in front of me, but I believe it was a settlement that your company considered satisfactory. And I was just wondering if qualitatively you might be able to discuss the nature of the settlement. In other words, are they going to be a new customer for you longer term? Or was there a monetary settlement? Just what was the nature of the settlement in that intellectual property dispute that you considered to your satisfaction? Erin Kane: Yes. And this is, I think, a win for us, obviously, when you spend the time, talent and treasure to put good IP in place, you want to protect it. And so we have been certainly defending that opportunity set for ourselves. And so we certainly were pleased that we were able to agree and sort of resolve the differences of opinion there with the various parties. And yes, with all agreements, there is some monetary settlement. You have an agreement relative to the patent use and upholding licensing from that regard. But I think importantly here, it allows us to set up the right customer and distribution base that is living by the rightful upholding of the IP and allowing us to make sure that sort of importers that are coming from other regions of the world that are violating [ SAIP ] can be held at base. So we do believe that ultimately, this sets us up for increased sales as a result. Operator: And that does conclude our question-and-answer session. I'd like to turn the conference back over to Erin Kane for closing remarks. Erin Kane: Thank you all again for your time and interest this morning. AdvanSix is a resilient company, and we are positioning ourselves to win long term. We're navigating a challenging market environment with discipline and agility while continuing to make risk-adjusted investment decisions to support through-cycle profitability and sustainable performance. We're not just reacting to market conditions. We're shaping our future with a clear focus on value creation. And we're doing it with an integrated business model, durable competitive advantage and a healthy balance sheet. With that, we look forward to speaking with you again next quarter. Stay safe and be well. Operator: Thank you. That does conclude our conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful weekend.
Operator: Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Kura Sushi USA Fourth Quarter 2025 Earnings Call. [Operator Instructions] Please note that this call is being recorded. On the call today, we have Hajime Jimmy Uba, President and Chief Executive Officer; Jeff Uttz, Chief Financial Officer; and Benjamin, Senior Vice President, Investor Relations and System Development. And now I would like to turn the call over to Mr. Porten. Please go ahead. Benjamin Porten: Thank you, operator. Good afternoon, everyone, and thank you all for joining. By now, everyone should have access to our fiscal fourth quarter 2025 earnings release. It can be found at www.kurasushi.com in the Investor Relations section. A copy of the earnings release has also been included in the 8-K we submitted to the SEC. Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. We refer all of you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. Also during today's call, we will discuss certain non-GAAP financial measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP, and the reconciliations to comparable GAAP measures are available in our earnings release. With that out of the way, I would like to turn the call over to Jimmy. Hajime Uba: Thank you, Ben, and thank you to everyone for joining us today. I'm incredibly proud of what our team achieved during fiscal 2025 as we delivered our strongest class of restaurant openings in recent memory, adding a record of 15 new locations. We also successfully managed our corporate G&A expenses, resulting in an annual adjusted EBITDA growth of over 30%. These accomplishments are particularly significant given the volatile consumer environment and the tariff pressures we navigated throughout the year, which have negatively impacted our top line results and restaurant-level margins. Nevertheless, our team remains resilient, and we continue to believe that our focus on execution has positioned us well for continued growth in fiscal 2026. Total sales for the fiscal fourth quarter was $79.4 million, representing comparable sales growth of 0.2%, led by traffic growth of 0.5% and partially offset by price and mix of negative 0.3%. Cost of goods sold as a percentage of sales was 28.4% as compared to the prior year quarter at 28.5%. I am exceptionally proud of our purchasing team who negotiate tirelessly to mitigate higher ingredient cost so we can continue to provide the best value possible for our guests. Labor as a percentage of sales improved by 30 basis points to 31.1% as compared to the prior year period of 31.4%, meeting the expectations for year-over-year improvement for labor in Q4 that we had shared in the previous earnings call. In spite of ongoing labor inflation, we have been able to offset these cost increases through aggressive operational initiatives and system implementations. I have some exciting news on this front that I will discuss shortly. Turning to real estate. We closed fiscal 2025 with 3 store openings in the fourth quarter, The Woodlands, Texas, Salt Lake City, Utah and Boulder, Colorado. Salt Lake City and Boulder are the first units in their respective markets. And as with every new market we've entered to date, have been a very strong performance. Subsequent to quarter end, we opened 3 units, Arcadia and Modesto in California and Freehold, New Jersey. With another 6 units under construction, the new fiscal year is off to a great start. We expect to open 5 to 6 units in the first half of the fiscal year and open the remaining units in the back half of the year. I'm excited to announce we are in the process of introducing status tiers to our rewards program. We are currently performing exploratory research to determine what kind of incentives resonate most strongly with our guests. This marks the first major update to our rewards program since we introduced the Punchh. We are very excited to take our rewards program to the next level and look forward to keeping you updated on its progress. On system development, we have largely completed the revisions we have been working on for the reservation system. With these updates completed, we expect to begin marketing the reservation system to non-reward members beginning in the fiscal second quarter. As you may have guessed when I mentioned this earlier, I'm extremely pleased to announce that we have secured commercial use certification for our robotic dishwasher and are currently in the process of installing these machines in eligible restaurants. As a reminder, our initial expectation was that the robotic dishwasher opportunity will be largely limited to new openings with only 5 to 10 restaurants eligible for retrofitting, but now we expect to be able to retrofit approximately 50 restaurants of our existing 82. We expect to have the majority of the retrofit rollout during this fiscal year and to see labor improvements of approximately 50 basis points for restaurants that receive the retrofit. Fiscal 2025 was defined by the incredible cross-departmental efforts to do everything that we could to mitigate an unfriendly environment. Our commitment to growing corporate profitability remains unabated as demonstrated by the strides we made in adjusted EBITDA and adjusted net income. We have made great strides in honing our unit expansion strategies and have built a pipeline that allows us to capitalize on the opportunities represented by previously unexplored smaller DMAs. The efforts by the operations team and the implementation of new systems have created lasting efficiency gains. I am very grateful for all of our team members who generate the good news we get to share at each earnings call. I don't see that changing. Jeff, I'll hand it over to you to discuss our financial results and liquidity. Jeff Uttz: Thanks, Jimmy. For the fourth quarter, total sales were $79.4 million as compared to $66 million in the prior year period. Comparable restaurant sales performance compared to the prior year period was positive 0.2% with traffic growth of 0.5% and price and mix of negative 0.3%. Comparable sales in our West Coast market were negative 0.6% and comparable sales in our Southwest market were positive 1.6%. Effective pricing for the quarter was 3.5%. On November 1, we took a 3.5% menu price increase. And after lapping prior year increases, our effective price for the first quarter will be 4.5%. Beginning in the first quarter of fiscal 2027, we will no longer be providing regional breakdowns for comparable sales as regional comps are largely determined by the timing of infills, and we don't believe that they are indicative of overall company trends. Turning now to our costs. Food and beverage costs as a percentage of sales were 28.4% compared to 28.5% in the prior year quarter. During the quarter, we began to see the impact of tariffs in our cost of goods sold of approximately 70 basis points. Labor and related costs as a percentage of sales were 31.1% as compared to 31.4% in the prior year quarter due to operational efficiencies and pricing, partially offset by wage inflation. Occupancy and related expenses as a percentage of sales were 7.1% compared to the prior year quarter's 7%. Depreciation and amortization expense as a percentage of sales was 4.7% as compared to the prior year quarter's 4.6%. Other costs as a percentage of sales were 15% compared to the prior year quarter's 14.4% due to sales deleverage and higher marketing costs. General and administrative expenses as a percentage of sales were 11.7% as compared to 20.3% in the prior year quarter due to the lapping of litigation costs incurred during the prior fiscal year, partially offset by higher compensation-related expenses. On a full year basis, general and administrative expenses as a percentage of sales were 13.3%, representing a 300 basis point improvement over the prior year's 16.4% G&A expenses as a percentage of sales, excluding litigation costs for the fourth quarter were 11.4% as compared to the prior year quarter's 13.2%. G&A expenses as a percentage of sales, excluding litigation costs for the full year were 12.5% as compared to the prior year's 14.1%. And we did not have any impairment charges in the fourth quarter of fiscal '25 as compared to 2.4% in the prior year quarter. Operating income was $1.5 million compared to an operating loss of $5.8 million in the prior year quarter, mainly due to the lower G&A and the impairment expenses just discussed. Income tax expense was $43,000 compared to $19,000 in the prior year quarter. Net income was $2.3 million or $0.18 per share compared to a net loss of $5.2 million or negative $0.46 per share in the prior year quarter. Adjusted net income was $2.5 million or $0.20 per share as compared to adjusted net income of $1 million or $0.09 per share in the prior year quarter. Restaurant-level operating profit as a percentage of sales was 19.8% compared to 20.9% in the prior year quarter. And adjusted EBITDA was $7.4 million as compared to $5.5 million in the prior year quarter. Turning to our cash and investments. At the end of the fiscal fourth quarter, we had $92 million in cash, cash equivalents and investments and no debt. And lastly, I'd like to provide the following guidance for fiscal year 2026. We expect total sales to be between $330 million and $334 million. We expect to open 16 new units, maintaining an annual unit growth rate above 20% with average net capital expenditures per unit continuing to approximate $2.5 million. We expect general and administrative expenses as a percentage of sales to be between 12% and 12.5%. And lastly, we expect full year restaurant-level operating profit margins to be approximately 18%. And with that, I'll turn it back over to Jimmy. Hajime Uba: Thanks, Jeff. This concludes our prepared remarks. We are now happy to answer any questions you have. Operator, please open the line for questions. As a reminder, during the Q&A session, I may answer in Japanese before my response is translated into English. Operator: [Operator Instructions] First question comes from Jeremy Hamblin with Craig-Hallum. Jeremy Hamblin: Congrats on the strong profitability here. I wanted to just dive into what you saw over the course of the last several months. I think you were on the July call, very pleased with how quarter-to-date comp trends were. Maybe things softened a little bit in the August period. But I wanted to see if you could give us kind of a sense of where quarter-to-date trends were. And then you've had a bunch of IP collabs. And just to understand how effective those been? I know you've had kind of shorter periods than you previously had on the collabs, but some color on what you're seeing out there, especially in context that the number of restaurants have seen some softening in September and October. Hajime Uba: Sure. Thank you, Jeremy, for your first question. Please allow me to speak in Japanese. He's going to -- Ben is going to translate. [Foreign Language] Benjamin Porten: [Interpreted] So -- Jeremy, this is Ben. Over the last several months, we've certainly been seeing the same macro pressures that our peers have been reporting, and we're not immune to them either. We're very pleased with the work that the marketing team has done. They've done a phenomenal job. They're really doing everything in their power to drive comps and the quarter would have been much more difficult without all of their efforts. And so the IP collabs that you had mentioned, they certainly -- the quarter would have been worse without them. It's hard to assess the impact on a numerical basis, but they definitely made a difference in the quarter. The upside from the reservation system, the light rice and the 25 plates cumulatively had a little bit of a contribution, but that's what got us to positive comps between all those different factors. All those efforts were largely offset with the macro pressures that you mentioned, but we were pleased to come in with positive comps for the quarter. Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] And then in terms of quarter-to-date, we've seen the same operating environment as we've entered our first quarter. Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] And while this is -- this is not going to be a usual practice going forward, we just felt given that we're already 2 quarters -- or 2 months into the quarter that it made sense for us to share our comp expectations based off of the results to date and our internal expectations. Unfortunately, our expectation for Q1 is to come in negative mid-single digits. This is not a reflection in terms of worsening performance or a worsening environment, but really just a reflection of the quarter -- the year-over-year comparisons for Q4 and Q1. And the delta is pretty cleanly about 500 basis points between those 2 quarters. Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] Just to remind you the numbers that we're lapping, Q4 was lapping a negative 3% comp. And so a relatively easy comparison, whereas Q1, we're lapping a 2% or a positive 2%. And so just given that we came out about flat in Q4 over -- while lapping that negative 3%, our expectation is that same delta, which would get us to that mid-single -- negative mid-single-digit number for our Q1 comp expectation. Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] That being said, we remain -- our goal remains to deliver positive comps for the year. We think we can get flat to slightly positive. Q1 remains the most difficult comparison. As we enter Q2 and Q3, we'll be lapping a negative 5% comp and a negative 2% comp. Those will also coincide with the -- with some of our stronger IP collaborations, we'll benefit from the pricing that we took in November, and we'll also hopefully benefit from greater adoption from the reservation -- for the reservation system as we start to market it to non-rewards members. Jeremy Hamblin: Appreciate the color on that. And then just a follow-up here on the unit development and make sure I understood. So 16 new units for the year. I think you said 5 to 6 in the first half of fiscal '26 and 3 quarter-to-date. Do you anticipate opening up any more in Q1? And then just confirming that you're 5 to 6 in the first half of the year and then roughly 10 in the back half of the year? Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] Yes. We're expecting to open one more in Q1, and then we would open 1 or 2 in Q2. Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] In the prepared remarks, we mentioned that 6 units were under construction, but the majority of them, we've just broken ground. And so while we do have a lot of units under construction, our expectation for the first half of the year is to open 5 or 6 units total. Operator: Next question, Mark Smith with Lake Street Capital Markets. Alex Sturnieks: Yes, Alex turning on the line for Mark Smith today. In the prepared remarks, you highlighted around 50 basis points of labor improvement from the robotic dishwasher rollout and you said you'd be retrofitting about 50 restaurants. How quickly do you expect that to be kind of implemented? And then when will we see the full impact on the P&L? Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] So as it relates to the robotic dishwashers, we placed our order to the manufacturer after we got certification. And so they're in the process of developing or just manufacturing them now. It's a proprietary piece of equipment, so we can't get it just off the rack or whatever. And so really, that's the biggest bottleneck for us, just getting them made and then shipped over from Japan to the United States. Our expectation is that the implementation in earnest will really start in Q3. And while we do expect to get the majority of the eligible restaurants retrofitted during fiscal '26, the impact from a labor perspective would be much more pronounced in fiscal '27 than fiscal '26. Our expectations for the benefit from the robotic dishwashers in fiscal '26 are reflected in the RLOPM guidance that we shared earlier. Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] That being said, as Jimmy is as impatient as I am, he's going to Japan to knock on the doors of the factory and speak with the President and ask for them to expedite things as much as they can. And so hopefully, we'll be able to get these in a little bit sooner than we're expecting right now. Alex Sturnieks: That's great. Great color there. Last one for me. You mentioned tariffs a little bit impacting you in the quarter. Given the ongoing back and forth for tariffs on Japan and Vietnam, can you give an update on supplier negotiations? What level of cost sharing you're seeing? Have you taken or do you anticipate taking any additional pricing to offset those costs? Jeff Uttz: It's Jeff. So the -- we took 3.5% on November 1, as we mentioned in the prepared remarks. And that was after negotiations we had with the suppliers. And as we also said in the prepared remarks, we saw about a 70 basis point impact in Q4. And going forward, after we took the menu price increase, and these negotiations are still ongoing, but they're much more progressed than they were in the past. But currently, where we stand is that we expect our COGS for fiscal '26 to be at least 30%, around the 30% range. So we thought in interest of transparency that it would just be useful to everybody to just kind of tell you what we thought COGS is going to end up at. So call it about 30%. And that's also why we gave the restaurant-level operating profit margin guidance as well. That was a new piece of guidance for us that we gave this time that we've never given in the past. And just given the volatility of what's going on, we just thought in the interest of transparency that it was just a good thing to help the Street and help everybody out of what we expect going forward. Operator: Next question, Jeff Bernstein with Barclays. Pratik Patel: Great. This is Pratik on for Jeff. A big picture question about '26. What kind of strategic changes do you guys foresee with the brand? Obviously, we've heard all sorts of commentary from restaurants about how the consumer is challenged and people are looking for value. What are you -- what steps are you taking to kind of address that current environment? And more excitingly, what new markets have you the most excited for '26? And I have a follow-up. Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] Just keeping in mind that we're in an environment right now where guests are extremely price sensitive and are managing their frequency being that much more thoughtful about where they're spending their restaurant dollars, we were very diligent in our processes as we approach the November pricing. We added a value question to the end of meal survey, which validated our beliefs that our guests continue to believe that we provide really an unbeatable value. We also conducted a consumer insight study. We actually -- we got granular to the point where we're doing separate studies by geography to see the elasticity by market. And so we feel that the pricing that we took really sort of threaded the needle in terms of what was -- what's appropriate. In terms of the efforts that we're making, it's really -- we're not betting the farm on any one big thing. It's really just the diligent small things all coming together from every department. It's really the approach that we've always taken. It's just lots and lots of small incremental improvements, which cumulatively give us that massive value advantage. We didn't want to force a 20% margin in fiscal '26. That -- we really -- we didn't want to basically trade the future potential traffic for 1 year better margins. We really want our guests to continue to see us as providing an unbeatable value. And yes, we didn't want to be shortsighted as it relates to fiscal '26. Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] In terms of the things that we're working on, this is a very fundamental thing for any sort of restaurant business, but we're very focused on improving our products, both from a menu development perspective and a sourcing perspective. They've really been doing a phenomenal team. There's a reason we call them out every call. They're just tireless in their efforts, and it's really kind of staggering how consistently they've been able to improve our or proteins in particular. And so we've got a number of Japan-sourced LTOs that we're looking forward to, which we expect will be a big hit from our guests. We know that the IP campaigns are a very big opportunity for us. We're pretty happy with the pipeline that we've built, but we know that there's more opportunity to be run from each campaign. And so we really want to use each one as a learning opportunity and build on that so that we can really, yes, maximize the opportunity that we see there. A couple of other things that we're working on is, as we mentioned in the prepared remarks, we're working on introducing the tiered statuses to our rewards program. And we're also going to begin marketing the reservation system to non-rewards members. And so all those things together would be some of the things that we have on the docket. Pratik Patel: And then my follow-up was for Jeff. It looks like the company ended fiscal '25 at exactly 12.5% of sales when it comes to G&A. And I know you mentioned in your prepared remarks that you expect fiscal '26 to be at 12% to 12.5%. So at the midpoint, you're assuming about 25 basis points of leverage. And I can certainly appreciate what's happening in today's environment. But that's just not as much leverage as we're used to seeing in the past? And I know, Jeff, longer term, I know you want to get the company to that sub-10% level. Just what's changed in fiscal '26? Is there just a deliberate strategy to allow for less leverage? Or is there another round of investment in certain areas? Just anything you can kind of help us unlock what's going on in G&A. Jeff Uttz: Yes. So really look at it on a kind of an average year basis. We got 160 basis points of leverage this year compared to last year. I was expecting under 100 basis points. So we were able to pull some savings from fiscal '26 forward into fiscal '25. So when you look at it on a 2-year basis, even if we did hit that midpoint, that's still almost 100 basis points of leverage per year when you look at it that way. And we can't really parse it out year by year by year. We take the savings when we can get them. And we were fortunate to get the savings earlier on than we thought. So I'm looking at it on a year-by-year basis. And because we expect -- we got much more than we expected, I didn't want to overshoot next year. I'm hoping we can beat that at the beginning of the year. That's our starting guidance, and we'll do our very best to bump that guidance up in one of our future calls. But right now, I think that that's a prudent number between 12% and 12.5%. Operator: Next question, Andrew Charles with TD Cowen. Zachary Ogden: This is Zach Ogden on for Andrew. So it looks like new store productivity did improve from 2024 to 2025. Are you able to quantify what new store AUVs are relative to the system average of roughly $4 million? Or maybe if you could qualitatively speak to what's driving that improvement? And if it's 1 or 2 units driving that strong new store productivity or if you're seeing more of a broad-based improvement? Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] So I'd just like to caveat this by starting by mentioning that we don't have an AUV target. We have a cash-on-cash return target. That being said, Zach, you basically got it right. The pressure on the AUVs that we saw that we reported today versus a year ago was largely due to the new entrants to the AUV comp base. But also to your earlier point, the fiscal '25 stores are spectacular. They've been one of the strongest classes in recent memory. It's not limited to 1 or 2 units. And we're very excited to see those go in the AUV comp base, and we expect that number to improve with their entry. Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] And on the note of AUV, just as I mentioned before, it's not a target for us, and there are a lot of things that can impact AUVs, just something as simple as store size doesn't necessarily reflect performance. But we did want to internally corroborate that things are as strong as we felt and they are. The sales per square foot for fiscal '24 and '25 are unchanged. And that's, I think, a more meaningful metric of our productivities. Zachary Ogden: Great. And then my follow-up question is, Jeff. The guidance for new store build costs stayed at $2.5 million, which is what it was in fiscal '25. So I mean, that's pretty encouraging considering you've previously talked about a $300,000 to $400,000 impact from tariffs. So is the impact from tariffs not as bad as you thought? Or are there just offsets to it? Jeff Uttz: Let me be very clear, it's the same as it was in '25 and '24. So [ we've been in the same ] for a couple of years, which we're very proud of. That's a net number. The cost to build did go up a little bit because of tariffs, but we're now getting better TI allowances from our landlords. So when you offset the TI allowance against the higher build, it comes out to a net about $2.5 million. So our cash out of pocket remains the same. Operator: Next question, Brian Mullan with Piper Sandler. Allison Arfstrom: This is Allison Arfstrom on for Brian Mullan. Just a quick one on the reservation system. It sounds like it's off to a strong start. At this point, are you able to quantify the impact? And if not, just anything new that you've learned with a few more months underway? Benjamin Porten: Yes. It's hard to tease out the impact of any one initiative, and that's always been the case for us. The rollout of the reservation system coincided with the resuming of our IP collaborations. And so there's just a lot going on. We were really happy to see positive traffic. But as you can see with the numbers, our comps were sort of more or less flat. And so it's the reservation system wasn't a massive traffic driver. It's -- I think it supported the quarter from being weaker, but it wasn't a massive, massive thing. But that also doesn't surprise us given that we haven't -- we really haven't meaningfully advertised it. It's basically just organic discovery from our existing rewards members. And I'm really excited to see what numbers we can see from it once we advertise it to the broader audience. In terms of learnings, we've been able to identify some things that just make it easier to use both for our servers and for the guests. And so this should actually allow us by reducing front-of-house savings, incremental front-of-house savings as we introduce these improvements. Operator: Next question, J.P. Wollam with ROTH Capital Partners. John-Paul Wollam: Maybe just 2 sort of focused around the guidance. But one, if I think about kind of the comp expectations that you guys just mentioned for the upcoming year, can you give us a sense of how much maybe the upgraded reward system and the broader marketing of reservation are baked into that expectation? Is there any risk that those underperforming would harm comp expectations? Or is that really just upside to what you guys have underwritten right now? Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] So in terms of the revenue guidance, really all the guidance that we shared, it does not hinge on the IP campaigns or the reservation system. Those would be gravy opportunities for upside, but we know that it's really hard to proactively quantify the impact of new initiatives. And so we don't bake that into our revenue estimates just for the sake of just to be prudent. Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] And on the note of guidance, we think maybe you might have raised an eyebrow when you saw our revenue range combined with our commentary that we expect to be able to hit flat or slightly positive comps for the full year. This is really a reflection of the opening cadence. We touched on this a little bit in the prepared remarks, but that is really the bridge there. I'm sorry... Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] Right. Right. So it's typically, you're going to use a midyear convention for revenue at 50%, we would recommend 40% or even less, just looking at the cadence of openings. John-Paul Wollam: Great. And then just switching over to kind of the 4-wall guide. Just kind of curious, obviously, the environment hasn't gotten any better since July. But just curious if you could kind of just give us a sense of what's changed since we talked in July when it sounded like maybe there was some optimism about really ramping back towards that 20%. Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] With the 20%, you're referring to the RLOPM? John-Paul Wollam: Yes, the restaurant level. Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] So JP, to answer your question first, really, the major difference between when we last met in July and the discussion today would be just the expectations for our COGS have changed. As Jeff had mentioned in the prepared remarks, the impact to tariffs in Q4 were 70 basis points. And so on a full year basis, that impact was not very much. We had 18.4%, but looking to this year, we have the full impact all quarters instead of just Q4. We're -- we know that we took price and we'll benefit from that, but you typically only get about half of flow-through. And then as we look to other costs, we've seen meaningfully elevated utility costs and tariffs impacting non-COGS items as well. And so with all those in mind and all those pressures in mind, we felt that 18% was the appropriate number for us to expect for fiscal '26. Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] That being said, emphasis for fiscal '26, 20% remains the overall goal, and we hope to get back to that as soon as possible. And also keep in mind that with COGS of 28.6% this year and an expectation of 30% next year, that's 140 basis points. But our restaurant-level operating profit margin guidance is only 40 basis points lower than what we ran this year. So we're... Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] We're able to control the rest of the P&L. Operator: Next question, Tania Anderson with William Blair. Tania Anderson: Most of my questions have been answered. But just to follow up, you mentioned that there were some things that you noticed with the reservation system that you could do to improve it. And I was wondering if you can give a little bit more detail on that. And second, on the IP collaboration, I mean, given that you're kind of building out this portfolio and you have a mix of, say, known collaborations and maybe some new or more experimental, new collaborations, maybe experimental ways of doing the collaborations, I think you mentioned last quarter that might have more risk. How much control do you have about the -- over the exact timing and flow of all these collaborations per year like during the year and throughout the year. I'm curious about that. Benjamin Porten: Yes. So in terms of the collaboration timing, this -- we're generally at the mercy of the licensors. They try to -- they typically have their own marketing schedule, which, generally speaking, works in our favor because they want to partner with us when they're advertising something. But in terms of just having control over the timing, that's not really something that we can do. In terms of the reservation system, this is going to get pretty inside baseball. But in terms of guest-facing improvements, I think the most obvious one and the most meaningful one would be for guests to be able to pull their own reservation information. Right now, you get it in a text. If you've made a reservation a week ago, it's -- you're not going to be able to find that text, and that's a pretty big headache, not just for the guests, but for the servers as well. And I know because I was desperately trying to find people's reservation numbers when I was testing out the program, and it's just not fun. And so that's really one of the big things that I meant when I was talking about labor savings for front-of-house. The other is we're changing the way that we -- that servers can see parties, and it doesn't really make a big difference from an operations perspective, but basically, the way we -- the way that it was set up before, we're working it in a way that made it impossible to collect correct data. And this shift will allow us to, for the first time, really get accurate data and then we can make adjustments and decisions based off of that. And so I'm really excited for that. It's not very flashy, but it will make a big, big difference in terms of our planning for what we can do in the reservation system. Operator: Next question, Todd Brooks with Benchmark StoneX. Todd Brooks: Jeff, can we talk about -- I think you said mix was down 30 basis points last quarter. Obviously, the consumer weakened across the course of the quarter. I guess, did mix weaken as well as far as side menu attach or beverage attach? And within that down mid-single-digit comp expectation for Q1, is there a deeper kind of drag on price/mix versus what we saw in fiscal 4Q? Hajime Uba: [Foreign Language] Benjamin Porten: [Foreign Language] Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] Todd, just to clarify, are you asking about what we're seeing differently between Q4 and Q1? Or is this just a general question about mix? Todd Brooks: I was just trying to tie it to what people are seeing with the consumer. Did mix slow during the course of Q4 to end up at down 30 basis points, but the consumer maybe tighten their wallets a little bit more and didn't attach the same way as the quarter went on. And what's the price/mix assumption within the down mid-single-digit guidance for the first quarter same-store sales? Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] We certainly have seen check management. We -- in Q4, we had a number of initiatives that were intended to drive improvement in mix such as the light rice, the 25th plate, experimentation with the spending thresholds associated with giveaways. But just with this overall environment and the consumer not feeling as strong as they might have 6 months ago, those efforts, the timing is not right in terms of trying to drive mix. And so really, our focus is on traffic. This is how we've approached every economic downturn in the past. We know that people are going to control check. And so what we do want is just to make sure that they come in the door. We're working a lot on menu development. We touched on this a little bit earlier, but we want people to be coming in because we have new great items that they want to try and then come back because they like it so much. And so that's one of the things that we're excited for. We expect to start seeing the results of those efforts starting in Q3. Todd Brooks: Okay. Great. Second question, I don't know if you guys have ever talked about your customer profile. But if you looked at performance across the quarter, did you see any big disparities by income cohort or age cohort or geographically that would be instructive to share with us? Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] There have really been no meaningful changes in demographic patterns or behavior that we've seen. And so nothing to call out. Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] That being said, we're seeing a lot of reports about a weaker Gen Z consumer, and some of our best-performing restaurants rely on university or college traffic. And so we're keeping a very close eye on those units. Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] But we're not seeing anything that would cause concern for us at this point. Todd Brooks: Great. And then, Ben, I'll give you a chance for the commercial here. I know, it will give us a forward look and a tease for the -- some upcoming IP partnerships that you might want to share. I didn't know if -- other than Kirby, if there was anything else you wanted to highlight coming in the next 2 or 3 partnerships? Benjamin Porten: Yes. The next one that we have is Sanrio. We're working with a couple of characters from that Sanrio universe that we've deliberately chosen. I won't spoil it for the marketing team. I'll let them unwrap that present. But I'm really excited about that, not just because I think those characters are probably the strongest properties, we could pick among the Sanrio stable, but also this is going to be a shorter period, a 1-month campaign instead of a 2-month campaign. And so it's another opportunity for us to explore how these differences can affect the response that we see from our guests. Todd Brooks: Okay. And then Kirby following that, was that the cadence of the first 3 that you talked about last quarter? Benjamin Porten: Kirby is actually the next one. And so we entered the year, Demon Slayer. We -- we're in one piece now with Kirby coming up in December, January and then February will be Sanrio. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Good day, and thank you for standing by. Welcome to the Alarm.com Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Matthew Zartman. Please go ahead. Matthew Zartman: Thank you, operator. Good afternoon, everyone, and welcome to Alarm.com's Third Quarter 2025 Earnings Conference Call. This call is being recorded. Joining us today are Steve Trundle, our CEO; Kevin Bradley, our CFO; and Dan Kerzner, President of our Platforms business. During today's call, we will be making forward-looking statements, which are predictions, projections, estimates, and other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. We refer you to the risk factors discussed in our quarterly report on Form 10-Q and our Form 8-K, which will be filed shortly with the SEC, along with the associated press release. The call is subject to these risk factors, and we encourage you to review them. Alarm.com assumes no obligation to update forward-looking statements or other information, which speak as of their respective dates. In addition, several non-GAAP financial measures will be discussed on the call. A reconciliation of GAAP to non-GAAP measures can be found in today's press release on our Investor Relations website. I'll now turn the call over to Steve Trundle. Steve? Stephen Trundle: Thank you, Matt. Good afternoon, and welcome to everyone. We are pleased to report financial results for the third quarter that were above our expectations. SaaS and license revenue in the third quarter grew to $175.4 million and adjusted EBITDA was $59.2 million. We saw better-than-expected performance across the business during the quarter, with particular strength in our energy business. Following my remarks, Dan Kerzner, who is the President of our Platforms business, will walk through several new product releases and how we're increasingly applying AI to our platform and business. And then Kevin Bradley, our CFO, will review our financial results, guidance, and provide our early initial look at next year. I'll begin with our annual Partner Summit, which we held here in Washington, D.C., in early October. We hosted about 200 key service provider partners from around the globe. Our team presented newly released and upcoming products while simultaneously taking the pulse on what our partners are seeing in the markets they serve. In my conversations, partners expressed nice enthusiasm for our overall road map and particularly for our new residential and commercial video products, including our upcoming battery cameras. Our remote video monitoring capability delivered through our subsidiary, CHeKT, also drew strong partner interest. CHeKT connects central station workflows with AI-driven video analytics to enable central station operators to cost effectively monitor live video feeds, deter crime before it occurs, and seamlessly initiate an emergency response when the situation calls for escalation. I also spoke to a few of our end customers who have large commercial installations. It was good to hear that they are pleased with the direction of our product and the enhancements we have been making to our multisite access control video and intrusion software solutions. We continue to hear from our partners that our unified commercial solutions are winning in the market due to the ease of managing these complex systems through a single integrated interface. Over the last year, we've seen a healthy uptick in commercial video account creation and our commercial access control subscriber base increased approximately 30%. Our growth initiatives, commercial, international and EnergyHub, collectively continued to drive SaaS revenue growth in the 20% to 25% year-over-year range and accounted for 30% of total SaaS revenue this quarter. I want to highlight EnergyHub's progress with its platform strategy, which is enabling higher-value services for its utility clients and reinforcing its competitive advantage and leading market share in the North American residential market. As a reminder, EnergyHub's software platform helps utilities match electricity demand and supply in real time. It does this by orchestrating distributed energy resources such as smart thermostats, residential batteries, and EVs to provide load flexibility. Demand for EnergyHub is driven by the long-term grid challenges faced by utilities. These include increasing load from electrification of transportation and the growing footprint of data centers, along with growing variability in generation as the grid decarbonizes. EnergyHub's load flexibility solutions are faster and more cost-effective to deploy than building new infrastructure. The EnergyHub team is focused on platform expansion to support more classes and manufacturers of edge devices. Last month, EnergyHub announced an expanded partnership with Tesla. Owners of Tesla's Wall Connector EV chargers can enroll their product in EnergyHub programs directly in the Tesla App. A large U.S. utility is already using the integration to accelerate EV program enrollments, and it's being introduced to many of the more than 30 EV-managed charging programs that EnergyHub supports in North America. The goal of EnergyHub's ecosystem expansion is to drive platform adoption by providing a single orchestration layer across device classes. EnergyHub also provides AI-driven dynamic load shaping capabilities that increase flexibility and address a broader range of grid management use cases. In summary, I'm pleased with our third quarter results and the continued growth we see across the business. Alarm.com has developed strong, durable positions, addressing diverse and dynamic opportunities in residential and commercial security and residential energy management. Our IoT-based software solutions are transforming those markets, and we are well positioned to drive further growth over time. I want to thank our service provider partners and our team for their hard work and our investors for their continued trust in our business. I'll now turn things over to Dan Kerzner. Dan? Daniel Kerzner: Thanks, Steve. I'm pleased to join our call this quarter and speak with our investors and analysts. For context, the Platforms business that I lead includes product development for our core residential and commercial platforms, shared services for our growth ventures, and sales and marketing for North America, our largest market. Our team drives profitable growth through innovation, delivering new capabilities that expand our addressable market and strengthen the competitive position of our service providers. I'll begin with an update on several products we released recently and share some examples of how our AI is already intersecting with current elements of our service provider and subscriber offerings and platforms. Video remains a strategic growth driver across our residential, commercial, and international markets. It's central to our platform strategy because each new video capability extends system utility, both directly and by thoughtfully integrating video with other aspects of the offering. This approach increases SaaS adoption and customer engagement and retention. To share a sense of the scale, the platform uploads roughly 1 million hours of video per day. This quarter, we introduced a variety of important updates to the lineup. We added to our outdoor video camera lineup with the new 730 spotlight camera. It delivers high-quality video at night through an integrated spotlight and a 4-megapixel sensor. It also includes built-in 2-way audio, so central station operators can communicate directly through the camera and Bluetooth enrollment that simplifies installation. The 730 also supports our intelligent video-based proactive deterrence capabilities. This includes AI Deterrence, an upgraded video solution that identifies individuals and delivers AI-generated verbal warnings dynamically adapted to a person's clothing, behavior, and location. The voice is designed to emulate a security professional and uses our service provider's brand name to add authenticity and authority. We recently enhanced this feature with a broader library of human-like dynamically generated voices and built-in randomization that automatically varies tone, phrasing, and delivery to create more unpredictable and thus convincing deterrence messages. Capabilities like AI Deterrence and remote video monitoring reflect our strategy to deploy software that evolves video cameras from passive sensors into active, responsive devices that drive higher recurring revenue and subscriber lifetime value. As we continue to embed AI within the core platform, we can derive more insights from the IoT devices in a property and cost effectively deliver unique value to consumers and businesses. Turning to our commercial solutions. We continue to expand the reach and flexibility of our video platform. Commercial properties often have diverse surveillance requirements, which are met by a wide variety of camera form factors. By extending our software to operate with select third-party cameras, we've made it easier for service providers to bring Alarm.com's video capabilities into these environments without developing proprietary hardware. This approach broadens our market coverage and enables more efficient targeted R&D investment and opens additional SaaS opportunities with existing commercial accounts. Since launching this capability, we've seen strong engagement. Accounts that leverage our third-party camera support connect roughly twice as many cameras to our video software as accounts without it, revenue streams we may not have otherwise captured. We recently expanded support to include panoramic, multisensor, and pan tilt zoom cameras, form factors widely used in airports, parking facilities, and industrial sites. We also enable 2-way audio and advanced analytics for our leading camera manufacturer partners. These integrations enable us to attach our premium remote video monitoring service to a broad range of widely deployed cameras. Another focus for our teams is partner enablement. Our service provider relationships are a cornerstone of both our durable market position and our growth strategy. We offer enterprise-grade tools that enable our partners to operate their businesses through our platform, from field installation to ongoing support and management of very large fleets of connected devices. Last year, we launched an initial version of our generative AI chatbot in our technician app to help field teams quickly troubleshoot installation issues. We recently released an upgraded version that can handle more complex questions and multistep workflows. In the 4 months following the upgrade, the average number of inquiries handled by our chatbot increased by 2.5x, while customer satisfaction ratings rose more than 70% over the same period. Our goal is to provide service providers with streamlined, multichannel access to world-class support. With more technicians using our AI-augmented support offerings, our teams can prioritize more complex challenges and first-time installations. Over time, this facilitates faster adoption of new features and enables our partners to expand their use of our commercial, residential, and video services. Overall, I'm pleased with the progress our R&D team made this quarter and throughout the year. These product introductions demonstrate how our platform strategy scales innovation efficiently across markets while creating tangible growth opportunities for our partners. With that, I'll hand things over to Kevin to review our financials. Kevin? Kevin Bradley: Thank you, Dan. I'll begin by reviewing our third quarter financial results, then provide updated guidance for Q4 and full year 2025, and lastly, provide our initial thoughts on 2026. I'm pleased to report another quarter of financial results that exceeded our expectations and consensus estimates. Our performance reflects continued broad-based contributions across the diverse components of the business. SaaS and license revenue grew 10.1% year-over-year to $175.4 million, exceeding the midpoint of our guide of $171.5 million. As Steve noted, our growth initiatives, which consist of our commercial, EnergyHub, and international efforts, continue to deliver SaaS revenue growth of roughly 20% to 25% year-over-year and represented 30% of total SaaS revenue in the quarter. EnergyHub delivered a particularly strong quarter, with the team both executing on new program launches and driving solid same-store growth. Total revenue grew 6.6% year-over-year to $256.4 million during the quarter, and gross profit increased 8.4% to $168.8 million. Despite some anticipated and temporary headwinds to hardware gross margins, total gross margins increased 100 basis points year-over-year due to the improving quality of SaaS in both the Alarm.com and Other segments, as well as a higher weighting towards SaaS overall. Hardware gross margins were impacted as we began selling through certain inventory carrying reciprocal tariff costs towards the latter part of the quarter. We expect this to continue into Q4 before returning to a more normal margin range in January 2026 when we modify our tariff pass-through fees to incorporate the higher reciprocal tariff rates. We also chose to selectively use faster and more expensive shipping methods to support the recent launch of 2 of our new video cameras, the V516 and the V730 that Dan discussed. This also contributed to some hardware gross margin compression. But as I noted a moment ago, even with these temporary headwinds, our total gross margin rates were up 100 basis points year-over-year. During the third quarter, total operating expenses, including depreciation and amortization, were $131.8 million. Excluding depreciation and amortization as well as stock-based compensation and other items we adjust from G&A for non-GAAP purposes, total operating expenses were $113.1 million, a 7% increase year-over-year. R&D expense in the quarter, inclusive of stock-based compensation, was $66.6 million, up 7.1% year-over-year. GAAP net income during the third quarter was $35.3 million, or $0.65 per diluted share. Non-GAAP adjusted net income grew 20.6% year-over-year to $42.4 million, and non-GAAP EPS increased by 22.6% year-over-year to $0.76 per diluted share. Effective August 15, 2025, the settlement method for our convertible notes that mature in January 2026 became locked into the [indiscernible] in cash. And as such, we began removing the 3.4 million of dilutive shares midway through the third quarter. Adjusted EBITDA grew 18.4% year-over-year to $59.2 million. Our adjusted EBITDA performance includes a $3.6 million benefit derived from a mark-to-market gain on a security in our treasury portfolio. Substantially all of our treasury is held in money market funds, but our policy allows for a small percentage to be held in other marketable securities. We produced $65.9 million of free cash flow and ended the quarter with $1.1 billion in cash. Our efficient go-to-market model and growing base of durable recurring revenue continues to generate strong cash flow and reinforce a healthy balance sheet. I want to remind investors of the cash flow tailwind that should emerge based on the federal tax bill signed into law in July 2025, which included a provision that allows companies to transition back to immediately and fully deducting all domestic R&D expenses incurred during the year for tax purposes. We continue to estimate that this change eliminates what would have been a little under $200 million in total cash tax payments over the next 5 years under prior law. I'll turn now to our financial outlook. For the fourth quarter of 2025, we expect SaaS and license revenue of between $176 million and $176.2 million. As a reminder, EnergyHub's revenue recurs annually and is slightly seasonally weighted toward the second half of the year. The fourth quarter is typically its largest revenue quarter in absolute dollars, but also tends to grow at a slower rate than other quarters on a year-over-year basis. Additionally, EnergyHub's strong Q3 performance included some contributions that pulled forward from Q4. Collectively, these factors create a modest seasonal headwind to consolidated SaaS growth. For full year 2025, we are raising our SaaS and license revenue outlook to between $685.2 million and $685.4 million, an increase from prior guidance of $4.1 million at the midpoint. We now expect total revenue slightly above $1 billion, including $315 million to $316 million of hardware and other revenue. We are also raising our non-GAAP adjusted EBITDA outlook to $199 million, up from the midpoint of $195.8 million in prior guidance. This implies roughly 100 basis points of margin expansion compared to 2024. We are projecting non-GAAP adjusted net income of $140.5 million, or $2.53 per diluted share. This is up from prior guidance of $136 million to $136.5 million, or $2.40 per diluted share. EPS is based on 58.9 million weighted average diluted shares outstanding for the year. Q4's diluted shares will be around 56.7 million as we operate through a full quarter without the 3.4 million dilutive shares associated with the convertible notes due January 2026. We currently project our non-GAAP tax rate for 2025 to remain at 21% under current tax rules. We expect full year 2025 stock-based compensation expense of around $35 million. Before turning to our preliminary view of 2026, I want to comment on our annual planning process, which is well underway. We continue to believe that our strong returns on invested capital and the positions we've established across multiple markets support organic reinvestment as the primary component of our capital allocation framework. As we go through our planning process each year, we begin with an analysis of all our existing initiatives to determine which ones best support ongoing investments in growth. We also identify initiatives that we have been working on for some time, but where progress has not developed as we had expected. That process forms a framework for reallocation within the portfolio. This year, much like last year, we are seeing that many of the higher growth areas of the business can self-fund a bit more than they did just a few years ago. As we rotated out of a few initiatives and assess productivity, we found ourselves in a position to let go of some existing jobs during October, which is always a difficult but sometimes necessary decision. While we are still focused on closing out 2025, we currently project a preliminary early look estimate of SaaS and license revenue of between $722 million and $724 million in 2026. Total revenue can range between $1.037 billion and $1.044 billion. We currently project our non-GAAP adjusted EBITDA for 2026 to be in the range of $210 million to $212 million. We will be working to firm up our estimates and we'll provide our formal annual guidance for 2026 when we report our fourth quarter 2025 financial results early next year. As our early look estimates suggest, we are complementing organic reinvestment with some margin expansion. We have a midterm target to exit 2027 with adjusted EBITDA margins in the 21% range, assuming historically typical hardware margins of 22% to 24% and a similar mix of hardware revenue and SaaS revenue that we have today. Our plans beyond this will depend upon the growth profiles and prospects of the various initiatives that we are engaged in at that time. In the meantime, meaningful operating cash flows continue to contribute to our strong cash position, affording us additional flexibility across our broader capital allocation framework. In closing, we're pleased with the broad-based momentum in the business that we've seen throughout the year. We believe that we're well positioned to deliver continued revenue growth and profitability while investing to expand our long-term opportunities. With that, operator, please open the call for Q&A. Operator: [Operator Instructions] Our first question comes from Adam Tindle with Raymond James. Adam Tindle: Kevin, I just wanted to start on the early framework for 2026. If I was just doing the math here quickly, correctly, it implies that the SaaS revenue growth is about 6%. And I was going back through my notes, and I think that's about where you initially thought 2025 might be, and we're now pushing maybe closer to 9% as we look to close out the year. So I guess the question would be, as you formulated the initial SaaS guidance in particular, what are maybe some of the similarities and differences in moving parts in 2026 versus 2025? And what could be some potential upside drivers? Kevin Bradley: Adam, thanks for the question. As you noted, when we first looked at 2025, we were first looking about 6.1%, so very similar to what we're first looking 2026 right now. And our updated guide for 2025 is about 8.5%, 8.6%, so about 250 basis points higher. Throughout the course of this year, we've had the growth initiatives contributing a little bit under 30% of SaaS revenue and growing 20%, 25%. I think as we look forward to 2026, the expectation would be roughly similar in terms of growth rate profile, meaning we think it will maintain 20% to 25% growth. So that will be consistent. When we started 2025, we noted a 200 basis point headwind on the residential side. That has not really come to fruition this year as a combination of a little bit better account creation than we had anticipated at the beginning of the year, as well as a very little bit of currency tailwind, which probably added about 20 basis points of growth this year. So as we look forward, we're basically pushing right some of that growth rate headwind that we had signaled at the beginning of this year on the core residential business to next year. And then we're basically assuming no additional currency headwinds. Adam Tindle: Just a follow-up for Steve, if I could. I'm noticing obviously very strong profitability here. And if I'm looking at the implied EBITDA margin for this year, it's looking like it's going to be pushing towards 20%. And the initial guidance for next year suggests another 20%, maybe even a little bit greater with some upside throughout the year. So very healthy profitability levels. I guess the question, Steve, would be your thoughts on the balance of growth and profitability going forward, understand you've managed that well in the past, but you're now reaching new levels of scale, $1 billion business at this point. So those incremental points in EBITDA are very high dollars. So just wonder if you could maybe just opine a little bit on how you're thinking about the balance of growth and profitability. Stephen Trundle: Thanks, Adam. Yes, I'd say we're still primarily focused on where we can find growth and what type of investment we need to get that growth. So we're still pretty excited about the growth initiatives. Kevin mentioned, we always have a few other skunk works projects that we hope may come to fruition over the coming years. I'd say that's where we start is like let's look at where can we get growth in the, say, 5-to 10-year period. That said, we've been improving the efficiency of the company. We're going to continue to do that. Kevin just telegraphed an exit rate anyway for 2027. That suggests we're going to continue to move the adjusted EBITDA margins up some in the business. But we're getting to a place that I think is a bit more healthy and a nice place where we're generating strong cash flows, refilling the bucket [indiscernible] initiatives and still able to sustain some growth. Operator: Our next question comes from Samad Samana with Jefferies. William Fitzsimmons: This is actually Billy Fitzsimmons on for Samad. I want to double-click on the EnergyHub business. There's obviously a ton going on in the utility market right now. Data center demand is driving record levels of investments and consumers are also contending with higher bills, in many cases, as a result. And so maybe against this backdrop, can you just walk me through how maybe your conversations have progressed with key customers over the course of the year? Curious if you have any anecdotes on specific customer conversations. And then can we just double-click on the commentary around how there was maybe a slight pull forward in that business from 4Q into 3Q? Stephen Trundle: Billy, I'll start with the higher-level question about the market and then Kevin may have a comment on the pull forward. Yes, the macro trends there are advantageous to us at the moment. As you noted, the data center explosion, the electrification of transportation, all of these things are driving demand for electricity. And it just so happens that what we do in the form of a virtual power plant is one of the least, probably the least, expensive way to add capacity and also something that's actionable and can contribute almost immediately. So the macro framework is great for that business. And as a result, our key customers, I think, are moving much faster and getting more serious about the contribution that VPP can make to their capacity challenge. So we're seeing less piloting trials, test-and-see type of approaches, and much more folks moving towards this type of solution as a committed part of their capacity is what we're seeing in the market. And I'd say -- in terms of the pull forward, Kevin, do you have any comments on that? Kevin Bradley: Billy, so I would characterize it as being in the hundreds of thousands of dollars, not millions of dollars. But one of the longest running programs at EnergyHub is a market-based program that's run out of Texas. And historically, what happens there is we're performing against that program throughout the year, predominantly in the summer. And then that has settled up in Q4 and the revenue associated with it is booked in Q4. And that's one of the reasons that EnergyHub has always been somewhat seasonally weighted in terms of revenue towards Q4. Some of that settlement happened to occur in Q3 this year, and the rest will occur in Q4. So there's just a little bit of pull forward there. Operator: Our next question comes from Stephen Sheldon with William Blair. Matthew Filek: You have Matt Filek on for Stephen Sheldon. On EnergyHub, can you help give us a sense on the current growth rate and how you're thinking about the durability of that growth over the next, call it, 2 to 3 years, especially in light of the strong demand you're seeing and some of the secular themes you're benefiting from? Stephen Trundle: Just starting with the growth rate. So we don't break out each growth initiative, but we commented the growth rate for our growth initiatives is in the 20% to 25% range overall. EnergyHub is probably the most meaningful contributor to that growth initiative -- growth rate, meaning you can probably guess that they're a tad above that. And then the second part of the question, I guess, was the macro environment, what's driving it, Matt? Matthew Filek: Well, really more so, how durable do you think that growth is in light of the secular themes you're benefiting from? Stephen Trundle: Yes. At the moment, we believe that growth is quite durable. There are a lot of different things going on. First, at the moment, we have about 45 million installed connected thermostats in the U.S. The penetration in terms of participation of those stats in a VPP program with us is around 3% to 5%. So we've got a lot of headroom in terms of adding more consumers onto the platform in our core thermostat-driven business. At the same time, we're out there building a business around EVs and building a business around batteries. We've had a couple of announcements recently on both of those fronts. So you've got another vector of growth there. Batteries, in particular, are very interesting for us to work with, because they're even more -- we're even more able to control utilization of stored kilowatt-hours there than we are with the thermostat where it may impact actually someone's temperature in their home. So we're seeing growth there. And then, of course, we have -- the next thing we can do is sign up additional utilities. We're probably 30% share of the largest 150 utilities in North America at the moment, meaning those that are out there with over 100,000 meters. So we've got share opportunity as well. And then because we're the largest in this space, we are the preferred partner for anyone that makes a device. If someone wants to be contributing power to the grid, and they want to participate in the economics associated with that, EnergyHub is the place to go. So I feel like the growth -- putting all that together, the growth story there is durable and compelling, and we feel good about it going into certainly next year and '27. Matthew Filek: Sounds like there's plenty of runway there. Maybe shifting gears to the core residential business. I was wondering if you could maybe talk about how much of a focus subscription pricing increases have been there, and how much of a focus do you expect pricing increases maybe to be over the near term. Stephen Trundle: Yes. I'd say in the history of the company, we've driven growth without much pricing. That changed a couple of years ago. We began to incorporate pricing into the growth picture. That was driven by the hard reality of a core inflation rate that had moved up dramatically. We've continued that practice, and we'll have to continue it. So pricing is part of it, and we're routinely surveying what inflation rates are and moving on price in that ballpark range typically. Operator: [Operator Instructions] Our next question comes from Ella Smith with J.P. Morgan. Eleanor Smith: So I'm curious, SaaS continues to grow as a percentage of your overall revenue. To what extent do you expect this positive mix dynamic to support your gross profit margins over a multiyear period? Stephen Trundle: Ella, at the moment, SaaS has been increasingly becoming a bigger chunk of the mix. And that, of course, contributes to gross margin expansion on a percentage basis. Looking into next year, I think we expect that trend to probably continue somewhat. That said, we have a number of things that we're excited about that are coming to market either right now or into next year. Dan spoke at length about some of the new form factors and new capabilities on our video product line. If we're successful in promoting that line and driving demand, obviously, we'll see higher hardware revenues as a result of that, and that mix could shift a little bit. But I don't think you're going to see it shift dramatically from where it is today. I'd say the trend line or where we are today is roughly where we'll be. You might see things move 100 or 200 basis points in terms of mix in the next 12 months or so. Eleanor Smith: And for a quick follow-up, how would you characterize your current M&A strategy? And do you expect to be acquisitive in 2026? Stephen Trundle: I would characterize our current strategy as active but deliberate. We are constantly assessing opportunities, different size classifications, and we're well positioned going into 2026. So I would imagine you'll see a pace in '26 that's not dissimilar from what you've seen in the last couple of years. And we can't guarantee that -- we're always opportunistic, and we're not in a race to go do acquisitions. But when we see the right fit, that means great management team, that means synergistic with our channel, synergistic with our technology, and honestly, synergistic at some level with our P&L. When we see those things come together, then we do strike. So I would expect that you'll continue to see some activity next year. Operator: [Operator Instructions] Our next question comes from Saket Kalia with Barclays. Alyssa Lee: You've got Alyssa Lee on for Saket Kalia. I think you touched on commercial and EnergyHub a little bit out of your growth initiatives. But how are you thinking about the international opportunity into next year? How is EBS progressing? And how do you see that into next year? Stephen Trundle: Alyssa, so international continues to be one of the 3 legs of the stool in terms of growth initiatives. I would say of the 3 we've talked about, commercial, EnergyHub, and international, international is probably a bit more of the laggard of those 3. We're not making quite as much progress there as I would like to see. So we're continuing to work to build that out. On the positive, you roll the clock back 24 months and international was 4% of revenue. I think when we put the Q out, you'll see it be 6% of revenue at the moment. So we are growing international, and we've got a nice strong foundation there to continue to build off. And I guess the optimist in me says we have a lot of room to drive a little more growth and some acceleration on the international piece, so that it contributes a bit more to that overall range that we articulated, which is 20% to 25% on the growth initiatives. Alyssa Lee: And maybe as a follow-up, how did renewal rates and gross adds shape up this quarter? And how did macro backdrop influence those? Stephen Trundle: Yes. So the renewal rate came in right where it was last quarter. They both rounded down to about 94%. They were, I'd say, 10, 20 basis points above that, but rounded to 94%. So that was substantially similar. Gross adds were exactly where we expected them to be. They were neither higher nor lower. I think we attribute most of that to the fact that from a housing market perspective, things basically stayed where they were in Q2. There was incrementally some excitement about potentially a lower rate environment that we thought might unblock that a little bit, but then I think found, based on commentary from builders in the last couple of weeks, that fears about the job market have basically all but offset that. And here we are in about the same place sequentially. Operator: Our next question comes from Jack Vander Aarde with Maxim Group. Jack Vander Aarde: I joined a little bit late, so I'll try not to be too redundant. Two questions. Growth businesses continue to ramp well. I caught some of the Q&A on EnergyHub and the focus on utility power grids, batteries, EVs. Maybe just outside of that, can you tie that into just your perspective on the autonomous robotics and delivery and drones? How does this fit into your EnergyHub and just your overall vision? Or does it -- I know you have patents on some stuff, and you guys are a patent machine over there, too. So just would love to get your thoughts, maybe taking the ball a step further of the autonomous delivery. Stephen Trundle: Jack, yes, wide-ranging question there. So let's start with the relationship to EnergyHub. The devices that -- these autonomous devices that we expect to see around the home, all actually act as little mini -- can be mini batteries on the grid. So I would expect much as we attempt to connect to everything today, anything where there's a store of power, as these devices become more real, those batteries become attractive to us. And certainly, their charging cycles are things we can manage. You don't want to be charging -- if you're in a market where there are peak rates, you don't want to be charging your army of robots during the hour when you'll be paying peak rate. You want to charge them at some other point in time. So I think that's all good. Whether there will be that much capacity there in these type of batteries or not, I don't think we fully know yet. It depends on the capability of these autonomous devices. And then the next piece is really are these vehicles for security video cameras, and we continue to believe that they are. We currently go to market with an autonomous drone unit for high-security outdoor applications and are seeing that product deployed in places like shipyards or big-tech parking lots, any place where you have a wide amount of acreage to cover and you have a need for high security and it's not unreasonable to ask a guard to very, very quickly monitor a large property. So we're seeing uptake there. It's a relatively small part of our business still, but it's a place where we continue to have some energy. And then we're watching for the right partnering opportunities and/or right organic opportunities to build out more in that category. I wouldn't say it's as important to us at the moment as some of the things we're doing with AI and core video, but it's something that we continue to watch. Jack Vander Aarde: I appreciate all the color there. I know it was a wide question, but that was a great answer. One more for me. Outside of the M&A, I heard a question on that earlier. I know that's part of the general strategy. But just maybe looking at the balance sheet and the cash that you guys do have, it's very noticeable, obviously. Any other uses for that cash? Another hot topic area is clearly to get around is the digital asset space, treasuries, just integration with blockchain. Is any of this on your guys' radar? Or how do you just view the space in general? Stephen Trundle: Well, I may toss some of this one to Kevin. But in terms of the balance sheet, balance sheet is, yes, big, as you note right now. We're closing out one of the convertibles in January, but we've got pretty strong cash flow production. So we expect to have a nice amount of capacity on the balance sheet for all of next year. In terms of deployment, certainly, it's primarily about corp dev and having dry powder there. Do we consider other types of assets? We give them some consideration. At the moment, though, we're pretty focused on deploying capital in a way that helps us, for the most part, grow our core business. So we're not looking to deviate too much from that strategy. Anything else, Kevin, do you want to add or... Kevin Bradley: Yes, sure. Our primary motive, I think, with the balance sheet is for it to be a source of resilience and flexibility for the reasons that Steve mentioned. So the primary reason to have that there is to be able to be opportunistic in the corp dev space. You obviously see us do a little bit of buyback activity as well. It's useful in that domain. We were more active than we had been in several quarters during Q3 as we saw the opportunity to buy at 7.5%-plus cash flow yield on it. Those are the 2 things really that we focus on right now in terms of use of the balance sheet, less so crypto or other assets like that. Operator: [Operator Instructions] I'm not showing any further questions at this time. And as such, this does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.
Operator: Good morning. My name is Nick, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the American Axle & Manufacturing Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the call over to Mr. David LI'm, Head of Investor Relations. Please go ahead, Mr. David Lim. David Lim: Thank you, and good morning. I'd like to welcome everyone who is joining us on AAM's third quarter earnings call. Earlier this morning, we released our third quarter of 2025 earnings announcement. You can access that announcement on the Investor Relations page on our website, www.aam.com, and through the PR Newswire services. You can also find supplemental slides for this conference call on the Investor page of our website as well. Now to listen to a replay of this call, you can dial (877) 344-7529, replay access code 4346240. This replay will be available through November 14. As for upcoming investor conferences, we will be at the Barclays 16th Annual Global Automotive and Mobility Tech conference later this month. We will also attend Bank of America Leveraged Finance Conference and the UBS Global Industrials & Transportation Conference in December. We look forward to seeing you there. Now before we begin, I would like to remind everyone that the matters discussed in this call may contain comments and forward-looking statements that are subject to risks and uncertainties, which cannot be predicted or quantified and which may cause future activities and results of operations to differ materially from those discussed. For additional information, please reference Slide 2 of our investor presentation or the press release that was issued today. Also, during this call, we may refer to certain non-GAAP financial measures. Information regarding these non-GAAP measures as well as a reconciliation of the non-GAAP measures to GAAP financial information is available in the presentation. With that, let me turn things over to AAM's Chairman and CEO, David Dauch. David Dauch: Thank you, David, and good morning, everyone. Thank you for joining us today to discuss AAM's financial results for the third quarter of 2025. Joining me on the call today is Chris May, AAM's Execute Vice President and Chief Financial Officer. To begin, I'll review the highlights of our third quarter financial performance. Then I will touch on some commentary about AAM's recent business developments. After Chris covers the details of our financial results, we will open up the call for any questions that you all may have. So let's begin. AAM's third quarter 2025 sales were $1.51 billion. AAM's adjusted earnings per share was $0.16 per share. Operating cash flow was $143.3 million and adjusted free cash flow was approximately $98.1 million. From a profitability perspective, AAM delivered strong year-over-year margin growth, driven by performance. AAM's adjusted EBITDA in the third quarter was $195 million or 12.9% of sales. a robust 130 basis point improvement versus last year on flat sales. This was led by our driveline business unit, which achieved adjusted EBITDA margins of 14.9%, the highest third quarter margin since 2020. The performance was supported by a focus on operational efficiency, continuous improvement, quality and managing factors under our control. On the metal forming side, we still have additional work to do to reach our full margin potential. Let's talk about the operating environment. In the near term, we are seeing onshoring opportunities within our metal forming group, and we continue to assess our footprint to optimize, to support our customers' needs as we're all dealing with the tariff environment. With the discontinuation of the EV tax credit in the U.S., changes to emission regulations and trade policies, OEMs are assessing their long-range product plans and the market, especially trying to determine electric vehicle natural demand. Currently, bidding activity leans more towards ICE than EV and an extended ICE tail is good for AAM as we can further leverage our installed asset base with our core products. We continue to believe that large truck and SUV demand appear to be very healthy both sweet spots for AAM. With that said, we also have a strong foundational technology in electrification with our components, electric drive units and electric beam axles. Our portfolio will only strengthen and expand as we complete the Dowlais acquisition. As we have communicated earlier, our goal is to have a propulsion-agnostic product portfolio that adjusts with the market demands. Let me talk about some business updates on Slide 4. From a deal transaction standpoint, both shareholder approvals were completed in July. In October, we completed the permanent financing for the transaction by securing $850 million of senior secured notes, $1.25 billion of senior unsecured notes and $835 million of term loans. Additionally, we redeemed all of our 2027 senior notes and a portion of our 2028 senior notes with the financing mentioned. On the regulatory front, we continue to make great progress. The European Commission clearance decision was issued on October 1, meaning that the EU antitrust condition has been completely satisfied. We also recently cleared regulatory approval in Brazil this Thursday on November 6. The combination now been cleared and the related conditions to the combination satisfied under the antitrust laws and 8 of the 10 required jurisdictions or antitrust filings were made, namely in the United States, India, the U.K., Korea, Taiwan, Turkey, the EU and most recently, Brazil. The clearances that remain outstanding under antitrust laws are Mexico and China. We expect Mexico to be cleared here in the fourth quarter of 2025. In China, the parties are actively engaged with the state administration for market regulation otherwise known as SAMR with respect to its review of the combination, and AAM remains highly confident on obtaining antitrust clearance in late 2025 or early 2026. Regarding the deal closing timing, we now expect the deal to close in the first quarter of next year as we communicated in our press release on October 27. As such, we are very excited to close on this transformational combination. From a product win perspective, AAM's won new and replacement programs as well as volume extensions in both business units. One win in particular is a meaningful volume uplift for a popular heavy-duty truck program. We supply critical transmission products for that platform. These wins in general support a broad spectrum of powertrains, signifying AAM's agnostic approach. Transitioning to our guidance. We've updated our 2025 guidance ranges on the strength of our results through the first 3 quarters of the year. AAM is now targeting sales in the range of $5.8 billion to $5.9 billion, adjusted EBITDA of approximately $710 million to $745 million and adjusted free cash flow of approximately $180 million to $210 million. Our guidance ranges are supported by an assumed North American production volume of approximately 15.1 million units and assumptions on certain platforms that we support. Chris will provide additional details on the assumptions underpinning our guidance. In summary, AAM continues to deliver solid performance while successfully navigating market volatility and policy uncertainties. We remain extremely focused on managing our business and driving efficiency regardless of the operating environment. Meanwhile, we continue to make excellent progress with the regulatory bodies to close our combination with Dowlais. We are excited about the combination's potential and the long-term vision of the new company. This deal is truly transformational, benefiting our customers, suppliers, employees and most importantly, our shareholders. Let me now turn the call over to our Executive Vice President and Chief Financial Officer, Chris May, for the third quarter financial details. Chris? Chris May: Thank you, David, and good morning, everyone. I will cover the financial details of our third quarter 2025 results and our updated guidance with you today. I will also refer to the earnings slide deck as part of my prepared comments. So let's go ahead and begin with sales. In the third quarter of 2025, AAM sales were $1.5 billion, flat versus the third quarter of 2024. Slide 7 shows a walk of third quarter 2024 sales to third quarter 2025 sales. Volume mix and other was favorable by $8 million. Metal market pass-throughs and FX translation increased sales by approximately $25 million. And these gains were offset by $30 million of lower sales due to the successful sale of our commercial vehicle axle business in India that took place earlier in the year. Now let's move on to profitability. Gross profit was $189 million in the third quarter of 2025 as compared to $171 million in the third quarter of 2024. For the third quarter of 2025, adjusted EBITDA was $194.7 million, and adjusted EBITDA margin was 12.9% versus $174.4 million and 11.6% last year. You can see the year-over-year walk down of adjusted EBITDA on Slide 8. In the quarter, adjusted EBITDA was higher due to volume, mix and other by $9 million versus the prior year. This unusual contribution margin rate this quarter was driven by mix. Sales of certain higher-margin programs increased while sales of lower-margin programs declined. Ram heavy-duty production, which is a significant program for us increased year-over-year. R&D was lower by $3 million versus last year as we continue to optimize our engineering spend. And lastly, performance and Other was favorable by $16 million. The year-over-year favorability was driven by a combination of factors, including operational performance and other productivity, partially offset by tariffs and SG&A expense timing. AAM remains focused on productivity, efficiency and cost optimization in all areas of our business. Let me now cover SG&A. SG&A expense, including R&D, in the third quarter of 2025 was $98.8 million or 6.6% of sales. This compares to $94.6 million or 6.3% of sales in the third quarter of 2024. AAM's R&D spending in the third quarter of 2025 was approximately $37 million, down from approximately $40 million. For the full year, we continue to anticipate R&D expense to be down on a year-over-year basis by nearly $20 million, driven by current market requirements and continued focus on engineering efficiency. Let's move now on to interest and taxes. Net interest expense was $35.7 million in the third quarter of 2025 compared to $38.1 million in the third quarter of 2024. The improvement was due to a lower weighted-average interest rate of our outstanding long-term debt and lower year-over-year debt balances. In the third quarter of 2025, we recorded income tax benefit of $10.9 million compared to a benefit of $12.1 million in the third quarter of 2024. The third quarter of 2025 includes a discrete benefit of $22 million related to the impact of the accounting for the 1 big beautiful bill. For the fourth quarter of 2025, we expect an adjusted tax rate of approximately 10% to 15%. As for cash taxes, we expect approximately $60 million to $75 million this year. Taking all these sales and cost drivers into account, our GAAP net income was $9.2 million or $0.07 per share in the third quarter of 2025 compared to net income of $10 million or $0.08 per share in the third quarter of 2024. Adjusted earnings per share, which excludes the impact of items noted in our earnings press release, was $0.16 per share in the third quarter of 2025 compared to $0.20 per share for the third quarter of 2024. Let's now move on to cash flow and the balance sheet. Net cash provided by operating activities for the third quarter of 2025 was $143 million, compared to $144 million in the third quarter of 2024. Capital expenditures, net of proceeds from the sale of property, plant and equipment for the third quarter of 2025 were $64 million. Cash payments for restructuring and acquisition-related activity for the third quarter of 2025 were $18.6 million. Reflecting the impact of these activities, AAM's adjusted free cash flow was $98 million in the third quarter of 2025. From a debt leverage perspective, we ended the quarter with net debt of $1.9 billion and LTM adjusted EBITDA of $735 million, calculating a net leverage ratio of 2.6x at September 31 -- through September 30, 2025. We also maintained a strong cash position of over $700 million. AAM ended the quarter with total available liquidity of approximately $1.7 billion, consisting of available cash and borrowing capacity on AAM's global credit facilities. With that background in place, let's talk about our guidance on Slide 5. Our outlook has been updated from our previous targets. Our updated targets are as follows: for sales, our new range is $5.8 billion to $5.9 billion versus $5.75 billion to $5.95 billion previously. This new sales target is based upon a North America production assumption of approximately 15.1 million units and certain assumptions for our key programs. We now anticipate GM's full-size pickup truck and SUV production in the range of 1.35 million to 1.39 million units. From an EBITDA perspective, AAM anticipates a range of $710 million to $745 million versus $695 million to $745 million previously. We now anticipate adjusted free cash flow in the range of $180 million to $210 million. Our CapEx assumption is unchanged at approximately 5% of sales as we ready the organization for important upcoming launches especially for 1 of our new truck programs. In addition, while not included in our adjusted free cash flow figures, we estimate our restructuring-related cash payments for AAM as a stand-alone entity to be approximately $20 million for 2025 as we look to further optimize our business and further reduce fixed costs. With the updated guidance in mind, let me provide some additional color on the fourth quarter operating environment that we see. From a production standpoint, we expect normal seasonality plus some additional production volatility. We anticipate AAM's project expense to be overweight in the fourth quarter as we prepare for some significant upcoming launches that I mentioned previously. We continue to be excited about the new Ram heavy-duty launch cycle that has gained momentum throughout the course of the year and we will continue to manage other costs such as R&D. We underscore that the guidance figures that we are providing today are on an AAM stand-alone basis, pre-combination basis and excludes any costs or expenses related to our announced Dowlais transaction. As it relates to the Dowlais acquisition, as David mentioned earlier, we completed the permanent financing for the transaction. This includes a nice balance of term loans, secured notes and unsecured notes. As part of this positive financing activity, we're able to opportunistically refinance all of our existing 2027 senior notes and a portion of our 2028 senior notes. As a result, we extended the weighted-average maturity of AAM senior debt to well over 6 years. The revised debt maturity profile provides AAM with flexibility, and we will have no significant maturities until 2028. This is very good news from multiple perspectives as we ready for the closing on the Dowlais acquisition. And for 2026, we expect to provide formal guidance early next year. However, let me give you some of our thoughts as we head into next year. While the industry faces various challenges, we remain excited about our product and markets. We anticipate large SUV and pickup truck markets to remain healthy. As you know, our primary driveline truck platforms are the GM T1XX and the Ram heavy-duty platforms. We also have very good content on the Ford Super Duty. We believe ICE and ICE hybrid powertrains will continue to have meaningful longevity and consumer demand. Tariff and world trade dynamics should create opportunities for global suppliers with strong capabilities and scale such as AAM And also a soon-to-be much larger AAM with the completion of the Dowlais acquisition. And lastly, we will continue to focus on our core cost efficiencies and aggressively drive towards realizing our $300 million synergy goal. So in conclusion, AAM delivered good results through the first 3 quarters of the year and has successfully navigated both production and tariff volatility. Fundamentally, we will continue to manage factors under our control and course correct through market, supply chain and policy changes that we may face. Furthermore, our aim is for continuous improvement and operational excellence, and they should manifest in future results. Thank you for your time and participation on the call today. I'm going to stop here and turn the call back over to David, so we can start the Q&A. David? David Lim: Thank you, Chris and David. We have reserved some time to take questions. I would ask that you please limit your questions to no more than 2. So at this time, please feel free to proceed with any questions you may have. Operator: [Operator Instructions] Your first question comes from Joe Spak with UBS. Joseph Spak: Chris, maybe just a first quick one, some housekeeping, I guess. Could you just remind us sort of what's in the bucket or what was driving it, like the $9 million volume mix other in EBITDA on $8 million sales. What just stands out a little bit what's going on in those buckets? David Dauch: Yes, yes. That's a great question. With the -- of course, with the low change in revenue, obviously, you get a little bit of dynamics in a percentage ratio here. But we experienced in the quarter was a continued, I would say, year-over-year strong performance on the Ram platform. So we saw elevated sales from our full-size truck franchise from that standpoint. We had some clients in some of our other business, I think some passenger car and crossover vehicle and component business. So that mix sort of caused dynamic of sort of a ratio of some higher-margin business coming in, in terms of -- versus prior year. And then some lower margin business sort of lower to give that sort of odd ratio between volume mix and other from a contribution margin mix to the revenue that you see. You do have some tariff recoveries flowing through that line as well that kind of accentuates that issue a little bit, but that's principally what's going on. All normal activities, it's just an odd mix. Joseph Spak: Okay. David, just the second question and bigger picture. I was wondering if you could just sort of update us on your conversations with customers and -- in terms of sort of where [ you're at ] in reshoring activities and other sort of investments in the U.S. And what type of conversations you've had with some of your customers there and opportunities? And I guess, are you also able to start to go to those customers with some of the potential benefits from the Dowlais acquisition? Or is that not yet feasible or part of those conversations? David Dauch: Yes. Let me start with the last question first, Joe, is we're not able to have any discussions with customers regarding Dowlais directly because it will be considered gun jumping as far as the 2 of us working together. So we're very distinct in regards of only talking about what AAM can do today versus what Dowlais might be able to do in the future. So -- but that will enhance our opportunity clearly, once that becomes part of the AAM family. As I indicated in my comments, and Chris did as well is that we are seeing a lot of opportunities from various customers, both the OEM level and the tier level on our metal forming business for localization, especially in forgings, in castings and powdered metal parts. So that's increasing some of our sales opportunities and nothing to announce at this time, but we're working actively with multiple customers right now. Regarding plant footprints, you know our policy is always to try to buy and build local in the local markets that we serve. That's mitigated a lot of tariff exposure to us. We're clearly watching the USMCA negotiations anticipating that there'll be a higher U.S. content requirement in the future. We have had conversations with various customers about what their intentions are, knowing that we ship big products, we like to be in closer proximity to our customers. So once they can make their final decisions, then we'll make appropriate footprint adjustments in concert and in alignment and in agreement with those customers on a go-forward basis. So I'd say, yes, there's ongoing discussions taking place. Nothing that we can announce at this time. It's going to be largely dependent on when the customers finalize their plant loading plans. Operator: And your next question today will come from Tom Narayan with RBC. Gautam Narayan: The first 1 is just on the regulatory antitrust clearing. Just seeing if -- I mean, you guys are confident China late '25 or early '26. Just curious if that was like a surprise at all? Or was that always contemplated. Is there any -- is there a specific risk there? Or is there like a over there? Is that what's causing that where that might lead to divestitures or something? Just -- or is it just kind of just course, regular course of action? And then I have a follow-up. David Dauch: Yes, Tom, this is David. We're highly confident in regards to we'll get all the jurisdictions approved. We clearly anticipated that Brazil, Mexico and China would be the long poles in the tent. Brazil, as I mentioned, we got verbal acknowledgment earlier in the month but we got final formal approval just yesterday. We expect Mexico here yet this month. In China, we're in discussions with them. But I don't expect us to have to do anything from a large remedy standpoint in that area. We're just going through the normal discussions in their inquiries and questions. Just like we've done with other countries. Their process is just taking a little bit longer. We did anticipate that geopolitical issues could potentially impact this. But quite honestly, it hasn't. At this point in time, and we hope that it doesn't. But we're getting a full operation from SAMR at this time. Gautam Narayan: Okay. Got it. And then my follow-up, just on the kind of production that you guys are assuming for North America 15.1. It does it does feel like it implies kind of a downshift in Q4, a pretty significant one. Just curious, maybe, is that baking in some conservatism? Maybe in [ Xperia ] seems to be -- there's some positive indications there on resolution there. I know that that's a market number, but just curious if that's just conservatism or something specific you're seeing? Chris May: Tom, this is Chris. Of course, we anchor this a little bit around, as you mentioned, a market number. But at this point in the year too, we are also really kind of calibrating and locking into our specific customer schedules. And as you may be aware, we've experienced a little bit of downtime in the fourth quarter early in the quarter, meaning October, early part of that. We had 1 of our customer assembly plants at Wentzville down, that impacted some of our production. We've seen a little bit of extra holiday downtime, we anticipate near the end of the year. And also, as you mentioned, the other issues in terms of supply chain. We've had a little bit around the edges in terms of some volatility there. But we're trying to calibrate into what we see in the current market environment and that's sort of our best estimate right now at the time. Operator: And your next question today will come from Itay Michaeli with TD Cowen. Itay Michaeli: Just going back to the onshoring opportunity. As you think about that opportunity as well as your recent business wins and ICE extensions. I'm curious how you're thinking, at least at a high level of the kind of growth over market potential over the next 2 years or so. David Dauch: What I would say, Itay, this is David. I think we have an opportunity to benefit strongly in our metal forming side of the business. With respect to the onshoring activity that we mentioned earlier, once we're able to pull Dowlais together, we also think there's in-sourcing opportunities because they buy a lot of their forging and some of their powder metal on the outside. So -- and casting. So we think there's some opportunity there. I don't have off the top of my head, our position in regards to this growth over market, but I think we can keep up with the market with respect to what's going on. We do have some products that will be transitioning off some older transmission-related products. So clearly, we're going to have to offset that in order to show incremental growth aligned with the marketplace. But I would say, overall, we should be able to hopefully hold on to where the market is at. Chris May: Yes. And I would say, Itay, this is Chris. In addition to with some of that with these extensions that we're seeing, obviously, some conversion into hybrid creates some opportunity for us. And you may recall from our last earnings call, we announced a great award with Scout.So these are examples where our next-gen technologies into electrification will also drive some of that uplift in terms of growth over market opportunities for us. Itay Michaeli: Terrific. That's very helpful. And as my follow-up, just on the kind of Q4 outlook, do you have any kind of bias within the EBITDA range. And maybe just talk about the different factors from here through year-end that may cause you to come in at the lower or maybe higher end of that range? Chris May: Yes. In terms of that range, I can obviously, the first and foremost, it does, it pins around our absolute revenue for the quarter, and our contribution margin generally somewhere between 25% to 35% range. So that is the key -- probably the primary factors as I think, about our EBITDA range inside of the fourth quarter. As I mentioned in my prepared remarks, we do have some, I would say, heavy load of project expenses, we're getting ready for some next-gen product launches also aligned with some of our heavier capital spend that we're anticipating here in the fourth quarter. But you do get a little timing movement associated with that. As I mentioned, also some of our production volatility caused a little bit, but we're also focused on some cost optimization side on our engineering spend as well as some productivity improvements in several of our facilities. So those are kind of the key factors that had plus or minus to it, but the largest piece is volume at the moment. Operator: The next Question will come from James Picariello with BNP. Thomas Scholl: This is Jake on for James. You saw a pretty healthy step-up in driveline margins this quarter. Could you just share if there were any one-timers in there? Or is this a number you guys think you can do going forward? Chris May: Yes. Look, each quarter obviously has a unique story, whether it's mix of volume of products, but we -- on the driveline side, if you look consistently now over the last 4 to 6 quarters has been very strong and stable in its ability to generate margins on its product mix. As we talked a little bit about Ram earlier on a year-over-year basis continues to be very strong for us. That's obviously one of our full-size truck franchise products that we supply. And then quite frankly, they doing a nice job of managing their cost environment. So each quarter is a little bit different in terms of its margin, but holistically, the trend is for them to continue to perform very strong. Thomas Scholl: And then you guys have pretty significant exposure on these heavy-duty heavier duty pickup trucks. So can you talk about the impact you're seeing from the expansion of the 232 tariffs to the medium and heavy duty truck space? Have you seen any kind of shifts from your patterns or you're potentially having easier time in discussions about [ recoveries ]? Chris May: Yes, Mike. Great question. Yes. No, we obviously have a lot of exposure on that -- those platforms for all 3 of the North American OEMs. And as you know, that's a very strong demand product and built all throughout North America in different locations. Right now, at the moment, no, we've not seen any negative impact associated with that. Our customers to build those very well in terms of capacity, in terms of meeting their end market demand as well. But currently, we're not seeing any significant impact associated with that. Operator: And your next question today will come from Edison Yu with Deutsche Bank. Xin Yu: This is Winnie on for Edison. So I guess I want to go back to the quarter for a little bit, especially the performance in other Markets category, which is very strong. I just wanted to see if you can break that down, the composition of it? And then what's sustainable, what's not on a go-forward basis? Chris May: Winnie, this is Chris. I'll take that one. If you look at our performance bucket on our year-over-year walks, about 2/3 of that performance is associated with our driveline business unit sort of in response to the question that was just answered previously. And I would expect them to continue to have very strong normal operating performance. The remainder of this bucket was a net of a few things. We've seen some positive momentum in our, I would call it, material costs as a company. It was offset slightly by tariffs, a couple of million dollar net negative impact inside the quarter related to tariffs and then some timing of our SG&A expense also offset some of that gain. But structurally, again, I would expect the driveline to continue to perform very well. And metal form, I would expect to improve over the next couple of quarters as it relates to performance. Xin Yu: That's very helpful. And then maybe just looking ahead to 2026. You've mentioned that mix in your quarter was a strong contribution to the strong incrementals that you guys have been seeing. Can you help us maybe think about how that could potentially roll forward to 2026? As we look at volume and mix heading into next year? And then maybe on the profit cost side, what are some of the good guys or bad guys, that you guys -- high level color, that would be great. Chris May: Yes. As it relates to our contribution margin on our product mix, we've been pretty consistent. We see it flow through almost every quarter. Our range would be, 25% to 35% is our margin. So use that midpoint of 30%. It does depend a little bit on mix of products, but that's pretty constant. I would expect that to continue in that range going forward. Look, as we think into 2026, we're going to be very focused on optimizing our cost structure, keeping our product engineering spend in line with market trends. But really, we're going to start to pivot here in addition to our core productivity but pivot towards the acquisition with Dowlais and the synergy realization and really sort of growing our margin and cash flow opportunity from that perspective. Operator: And the next question will come from Nathan Jones with Stifel. Nathan Jones: Just 1 follow-up on your mix equation in the third quarter and how to think about that going forward? Obviously, you can have some different impacts during any given quarter. But is that something more structural in the mix where these more profitable programs that you are on should structurally grow faster than some of these less profitable programs that It are may be rolling off and we should continue to see not necessarily from 1 quarter to the next, but a more structural improvement in that mix? Chris May: I would expect, as I mentioned, Nathan, our standard contribution margin is around 25% to 35%. Our North America trucks generally are Towards the higher end of that range. Passenger cars are a little bit towards the lower end and crossover vehicles are sort of in the middle. I do not see that fundamentally changing going forward. Nathan Jones: Okay. Maybe a question on the metals business. Maybe you could just talk about the restructuring actions that you have taken in that, what's left to do and the levers that you're currently pulling and the levers you need to pull in the future to get the margins back to a more acceptable level in that business? David Dauch: Yes. This is David Dauch. We're clearly looking and acting on restructuring efforts with some activity that we've got ongoing in Europe right now. We're executing that plan. We hope to have that completed into next year. So that would be positive. The other part is addressing just some utilization matters and throughput matters within a couple of our existing plants that have struggled a little bit. One, first on labor availability and just technical skill sets. So we're addressing those matters. We're highly confident that we can get the margins back up into a double-digit type category. I don't know historically, if we can get them to those levels next year, but we'll continue to work in that direction. But obviously, we've had some challenges there that have been lingering on a little bit longer than we would like, but we're very focused on what we need to do to fix those matters going forward here. So I'll leave it at that. Operator: The next question will come from Doug Karson with Bank of America. Douglas Karson: I want to focus on the balance sheet just for a moment. So it looks like net leverage is in good shape at 2.6x. I just wanted to kind of double click on the Dowlais acquisition and being kind of conservatively set. Am I right in saying that pro forma net leverage is about flat following the acquisition? Chris May: Yes, We -- when the announced the -- this is Chris. When we announced the transaction earlier in the year, our leverage we closed last year was around 2.8x. First quarter, we were around 2.9x. And we said at that point in time, we would expect the leverage of the company once at close to be somewhat around neutral to that time spot and location. We still expect that to be true based upon what we stated earlier in the year. What you are seeing going on this year inside of AAM stand-alone as we had several initiatives to monetize some of our assets, exiting our joint venture in China, our sale of India commercial vehicle and pool cash towards that close. And this is tracking exactly along the line of the plan we anticipated and able to make that statement earlier in the year that we expect to be around leverage neutral at close from our numbers that we had when we made the announcement. So we're still expecting that to be true. Douglas Karson: That's great. that update. If I could just look at maybe at the long-term leverage framework. So since the Metaldyne acquisition, I remember in maybe 2016, lowering leverage and focus on the balance sheet was pretty much a priority for almost 10 years. How do you kind of look at the future framework for leverage now that the company's revenue is almost going to be double and you've got, I guess, more diversity. Just kind of curious of where leverage is going to go over the intermediate term? Chris May: Yes. In the -- well, first of all, in the short term, our priority will continue to be to delever the company. We will deploy as an -- on an overweight perspective, our cash generation to paying down debt. That is our anticipation. That was our commitment when we announced the transaction with Dowlais earlier in the year. And I would expect that in the near term and transitioning towards the medium term. Through that announcement earlier in the year, we did indicate once we cross the 2.5x net leverage threshold, we would have, I would call it a little more balanced capital allocation playbook. We'll continue to focus on paying down debt. We'll continue to focus on reducing the leverage of the company. That is a priority for us, but we would open up our playbook to maybe consider some other actions from a shareholder perspective. But reducing the leverage, continuing to pay down debt in the near term will be our top priority and will continue to be a priority in the medium and longer term. Operator: Your last question is a follow-up from Tom Narayan with RBC. Gautam Narayan: Just a quick 1 on the press release you guys issued on October 27 that discusses some of the some of the management folks you guys invited from the Dowlais side. Just curious how you see that playing out? Is it like kind of a plug-and-play where those folks continue to lead their respective kind of organizations? Yes, just again a high level after seeing that press release, curious how you think about integrating executives from Dowlais. David Dauch: Yes. Tom, this is David. Clearly, we are hopeful that Roberto Fioroni would join the executive team. Initial indications, we're headed down that path. At the same time, he made a personal and family decision. We have and will respect those decisions. At the same time, we'll make the necessary adjustments from a management team standpoint. Roberto's current capacity is the CFO at Dowlais. Chris is clearly the CFO at American Axle. So we'll continue with Chris in the capacity where we are. And then we'll make some slight adjustments in regards to other things that we are planning. So again, we're disappointed that Roberto can't join us. But at the same time, we've got an outstanding executive team today, and we'll continue to lead the organization going forward, and we're going to work collectively together to blend the teams at all the different levels, including the Board of Directors so that we can pick the best athletes and have the best talent to support the strategic combination of the 2 companies. David Lim: We thank all of you who have participated on this call and appreciate your interest in AAM. We certainly look forward to talking with you in the future. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome to FNF's Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Lisa Foxworthy-Parker, SVP, Investor and External Relations. Please go ahead. Lisa Foxworthy-Parker: Thanks, operator, and welcome, everyone. I'm joined today by Mike Nolan, CEO; and Tony Park, CFO. We look forward to addressing your questions following our prepared remarks. F&G's management team, including Chris Blunt, CEO; and Conor Murphy, President and CFO, will also be available for Q&A. 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 webcast replay. And with that, I'll hand the call over to Mike Nolan. Mike Nolan: Thank you, Lisa, and good morning. We delivered strong third quarter results across both our Title business and F&G segment, demonstrating the power of our complementary businesses and our ability to execute in dynamic market conditions. Our Title business delivered outstanding results given the low transactional environment. I'd like to start by thanking our employees for their unwavering focus on meeting our customers' needs regardless of the environment while continuing to deliver industry-leading performance. We delivered adjusted pretax title earnings of $410 million, an $87 million or 27% increase over the third quarter of 2024, and an adjusted pretax title margin of 17.8%, up 190 basis points from 15.9% in the third quarter of 2024. These results reflect strong performance across the business, including commercial and refinance, as well as our centralized and home warranty operations. Additionally, our disciplined expense management drove strong incremental margins. Looking at our title results more closely, starting with purchase, we continue to see normal seasonality in daily purchase orders opened with an 8% sequential decline. Within the quarter's results, however, we saw daily purchase orders opened in September higher than August. This is atypical and due to the modest downward trend in mortgage rates during the quarter, which we believe is indicative of the pent-up demand for housing. Our daily purchase orders opened were, in line with the third quarter of 2024, down 8% from the second quarter of 2025, and for the month of October, down 2% versus the prior year. Refinance volumes have been responsive, as 30-year mortgage rates decreased by 30 basis points during the third quarter. This generated an increase in refinance orders opened to 1,600 per day in the third quarter, up from 1,300 in the sequential quarter. Our refinance orders opened surged to 2,100 per day in the month of September, reflecting how refinance volumes can change with moves in rates. Our refinance orders opened per day were up 15% over the third quarter of 2024, up 22% over the second quarter of 2025, and for the month of October, up 27% versus the prior year. For commercial activity, we delivered direct commercial revenue of more than $1 billion in the first 9 months of 2025, up 27% over $801 million in the first 9 months of 2024. We have a strong inventory of deals to close and are on track to deliver our third best commercial year ever, trailing only the exceptional markets of 2021 and 2022. Notably, this was our best third quarter in history, with a 34% increase in commercial revenue over the third quarter of 2024. This was driven by a 38% increase in national revenues and a 29% increase in local revenues. In particular, national daily orders opened were up 11% over the third quarter of 2024. We now have 6 consecutive quarters with double-digit growth in national daily orders opened. Local market daily orders opened were up 5% over the third quarter of 2024. Total commercial orders opened were 856 per day, up 8% over the third quarter of 2024, in line with the second quarter of 2025, and for the month of October, up 8% versus the prior year. Diving deeper into commercial. We continue to see broad-based activity across several asset classes that are driving growth, including industrial, multifamily, affordable housing, retail and energy. What makes this year even more remarkable is that we're achieving these results with minimal contribution from the office sector, which remains subdued, but is showing signs of improvement. We have also seen a 22% increase in commercial refinance orders opened in the first 9 months of 2025 over the prior year. Overall, we remain bullish on commercial, and office is a potential added element into 2026. Bringing it all together, total orders opened averaged 5,800 per day in the third quarter, with July and August each at 5,500 and September at 6,300. For the month of October, total orders opened were over 5,600 per day, up 8% versus the prior year. Overall, our Title business is performing well in what is still a low transactional environment. Our seasoned management team has a proven track record of managing our business to the trend in open orders and varying economic conditions. This discipline has generated a steady level of free cash flow, allowing us to continue to invest in our business through attractive acquisitions and technology as we manage the business and continue to build for the long term. Turning now to some updates on our technology initiatives. Our inHere digital transaction platform provides an enhanced and reinvented customer experience as it continues to scale. During the third quarter, inHere engaged 85% of residential sales transactions and reached more than 860,000 unique users, demonstrating deep integration into daily workflows. We continue to enhance our identity verification processes and technology to streamline and secure customer authentication. These initiatives help combat the rise in impersonation and wire fraud in property sales. And they complement our existing efforts to deliver the most trusted, efficient and fully digital closing experience nationwide. We have deployed AI tools enterprise-wide, integrating practical tools into daily workflows to enhance productivity and margin efficiency. With thousands of employees now actively engaging with AI through structured training, pilot programs and targeted departmental adoption, we are building a sustainable AI fluency across our organization. At the same time, we strengthened our governance, privacy and security foundation, helping to ensure that our innovation agenda continues to be executed with discipline, scalability and long-term value creation in mind. Over time, we believe that our ongoing investments in technology, combined with our robust curated data, will lead to increased efficiency and productivity in our operations that will continue to support our market-leading pretax title margin. Turning now to our F&G segment. F&G's assets under management before flow reinsurance have crossed the $70 billion milestone at the end of the third quarter and were up 14% over the prior year quarter. We remain pleased with F&G's performance and foresee plenty of opportunities to grow and increase the value of the business. On a stand-alone basis, F&G reported GAAP equity, excluding AOCI, of $6 billion at September 30 and has grown its book value per share, excluding AOCI, to $44.07, up 61% since the 2020 acquisition. With that, let me now turn the call over to Tony to review FNF's third quarter financial performance and provide additional insights. Anthony Park: Thank you, Mike. Starting with our consolidated results. We generated $4 billion in total revenue in the third quarter. Excluding net recognized gains and losses, our total revenue was $3.9 billion as compared with $3.3 billion in the third quarter of 2024. The net recognized gains and losses in each period are primarily due to mark-to-market accounting treatment of equity and preferred stock securities, whether the securities were disposed of in the quarter or continued to be held in our investment portfolio. We reported third quarter net earnings of $358 million, including net recognized gains of $176 million, versus net earnings of $266 million, including $269 million of net recognized gains in the third quarter of 2024. Adjusted net earnings were $439 million or $1.63 per diluted share compared with $356 million or $1.30 per share for the third quarter of 2024. The Title segment contributed $330 million, the F&G segment contributed $139 million and the Corporate segment had a net loss of $1 million before eliminating $29 million of dividend income from F&G in the consolidated financial statements. Turning to third quarter financial highlights specific to the Title segment. Our Title segment generated $2.3 billion in total revenue in the third quarter, excluding net recognized losses of $38 million, compared with $2 billion in the third quarter of 2024. Direct premiums increased 19% over the prior year, agency premiums increased 13% and escrow, title-related and other fees increased 9%. Personnel costs increased 11%, and other operating expenses increased 4%. All in, the Title business generated adjusted pretax title earnings of $410 million compared with $323 million for the third quarter of 2024 and a 17.8% adjusted pretax title margin for the quarter versus 15.9% in the prior year quarter. As Mike said earlier, these results were driven by strong performance across the business, as well as disciplined expense management. Our title and corporate investment portfolio totaled $4.8 billion at September 30. Interest and investment income in the Title and Corporate segments was $109 million, up 6% versus the prior year quarter and excluding income from F&G dividends to the holding company. The current period includes growth in 1031 Exchange and other escrow balances and a benefit from a legal settlement. Looking ahead, we expect quarterly interest and investment income to trend down from the $109 million in the third quarter to around $100 million in the fourth quarter and then decline around $5 million in each subsequent quarter through 2026, assuming an additional 75 basis points of Fed rate cuts over the next 9 months. In addition, we expect approximately $30 million per quarter of common and preferred dividend income from F&G to the Corporate segment. Our title claims paid of $58 million were $12 million lower than our provision of $70 million for the third quarter. The carried reserve for title claim losses is approximately $52 million or 3.1% above the actuary central estimate. We continue to provide for title claims at 4.5% of total title premiums. Next, turning to financial highlights specific to the F&G segment. Since F&G hosted its earnings call earlier this morning and provided a thorough update, I will provide a few key highlights. F&G's AUM before flow reinsurance increased to $71.4 billion at September 30. This includes retained assets under management of $56.6 billion. F&G's gross sales were $4.2 billion. F&G generated core sales of $2.2 billion, which includes indexed annuities, indexed life and pension risk transfer, and had $2 billion of MYGA and funding agreements, two products we view as opportunistic, depending on economics and market opportunity. Net sales retained were $2.8 billion compared to $2.4 billion in the third quarter of 2024. This reflects flow reinsurance to third parties, as well as F&G's new reinsurance sidecar, which was effective August 1. Adjusted net earnings for the F&G segment were $139 million in the third quarter compared with $135 million for the third quarter of 2024. F&G's operating performance from their underlying, spread-based and fee-based businesses continues to be strong. F&G continues to provide a complement to the Title business, with the F&G segment contributing 32% of FNF's adjusted net earnings for the first 9 months of 2025. From a capital and liquidity perspective, FNF continues to maintain a strong balance sheet and balanced capital allocation strategy. FNF continues to return excess cash to shareholders through share repurchases and has remained active throughout the third quarter and into the fourth quarter. During the third quarter, we repurchased 631,000 shares for a total of $37.5 million at an average price of $59.37 per share. We have returned capital to our shareholders through common dividends and share repurchases combined of $627 million year-to-date, including $172 million in the third quarter. From a capital allocation perspective, we entered 2025 with $786 million in cash and short-term liquid investments at the holding company. During the first 9 months, the business generated cash to fund our $406 million quarterly common dividend paid, $62 million of holding company interest expense, $150 million investment in the F&G common equity raise and $221 million in share repurchases, all while keeping pace with wage inflation and funding the continued higher spend in risk and technology required in today's landscape. We ended the quarter with $733 million in cash and short-term liquid investments at the holding company, up 26% from $583 million at the end of the second quarter. This concludes our prepared remarks, and let me now turn the call back to our operator for questions. Operator: Thank you. Before opening for questions, I'd like to turn the call back over to Mike Nolan for some additional remarks. Mike Nolan: Thanks, operator. We issued a press release this morning announcing that our Board of Directors has approved a change in FNF's equity ownership stake in F&G, our majority-owned subsidiary. We plan 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 with approximately 70% of the outstanding shares in F&G. This will increase F&G's public float from approximately 18% today to approximately 30% after the distribution, strengthening F&G's positioning within the equity markets and facilitating greater institutional ownership. This distribution reflects our confidence in F&G's long-term prospects and is intended to unlock shareholder value by enhancing market liquidity and broadening investor access to F&G's shares. Additionally, we view the stock distribution as a tangible and meaningful return of value to FNF shareholders, along with our announced increase in our cash dividend. Operator, please open the call for questions. Operator: [Operator Instructions] Our first questions come from the line of Bose George with KBW. Bose George: In terms of the spin of the 12% to F&G, could you have spun the whole piece out tax-free? And then does this spin at this 12% as a taxable dividend change your ability to dividend the remainder tax-free? Anthony Park: Yes, Bose, this is Tony. The short answer is, yes, we could have spun the entire company to FNF shareholders tax-free. Clearly, we didn't do that. And by dropping below 80%, that option is off the table. Having said that, other options are, certainly, we could do other distributions in the future. But you heard what Mike said, and he can add to that. But the idea is that the Board has been very pleased with F&G, and we wanted to accomplish two things: One, continue to benefit from FG's performance and the expected future performance, but at the same time, getting more shares out there so that people could buy, in a meaningfully way -- a meaningful way, they could buy shares in F&G. Mike Nolan: Yes. And I'll just add real quick, Bose. Again, to repeat what Tony said, I think it's a clear indication that the Board recognized the need to get additional float and liquidity. But I think it's also an affirmation of our confidence in the business and its future growth. And when we look at things like the movement to a more capital-light fee-based structure, that, I think, leads to a lot of opportunities for us and in some ways, starts to make F&G more like FNF from a capital-light standpoint. Bose George: Okay. Great. And then actually, just switching to the -- just the commercial business. Just given the strength there and what you guys saw this quarter and just looking out based on your pipeline, et cetera, I mean, do you think 2026 could end up matching the peak years, '21, '22? Mike Nolan: Well, it's Mike. Bose, it's a great question. I mean, certainly, when you think a range of outcomes, I would say yes. We just had the best third quarter in our history. Which is amazing. And when you look at 10 consecutive months of better open orders month-over-month in commercial, 6 consecutive quarters of double-digit growth in opens for national orders, you're building a pipeline that will go into '26. And when we look at the strength across asset classes, it continues to be led by industrial multifamily. And industrial obviously includes the data centers, and I know others in the industry have commented on that. But it's still very broad-based. And I'll make one last comment. We do a quarterly survey -- I've talked about this before -- of our 19 national commercial offices. And they rank, for the quarter, activity across the asset classes. And in this past quarter, for the first time, our 2 office categories, which is suburban and CBD, were not 11 and 12. They moved up to 7 to 8. And so relative to my comment in the opening, that could be just an additive thing to '26. And maybe a long-winded answer to say yes, there's certainly an outcome that could be a better commercial performance than '21 and '22. Operator: Our next questions come from the line of Terry Ma with Barclays. Terry Ma: Maybe just a follow-up on the FG distribution. I mean, you called out some other options, maybe just kind of outline those options? And then it also sounds like from your comments, you obviously like FG kind of longer term. Does this kind of change like -- is it your intention to kind of hold the asset kind of longer term, I guess, at the end of the day? And if so, like, why would you call out like other options kind of available to you? Mike Nolan: Well, Terry, I think we do like the asset, and we think there's still a lot of continued growth. I think it's unquestioned that under our ownership, this company has transformed and performed exceedingly well. We like to pivot to capital-light. But like any business, anything is on the table if it's a better idea at some point. And so could there be other changes? Sure. Is that the current plan? I would say not the current plan. And this was really just let's get more flow, let's unlock some value for shareholders. We think it, like I said before, as a tangible distribution of value to our FNF shareholders, along with our increased cash dividend. So I wouldn't read too much into it, other than what I just said. Anthony Park: And more shares out there, more shares of F&G out in the marketplace not only benefit FG and FG's shareholder base, but really FNF because we believe that having more float allows more upside to F&G, which obviously, as a majority owner, benefits FNF. Terry Ma: Got it. That's helpful. And then maybe just on the title margin this quarter of 17.8%. I think last quarter, you guys called out a number of things, including higher investments in security and recruiting. I guess, maybe just update us on that? Like, was there any impact to the margin from those initiatives this quarter? And how should we kind of think about the margin as we go through the end of the year and into next year? Anthony Park: Thanks, Terry. I'll let Mike talk about the margin outlook, if you will. But in terms of one-timers that we called out last quarter, I would just say we had a couple of small items that mostly offset in the current quarter. I mentioned in my comments that we had a legal settlement which boosted investment income a little bit. That was about a $7 million benefit, and we had $4 million in addition to that as a benefit in other operating expenses, all related to that legal case, which settled after many years. So that was kind of a plus 11, if you will. Offset by what we talked about last quarter, which were elevated health claims, and we also said that we expected those to run through the balance of the year. So we probably had about $6 million or $7 million of elevated health claims in the quarter as well. And so call that netting mostly offsetting each other. And so from a margin standpoint, there wasn't a lot of net positive or negative relative to the -- what we'll call those one-offs. Mike Nolan: Yes. And then, Terry, what I'll add, I mean, obviously, it was a great quarter with really, growth across multiple business segments and one of our best quarters in the last 4 years. And we had -- commercial refi was better, some of our centralized businesses, other ancillary businesses like home warranty, and we just kind of had all of them with improved margins. So that was very helpful to the quarter. But quarter-to-quarter, there's always puts and takes. And as we go into the fourth quarter, we know it's typically the weakest quarter for purchase closings. So that's a take, obviously. And then you've got to factor in, well, how well will commercial do? We expect that to do well. What's the mix with agency? How do the ancillaries perform? So that's why it's difficult for us to kind of predict with confidence, a particular margin in a quarter. We would expect the fourth quarter to be good. I think we did 16.6% last year. And we'd expect it to be a good quarter, but we don't fully know. As we think about next year, I think our base case is that we could have modestly better margins than we'll probably do this full year if we get improvement in the purchase environment. We're now in year 4 of a pretty weak purchase transactional environment. Many have been saying, look, next year, next year, and it's just tough to predict. But if we get a better purchase environment next year, we already talked about possibly a better commercial environment. And then refi is the one that's really rate dependent. And I just -- and one of the reasons why we called it out in the opener was to see open orders go from 1,300 in July to 2,100 in September with -- essentially, a 30 or 40 basis point drop in rates just shows you the power of the swings in refi volumes. And again, that will just be rate dependent. Operator: [Operator Instructions] Our next questions come from the line of Mark DeVries with Deutsche Bank. Mark DeVries: I just wanted to clarify, Tony, your response to Bose's question on the spin. Did you indicate that now that you'll be dropping below 80%, that if you were to elect to do a subsequent distribution, that, that would not be tax-free? Did I hear that right? Anthony Park: That's correct. These are taxable distributions. So this 12% is the taxable distribution. And if we were to, let's say, opt to distribute the entire 70% ownership in the future, that would not be a tax-free spin because once you drop below 80%, you've, in effect, lost your ability to do a full spin tax-free. Mark DeVries: Okay. Just given that, could you talk a little more about how you landed on 12% as being the right number, particularly since you kind of lose that optionality going forward? Mike Nolan: And maybe Chris will weigh in here, too, I think he's with us. I think it doubles the float. And so that felt like the right number. I don't know, Chris, if you have anything you'd want to add to that? Christopher Blunt: Yes. No, I mean, it will take us comfortably over $1 billion of free float. So while a small distribution from an FNF perspective, it's quite meaningful to us on the FG side. So it will take free float over $1 billion, which is great. And yet, I think still a vote of confidence in the upside of FG. Mark DeVries: Got it. And then turning to the commercial side. Mike, could you give us some perspective on -- if you think about pre-pandemic, how big of a contributor was office? And how much of a tailwind could that have to your commercial business if that starts to normalize? Mike Nolan: Yes. That's a really good question. I don't probably have a very specific answer. It's more anecdotal. But I recall in the years between 2015 and probably 2019, that it seemed like office was just one of the top segments. Particularly, I remember in 2015 and 2016, in markets like New York, there were some just major transactions and things like that. So we might be able to go back and get a better answer on that, Mark. But I don't have a number to give you, other than to say it's been so weak that anything we get is going to be additive. Mark DeVries: Yes. That's helpful. And then is there any margin difference in office compared to your other commercial businesses? Mike Nolan: No, I think it's all just about the particular fee per file revenue on transactions. So our margins in our national commercial on a pretax basis generally are north of 30% and sometimes higher. And we would expect to probably get that on office versus any other type of commercial asset. Operator: Our next questions come from the line of Mark Hughes with Truist Securities. Mark Hughes: Yes. Thanks. The earnings from equity investments were pretty good this quarter. What was that? And is that sustainable? Anthony Park: Sustainable is a good question. There is volatility in that bucket. We have some -- I won't name the fund, but we have a few funds that we invest in and have for years, frankly, and the marks there move around a little bit. But the last couple of quarters, you might have seen it last quarter as well, but the last couple of quarters, we've had some really positive results from some marks that we have on, I believe, one particular investment in that bucket. So I would say for modeling purposes, I wouldn't go with sustainable. I would think you'd keep that pretty small and then just wait for those to come through. Mark Hughes: Yes. What was the actual order count, daily count for refis in October? Mike Nolan: Yes, Mark, it's Mike. We opened just a little over 1,800 orders per day in October, which was down from the 2,100 in September, but above the average for the quarter of 1,600. So still really good, but they did come off just a bit. Anthony Park: Refi? Mike Nolan: Refi. That was the question, right? Mark Hughes: Yes, that was the question. Mike Nolan: I'm talking refi orders. Yes, hopefully, I got it right. Mark Hughes: Yes. On the -- you made a point about commercial refi. What was that point? What -- how big is it relative to the overall mix? And is there any particular trend there? Mike Nolan: I think the point is it shows that customers are getting financing. And there was concerns about -- you hear these things about wall to maturity and all this kind of stuff and that maybe people won't be able to refinance commercial properties. And I think the fact that our refi opens are up double digits over last year, I think, points to the fact that maybe the markets aren't as locked up as you might think. But I wouldn't say it's necessarily a significant overall volume, but definitely additive if you think of it that way. Mark Hughes: Yes. And then you had mentioned with inHere that 85% of orders were engaged. Could you expand on that? And is that to say that the -- in the large majority of orders, the -- it's being used, but maybe it could be used more fully if it's engaged? What's the full level of engagement? Mike Nolan: When we open an order, we invite them to inHere. And so that invites them to a portal environment, they're authenticated, and then they interact with us on that environment. And 85% of our orders had engagement from customers to that invitation. And that's an increase over where we've been in the past. And I think it just shows how this is developing and building and gaining attention. So we're excited about that. And then once they're in the platform and they stay in it to track their order through up to closing, we're taking them out of e-mail in the way they interact with us. And we believe that's a more secure, efficient, better customer experience kind of environment. And to have 860,000 unique users actually doing that in the quarter, I think it's also very -- but again, points right back to the scale. The fact that we've actually deployed this across our entire footprint, the only company in the industry that's done that, still. And so I think it's just -- we're excited about the long-term opportunities of that as sort of a transformational customer experience and more secure platform. Operator: Thank you. And this will conclude our question-and-answer session. I would now like to turn the conference back over to CEO, Mike Nolan, for closing remarks. Mike Nolan: Thanks for joining our call this morning. Together, the combined business delivered strong third quarter results, demonstrating the power of our complementary businesses and our ability to execute in dynamic market conditions. The Title segment continues to deliver industry-leading margins in a low transactional environment and is capitalizing on stronger commercial activity. F&G is executing on its strategy that's focused on balancing continued growth in the spread-based annuity business alongside the fee-based flow reinsurance, middle-market life insurance and owned distribution strategies as they continue to deliver long-term shareholder value. We appreciate your interest in FNF and look forward to updating you on our fourth quarter earnings call. Operator: Thank you for attending today's presentation and the conference call has concluded. You may now disconnect.
Operator: Greetings, and welcome to the Graham Corporation Second Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Tom Cook. Please go ahead. Tom Cook: Thank you, Carrie, and good morning, everyone. Welcome to Graham's Fiscal Second Quarter 2026 Earnings Call. With me on the call today are Matt Malone, President and CEO; and Chris Thome, Chief Financial Officer. This morning, we released our financial results. Our earnings release and accompanying presentation to today's call are available on our website at ir.grahamcorp.com. You should be aware that we may make forward-looking statements during the formal discussion as well as during the Q&A session. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what is stated here today. These risks and uncertainties and other factors are provided in the earnings release as well as with other documents that are filed by the company with the Securities and Exchange Commission. You can find these documents on our website or at sec.gov. During today's call, we will also discuss non-GAAP financial measures. We believe these will be useful in evaluating our performance. However, you should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of non-GAAP measures with complete -- with comparable GAAP measures in the table that accompany today's release and slides. We also use key performance indicators to help gauge the progress and performance of the company. These key performance metrics are ROIC, orders, backlog and book-to-bill ratio. These are operational measures and a quantitative reconciliation of each is not required or provided. You can find a disclaimer regarding our use of KPIs at the back of today's presentation. So with that, if you'll please advance to Slide 3, I'll turn it over to Matt to begin. Matt? Matthew Malone: Thank you, Tom, and good morning, everyone. We appreciate you joining us to review our second quarter fiscal 2026 results. We delivered another strong quarter, continuing to execute our communicated strategy and demonstrating the resiliency and diversification of our business. Revenue grew 23% to $66 million, driven by solid performance across all of our end markets. The timing of these key project milestones, particularly material receipts in our defense business as well as contributions from new programs and growth in existing platforms. Adjusted EBITDA increased 12% to $6.3 million. On a year-to-year basis, adjusted EBITDA margin expanded 40 basis points to 10.8%, underscoring our continued focus on operational execution and profitable growth. Bookings remained strong, resulting in a book-to-bill ratio of 1.3x and driving backlog to a record $500.1 million, up 23% year-over-year. Our backlog provides excellent visibility with roughly 35% to 40% expected to convert to revenue over the next 12 months. On the defense side, we continue to see strong momentum with our U.S. Navy programs. As a reminder, in July, we announced a $25.5 million follow-on order to produce mission-critical hardware for the MK48 Mod 7 Heavyweight Torpedo program. More recently, I want to highlight an important milestone for our defense business and our long-standing partnership with the U.S. Navy. In October, we commemorated our new 30,000 square foot advanced manufacturing facility in Batavia, New York, which represents a major investment in our capacity and capabilities to support key Navy programs. This purpose-built site is designed for efficiency, precision and scale and incorporates advanced technologies, including automated welding, optimized product flow and state-of-the-art machining. We expect the facility to be fully operational by the end of fiscal 2026. And once online, it will be -- it will meaningfully expand our throughput, enhance quality and strengthen our ability to meet rising demand across multiple Navy programs. As part of this, we were honored to host Captain Heath Johnmeyer, Commanding Officer of the Future [ USSS ] District of Columbia, along with several strategic partners and customers during the event. Their participation underscores the Navy's confidence in Graham and a critical role of our team and capabilities play in supporting fleet readiness as the Navy celebrated its 250th anniversary. This engagement reflects our position as a trusted supplier to some of the most important defense platforms in the world. In addition to expanding capacity, we continue to invest in advanced inspection and manufacturing technologies, including our enhanced x-ray testing and automated welding systems that are beginning to come online. These investments will further increase throughput, improve inspection precision and support production scale as we execute the Navy's long-term modernization initiatives. Moving to Energy and Process. During the quarter, we saw increased sales of $2.0 million or 11%, driven by the timing of large capital projects and continued strong aftermarket sales. Further, we are seeing meaningful momentum in small modular nuclear reactors and cryogenic applications, where customers' interest in our mission-critical equipment continues to expand as those markets slowly transition into commercial deploy. Defense -- demand fundamentals across all of our end markets remains healthy, though we are observing extended decision cycles on certain large global capital projects. Overall, our position remains strong, and we continue to execute well against opportunities in both mature and emerging applications. In space, as we have announced earlier this morning, we continue to see meaningful momentum. In the second quarter and first month of our fiscal 2026 third quarter, our Barber-Nichols subsidiary booked a series of new orders from 6 industry-leading customers in the commercial space launch market. These awards were for advanced turbomachinery and precision engineered components supporting next-generation commercial launch and in Space systems and totaled $22 million. These orders are expected to convert into revenue over the next 12 to 24 months, further strengthening our visibility and reinforcing the value we bring to these mission-critical space applications. We're encouraged by the breadth of programs we are involved in and the growing activity across customers who are scaling production to meet increased launch cadence and orbital infrastructure needs. To support this demand, we are continuing to invest in capacity and capabilities at Barber-Nichols, including additional CNC machining centers, expanded testing infrastructure and our new liquid nitrogen test stand. These investments build on our previously announced cryogenic test facility in Florida, which remains on track to come online later this year. Together, these enhancements strengthen our ability to deliver with speed and precision as our customers move from development into higher rate production. The momentum we are seeing in our space end markets reflects the strength of our technology, engineering expertise and decades-long reputation for performance in high-speed rotating equipment. As the commercial and government space markets continue to expand, we believe Graham is well positioned to support the industry's long-term growth and advance our strategy of building a diversified portfolio across high-growth, innovation-driven end markets. Finally, I want to touch on the recent acquisition announcement of Xdot Bearing Technologies, an engineering-led firm with patented foil bearing technology and deep expertise in high-speed rotating machinery. This is a highly strategic technology acquisition that strengthens our competitive position in an area where performance, reliability and efficiency are becoming increasingly critical across aerospace, defense, energy transition and industrial applications. Xdot's proprietary foil-bearing designs deliver superior performance while reducing development and production costs. And when combined with Barber-Nichols turbomachinery capabilities, significantly expand our ability to engineer and deliver advanced high-speed pumps, compressors and rotating systems. This acquisition not only broadens our product portfolio, but also positions us to move into adjacent applications and emerging high-performance markets, where we are seeing growing customer interest. Importantly, this is a disciplined, strategically aligned investment that fits squarely within our capital allocation framework. Xdot brings proven technology, a respected technical founder and team and complementary customer relationships. We expect the acquisition to be slightly accretive to our fiscal 2026 results. Overall, this acquisition underscores our commitment to investing in differentiated technology, expanding our engineered solution offerings and creating durable competitive advantages across our growth platforms. More broadly, on the M&A front, we continue to see a strong pipeline of acquisition opportunities that align with our strategic objectives and remain focused on pursuing opportunities that offer risk-adjusted returns and can help us accelerate our product life cycle strategy. In closing, our fiscal second quarter results demonstrate continued business momentum across our diversified portfolio. With our record backlog, strong market positioning and progress on key growth initiatives, we're well positioned to capitalize on the opportunities ahead. With that, I'll turn the call over to Chris for a detailed review of our financial results. Chris? Christopher Thome: Thanks, Matt, and good morning, everyone. I will begin my review of results on Slide 6. For the second quarter of fiscal 2026, sales were $66 million, an increase of 23% compared to the prior year period, reflecting broad-based strength across all our end markets. This performance demonstrates continued execution and healthy demand across defense, energy and process and space and is consistent with our full year expectations. Sales to the defense market increased by $9.9 million or 32%, primarily reflecting timing of project milestones and particularly material receipts as well as growth across new and existing programs. Sales to the energy and process market increased by $2 million, primarily driven by the timing on larger capital projects. Aftermarket sales to the energy and process and defense markets were $9.8 million for the quarter, slightly above the prior year period, but when combined with our first fiscal quarter are up 15% year-to-date and continue to reflect resilient demand for aftermarket support across our global installed base. As a reminder, our fiscal third quarter is typically our seasonally lowest revenue period due to normal holiday-related production schedules. Turning to Slide 7. Gross profit increased 12% to $14.3 million, and gross margin was 21.7% for the quarter. The lower margin in the quarter reflects the sales mix in the period, including an unusually high level of material receipts that carry lower margins. We estimate that this higher-than-normal level of material receipts impacted our gross margin by approximately 180 basis points in the quarter. As a reminder, the prior year period benefited from approximately $400,000 from the BlueForge Alliance grant income that did not repeat this year. Finally, for the first 6 months of fiscal 2026, we estimate the impact of tariffs to be approximately $1 million compared to the prior year. As we look at the full year, we have narrowed our expected tariff impact range to $2 million to $4 million, reflecting continued sourcing discipline and contract language that protects us. On Slide 8, you can see how this operating performance translated to the bottom line. Net income for the quarter was $0.28 per diluted share and adjusted net income was $0.31 per diluted share. Adjusted EBITDA was $6.3 million, up 12% from the prior year, and adjusted EBITDA margin was 9.5%. On a year-to-date basis, our adjusted EBITDA margin is 10.8%, up 40 basis points over the prior year and in line with our full year guidance. As a reminder, the Barber-Nichols earnout bonus will phase out by the end of fiscal 2026. Excluding this item, we remain confident in our ability to achieve our fiscal 2027 goal of low to mid-teen adjusted EBITDA margin. Moving to Slide 9. It was another very strong quarter for orders, which totaled $83.2 million, driven by strong demand across defense, space and energy and process. This included a $25.5 million follow-on contract for the MK48 Mod 7 Heavyweight Torpedo program as well as new orders from leading space and aerospace companies that Matt discussed and that we announced in our press release this morning. Aftermarket orders were $9.6 million, moderating from the record levels of last year, but remaining strong on a historical basis. The resulting book-to-bill ratio was 1.3x. driving backlog to a record $500.1 million, up 23% year-over-year. Approximately 35% to 40% of this backlog is expected to convert to revenue over the next 12 months and roughly 85% of the total backlog is attributable to the defense market. As a reminder, orders remain inherently lumpy given the multiyear nature of our defense programs and our large commercial contracts. To illustrate this point, since fiscal 2020, our annual book-to-bill ratio has ranged from 0.9x to 1.4x revenue. However, our quarterly book-to-bill ratio over the same time period has ranged from 0.5 to 2.8x revenue. Over the long term, we target a book-to-bill ratio of 1.1x each year in order to support our long-term growth goals of 8% to 10% per year. For the fiscal 2026 year-to-date period, our book-to-bill ratio is 1.7x. Turning to Slide 10. We remain in a strong liquidity position. We ended the quarter with $20.6 million in cash and no debt and $44.7 million available on our revolver, providing significant flexibility to support future growth investments. Operating cash flow was $13.6 million for the quarter, reflecting strong working capital conversion tied to milestone receipts and advanced payments as well as strong cash profitability. Capital expenditures were $4.1 million in the quarter, focused on capacity expansion, automation, next-generation X-ray technology and our new cryogenic testing facility in Florida, all of which Matt discussed earlier. All major projects remain on schedule and are expected to deliver returns above 20% ROIC. Turning to guidance on Slide 11. Based on our performance through the first half of fiscal 2026 and our outlook for the balance of the year, we are reaffirming our full year guidance for all key financial metrics. The recently announced Xdot technology acquisition does not materially affect our guidance for the year as our annual revenue is only about $1 million per year. Again, we would like to remind everyone that our fiscal third quarter is typically our seasonally lowest revenue period due to normal holiday-related production schedules. Overall, with strong execution, robust end market demand and a record backlog, we remain confident in our full year outlook and our ability to continue delivering consistent performance. The 20% plus ROIC investments coming online in the next 2 quarters, along with the continued momentum that is building within our company gives us confidence we are on track to achieving our fiscal 2027 targets of 8% to 10% organic revenue growth and low to mid-teen adjusted EBITDA margin. With that, we can now open the call for questions. Operator: [Operator Instructions] And our first question comes from Bobby Brooks with Northland Capital Markets. Robert Brooks: Just wanted to get a little bit more clarity. It seems like the $22 million in space and aerospace orders announced this morning, it seems like some of that was recognized in 2Q results and some of it will be recognized in 3Q results. Just is that -- am I thinking about it right? And could you parse that out for how much was in 2Q versus 3Q? Christopher Thome: Yes. No, you're spot on there, Bobby. As you saw from the release today, we had $15 million of orders in Q2 and the other $7 million came in after quarter end. So they'll be in Q3. Robert Brooks: Got it. And then so excellent results for revenue in the quarter, but guidance is maintained. So I was just curious, could you discuss why maintaining the guidance made more sense in raising? Is it just simply some stuff was scheduled to go out maybe in the back half and got pulled forward and occurred in the second quarter? Or maybe it's tied to some dynamic with the manufacturing footprint? Just hoping to get more insight there. Christopher Thome: Yes. It's just all timing, Bobby. The results for the first half of the year are consistent with our expectations. We're tracking right on plan. So we just maintain the guidance. Robert Brooks: Got it. And then it's great to hear that the cryogenic facility is on track. I saw some updates from the Barber-Nichols [indiscernible] intra-quarter. And I think I've read somewhere that you're starting to book slots there. So just curious to maybe hear an update there and how things are going. Matthew Malone: Yes. So I'll answer 2 things. The first is we did successfully commission and execute testing at the Barber-Nichols location in Colorado with the liquid nitrogen stand, which is a smaller stand that supports a critical space program. In addition is the propellant test facility, which is obviously on a much larger basis down in Florida, which is what you're alluding to. We actually expect to get the occupancy here any day, at which point we'll be commissioning with our product. So we'll be testing an internal product. Simultaneously, we do expect within this calendar year to start testing customer product. With that being said, yes, I'd say that the backlog and customer conversations are healthy. And as we pivot from actually getting the test fan operational, we are shifting full focus to booking the customers into the backlog. So it's coming along just as we expected. Operator: And moving on to Russell Stanley with Beacon Securities. Russell Stanley: Congrats on the quarter. Maybe just on orders, surprisingly strong in the quarter, given how strong Q1 was, understanding the lumpiness going forward. But can you talk to, I guess, how much of the Q2 defense orders were Navy related or specifically related to the [indiscernible] carrier programs. Just wondering what kind of opportunities you're seeing outside of those core programs you're already on. Matthew Malone: Yes. Ross, it's a great point. And I think it's worth a little bit of expansion. Actually, the bookings primarily this last quarter weren't in connection to the actual strategic platforms themselves, but in some way are connected to the larger defense scope. So as mentioned, we saw the torpedo side. We saw the -- some of the aftermarket pickup on the defense side. We saw the space bookings that were announced this morning. So it was really a host of opportunities that we've been nurturing sort of in the background connected to the strategic programs without providing too much additional color that I really can't go into. So yes, it was a nice diversified bookings, but very strong, as you alluded to. Russell Stanley: Great. Congrats on that. Maybe I can ask, obviously, excellent order numbers. The customer advances look strong, but just heard from the major shipbuilders a few weeks back. Wondering if you could talk to any sort of impacts you're seeing in your business around the government shutdown, be it in customer conversations or order flow looking a little further out. Matthew Malone: Yes. So fortunately, for us, as you followed us closely, the programs that we're involved with are extremely long-standing and have great confidence long term. So what we're seeing is in terms of impact it is pretty minimal, both in the near term and long term. What we do feel, just to break it down to a very narrow window is we obviously have quite a bit of components working their way through the factory. And so the support from government reviews and reviewing deviations and other things that are much more tactical we are taking some additional time. Fortunately, a unit like this takes years. And so days doesn't end up disrupting the outcome. So I think we're really well positioned despite the shutdown. The other area that we're feeling some impact is just appropriations and then actually sending out the sort of defined POs for what are more development-like programs. So we have gotten all indications that everything is moving forward, but just some delay in actually issuing the work. Russell Stanley: That's great. Maybe one last question just around the Xdot transaction. I understand I think you're already doing business with them. But can you talk to, I guess, what kind of customer feedback you've received around the transaction, what they've said to you? And secondarily, I guess, the tech has applications, I think, across your main business lines, but wondering where the most significant impact might be. Matthew Malone: Yes. It's another great question. So yes, we've been working with at Barber-Nichols, specifically foil-bearing technology for decades at this point on what I'll say is very focused applications. We've also been working with Xdot for extended periods of time. With that being said, we've developed a great relationship and they have analytical capability that ourselves and others do not. So in addition to this, the product portfolio, we get some additional capability. The customer conversations, our customers don't necessarily know that we're using Xdot technology up to this point, but it's an enabling technology. So I'll just say it has allowed us to enter into areas like small modular nuclear, which we're using foil-bearing technology in some other areas like, for example, fuel cell blowers and such, but our customers don't necessarily know that connection and link. What we are seeing is their bearing end user, which is essentially buying spare bearings today or production bearings are now looking to have conversations with Barber-Nichols about potentially machine upgrades or future opportunities. So I guess, Russ, that's the color I'd provide, but it really is around technology excellence. Operator: And our next question comes from Joe Gomes with NOBLE Capital. Joseph Gomes: Congrats on the quarter. On the announcement today on the space market, you did mention that orders that you're making some investments. Maybe you could just give us a little more color on the size and timing of those investments. Christopher Thome: Yes. No, you got that right on, Joe. We are going to need to buy some additional [indiscernible]. That's factored into the CapEx guidance for the year. So as you saw, there was no change to our guidance and we'll spill over a little bit into fiscal year '27. But as we've always said, we're not going to make big capital investments unless we have the orders to support them, and they all have to have a greater than 20% ROIC that we've discussed as well. So -- and we won't make those investments until we have that in hand. Matthew Malone: Yes. And one quick add, Joe, just for some additional insight. The orders really secure the investments that we've already been making. And so these orders really reaffirm a lot of our ROIC calculations that have been made in the past. So it's just really nice that it's sort of reaffirming our commitments in our budgeting process. So strategic direction, the assets like down in Florida, some of these orders impact that facility. The liquid nitrogen stand also has impacted the assembly and test area at Barber-Nichols that just came online last quarter, where this product is going through that facility. And so it's just a great [ marry ] of the current capability that we've already invested in as well. Christopher Thome: That's a great point, Matt. And said a little bit differently as well, the investments we made enable us to win these orders to a great extent. Joseph Gomes: Okay. And maybe the same -- you talked about some momentum in the small modular reactors. Maybe you could just give us a little bit more color on what you're talking about there and momentum and timing for that also. Matthew Malone: Yes. Yes. So small modular reactors is a very interesting -- we've seen ups and downs with nuclear over decades. We're clearly in a bullish position right now. Barber-Nichols is well positioned with background on rotating machine that support both cryogenics that directly applies to thermal regulation of a nuclear reactor. In this case, Joe, we're in the early phases of development on a number of, I'll say, scaling programs or the potential to scale. And so we've already disclosed, but you can sort of see that the ramp is not going to happen overnight. So we are in the development phase. We're seeing some products that will go into the Idaho National Lab dome in the next coming months/year and then have long-term potential for scale. So I'll just -- I'll state it as simple as we're in the early phases of that growth trajectory as almost aligned with what the industry is feeling. Joseph Gomes: Okay. And then just on the defense, the increase, the $9.9 million growth in defense revenues. And you mentioned there was -- one was the timing of some project milestones, new programs, growth in existing programs. I don't know if you could kind of size those for us as to what percent of that $10 million growth came from the milestones versus the new programs versus the growth in existing programs? Christopher Thome: Yes. So Joe, as you know, our revenue tends to be very lumpy. And part of what creates that lumpiness is when we receive materials on some of these programs, we're allowed to recognize revenue since we're on a percentage completion basis. We had -- in our prepared remarks, we had an unusually high level of material receipts this past quarter, which was expected in this fiscal year. And that range from about $8 million to $10 million. So the biggest -- a large chunk of that increase was because of these material receipts, which also, as stated in the comments today, do carry with it a lower margin. As we stated, it impacted our gross margin by about 180 basis points. So that's the bulk of what you're seeing there. But we have material receipts every quarter. It's just not to this high level usually. Operator: [Operator Instructions] And we'll go next to Tony Bancroft with Gabelli. George Bancroft: Great job on the quarter. As I'm looking at all your numbers here in your backlog and your balance sheet, it seems like you guys -- everything is going high and right, a lot of orders, very sticky stuff, long-term secular stuff. In 5 years, you sort of have -- it seems like sort of 3 strong markets that you're in. And as far as growth, how do you -- in 5 years, how are you going to see yourself positioned? Are you going to be focusing on the sort of the naval defense? You've got this sort of a nice space business that's growing nicely. And then you obviously have the commercial SMR business. Your funnel, what are you seeing as the best opportunities? And maybe talk about the demand there, the pricing there and sort of walk through that for me? Matthew Malone: Yes. Tony, great question. I'm going to answer this a little bit higher level, and then we can go deeper if needed. We love the 50-50 target split between sort of the commercial segment and the defense segment. And what that allows us to do is be speedy and nimble, I'll say, attuned to pricing and specifically optimizing pricing on the commercial side and then bringing commerciality where possible in technology and speed to the defense market. So we really act as that long-term provider, but also that sort of technology disruptor in the defense space. So I'll just say, fundamentally, that is our focus, is to keep that velocity from the -- in competitiveness from the commercial side and bring that to the defense side. And 5 years out, we see that same dynamic moving forward. What I will also say is, yes, there will probably be ebbs and flows to what that split looks like based on opportunities that come in the door. Operator: And we'll go next to Gary Schwab with Valley Forge Capital Management. Unknown Analyst: Yes. Great quarter, guys. I just want to go a little further into the last caller's question on -- but I want to go into a different direction. You have a proven success record so far for the MK48 Torpedo program. This is for Matt. I've got a 2-part question for you. Looking ahead for opportunities into 2027 on new torpedo programs, it has to do with the [ SCEPS ], the solid chemical torpedo propulsion system being developed for 2 new torpedo platforms. And it looks like those 2 new torpedoes will serve 2 distinctly different roles from the MK48 program. I know we're already supplying a limited production run on this propulsion system. My first question is, can you add some insight into how the Navy plans to deploy these 2 new torpedo platforms and what gaps they're trying to fill? And then secondly, given Xdot's superiority in its foil-bearing technology, do you see an opportunity that would give us a key advantage possibly of winning a role on either the propulsion side or the guidance system side of either of these torpedo platforms? Matthew Malone: Yes, Gary, and yes, there's a lot of momentum building. First, I'll start off with the torpedo topic. I'm going to decouple Xdot, and I'll cover that sort of after. Independent of bearing technology, we're well positioned to be a key supplier on the platforms that you referenced. So I'll just keep it high level and say we don't need that technology to be a key supplier. We're already engaged in doing work in that arena. Once again, I can't sort of speculate on the Navy's plans for these products. And certainly, it could be Army and other areas. But what I will say is the gaps that they cover, all the gaps that you would expect with such capability, and that's sort of range, longevity, reuse, all the things that would add additional value to the defense portfolio. So yes, we are well positioned on those new technologies in the torpedo space, and we're working with primes and the government to develop those technologies. Unknown Analyst: Can I just ask, is that going to be a much bigger program? Because I know that the problem with going after drones now, one of the programs is for multiple torpedoes, small torpedoes to go after drones. Matthew Malone: So once again, you'll have to sort of read in depth because I can't disclose too many details. But I'll just say that there's a lot of practical uses for both the MK48 Torpedo as well as the new technologies. So yes, I think they're looking to sort of deploy such similar technology to adjacent capability within the naval platform. Operator: And this now concludes our question-and-answer session. I would like to turn the floor back over to CEO, Matt Malone, for closing comments. Matthew Malone: Thank you. We are pleased with our results through the first half of the fiscal year, which were in line with our expectations and guidance. We look forward to keeping you updated on our progress. As always, please reach out with any questions. Thank you, everyone, for joining us today and your interest in Graham. Operator: And ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Good day, and welcome to the Trupanion Third Quarter 2025 Earnings Conference Call. Today's call, which is being recorded, is scheduled to last about an hour, including remarks. I would now like to turn the call over to Gil Melchior, Director of Investor Relations. Thank you, and over to you. Gil Melchior: Good afternoon, and welcome to Trupanion's Third Quarter 2025 Financial Results Conference Call. Participating on today's call are Margi Tooth, Chief Executive Officer and President; and Fawwad Qureshi, Chief Financial Officer. For ease of reference, we've included a slide presentation to accompany today's discussion, which will be made available on our Investor Relations website under our Quarterly Earnings tab. Before we begin, please be advised that remarks today will contain forward-looking statements. All statements other than statements of historical facts are forward-looking statements. These include, but are not limited to, statements regarding our future operations, key operating metrics, opportunities and financial performance, pricing and veterinary industry inflation. These statements involve a high degree of known and unknown risks and uncertainties that could cause actual results to differ materially from those discussed. A detailed discussion of these and other risks and uncertainties are included in today's earnings release as well as the company's most recent reports, including Form 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission. Today's presentation contains references to non-GAAP financial measures that management uses to evaluate the company's performance, including, without limitation, cost of paying veterinary invoices, variable expenses, fixed expenses, adjusted operating income, acquisition costs, internal rate of return, adjusted EBITDA and free cash flow. When we use the term adjusted operating income or margin, it is intended to refer to our non-GAAP operating income or margin before new pet acquisition and development expenses. Unless otherwise noted, all margin and expenses will be presented on a non-GAAP basis and excluding stock-based compensation expense and depreciation expense. These non-GAAP measures are in addition to and not a substitute for measures of financial performance prepared in accordance with the U.S. GAAP. Investors are encouraged to review the reconciliations of these non-GAAP financial measures to the most directly comparable GAAP results, which can be found in today's press release. Lastly, I would like to remind everyone that today's conference call is also available via webcast on Trupanion's Investor Relations website. A replay will also be available on the site. I will now hand over the call to Margi. Margaret Tooth: Thank you, Gil, and good afternoon, everyone. Our third quarter financial performance was strong, underscored by continued momentum across key business metrics. I'll start with the headlines, then hand over to Fawwad for a full walk-through of our financial performance, ahead of discussing how we're expanding Trupanion's reach through new partnerships and brand initiatives that strengthen our connection to veterinarians and pet parents alike. Turning to our highlights. In our subscription segment, we accelerated net pet adds for the third consecutive quarter and increased them by 45% year-over-year. We delivered record subscription adjusted operating income of $39 million, an increase of 27% year-over-year. Subscription adjusted operating margin was 15.5%, also our highest ever. These results reflect consistent, disciplined execution over the past 24 months to deliver on our value proposition and our cost-plus solution. Adjusted operating income is the fuel to grow the business and pet growth in the quarter was a result of continued investment in our retention performance and increasing contribution from our gross pet adds. Specifically related to retention, we're pleased to report continued progress. As rate flow stabilizes for the majority of our members, our efforts to make adjustments more predictable and to reinforce the importance of coverage, especially in uncertain economic times are paying off. Targeted communications, enhanced member support and education around coverage value are resonating, contributing to improved member loyalty and a steady climb in trailing 12-month retention. Retention is more than a performance indicator. It's a foundational element of long-term value creation. High retention strengthens lifetime value, which in turn increases our allowable PAC. As our margin continues to hold strong, this translates into high levels of adjusted operating income dollars to reinvest in growth. With that in mind, following the third consecutive quarter of double-digit investment increases, we returned to growth in gross pet additions, which were up 4% year-over-year. Combined with our retention gains, this translated into the highest net pet growth in 7 quarters, adding over 16,000 net new pets in our subscription segment. These are durable gains, and we expect these positive trends to continue into 2026. As we enter the final stretch of the year with record margins, record free cash flow generation and a strengthened balance sheet, we have the capacity to invest even more deeply. We're deploying this capital aggressively yet deliberately to ensure the Trupanion brand is seen and heard in a broader way than before. The driving force behind our why remains. Pet parents are struggling to understand how to budget for the unexpected care of their pet and the veterinary industry is under immense strain as they work through the challenges of access to care. Trupanion must be visible and well understood as a standout solution capable of bridging that growing gap, and we're now well poised to advance that message. I'll now turn it over to Fawwad to walk through the financials in more detail. Fawwad Qureshi: Thanks, Margi, and good afternoon, everyone. Today, I will share additional details around our third quarter performance as well as provide our outlook for the fourth quarter and full year 2025. Total revenue for the quarter was $366.9 million, up 12% year-over-year. Within our subscription business, revenue was $252.7 million, up 15% year-over-year. Total subscription pets increased 5% year-over-year to over 1,082,000 pets as of September 30. This includes approximately 60,000 pets in Europe, a majority of which are currently underwritten through an MGA structure. Average monthly retention for the trailing 12 months was 98.33%, up versus the third quarter last year, which was 98.29%. The subscription business cost of paying veterinary invoices was $177.1 million, resulting in a value proposition of 70.1%. This compared to 71.0% in the prior year period. This improvement more than offset adverse development from prior periods of $0.3 million or approximately 10 basis points of revenue. As a percentage of subscription revenue, variable expenses were 8.9%, down from 9.4% a year ago. Fixed expenses as a percentage of revenue were 5.6%, in line with the prior year period. Combined, we saw fixed and variable spending at 14.5% of revenue in Q3, an improvement from 15.0% in the prior year period. We have continued to drive efficiencies in both fixed and variable spending, consistent with our expectations. The improvements in variable spending have given us the opportunity to reinvest, particularly in technology investments that sit within our fixed expenses. Our subscription business delivered adjusted operating income of $39.1 million, an increase of 27% from last year and contributed 96% of our total AOI for the quarter. Subscription adjusted operating margin was 15.5%, up from 14% in the prior year and represents approximately 150 basis points of margin expansion. This marks a new company record for both subscription AOI and subscription AOM. Now I'll turn to our other business segment, which is comprised of revenue from other products and services that have a lower margin profile than our subscription business. Our other business revenue was $114.2 million for the quarter, an increase of 5% year-over-year. We expect growth for this segment to continue to decelerate as we are no longer enrolling new pets in the majority of U.S. states for our largest partner in this segment. Adjusted operating income for this segment was $1.8 million or 1.5% of revenue. In total, adjusted operating income was $40.9 million in Q3, up 25% from Q3 last year. We deployed $20.4 million of this AOI to acquire approximately 68,100 new subscription pets. Excluding the pets that are underwritten through an MGA structure, this translated into an average pet acquisition cost of $290 per pet in the quarter, up from $243 in the prior year period. We invested $1.2 million in the quarter in development costs. Stock-based compensation expense was $9.3 million. As a result, net income from the quarter improved to $5.9 million or $0.14 per basic and $0.13 per diluted share as compared to a net income of $1.4 million or $0.03 per basic and diluted share in the prior year period. In terms of cash flow, operating cash flow was $29.2 million in the quarter compared to $15.3 million in the prior year period. Capital expenditures totaled $5.3 million, up from $1.9 million in Q3 of last year. As a result, free cash flow was $23.9 million, up from $13.4 million last year. Over the last 4 quarters, free cash flow reached $71.9 million. We ended the quarter with $348.5 million in cash and short-term investments. We spoke at our recent Investor Day about the work over the last 2 years to strengthen our balance sheet and build the financial foundation to power our future growth. Strong free cash flow generation, monetizing our capital surplus, including receiving the first extraordinary dividend in the company's history and driving additional efficiencies have allowed us to invest in growth as well as make a $15 million early principal payment towards our debt in the second quarter. We are excited today to announce the next step in further strengthening our financial position and lowering our cost of capital. Subsequent to quarter end, we refinanced our outstanding term loan through a new $120 million credit facility with PNC Bank, one of the largest diversified financial services institutions in the United States. This new 3-year facility provides us greater financial flexibility, further reduces interest expense and gives us greater assurance as we navigate the coming years. I would like to take this opportunity to thank everyone on our team involved in developing this partnership and for helping us achieve this result. Now I'll turn to our outlook. For the full year of 2025, we are updating our guidance to account for Q3 performance. We now expect total revenue in the range of $1.433 billion to $1.439 billion. We are narrowing the range for subscription revenue, which is now expected to be between $986 million and $989 million, representing approximately 15% year-over-year growth at the midpoint. We now expect total adjusted operating income to be in the range of $148 million to $151 million. We're raising the low end of our outlook while maintaining the high end, resulting in a new midpoint that represents 31% year-over-year growth. For the fourth quarter of 2025, total revenue is expected to be in the range of $371 million to $377 million. Subscription revenue is expected to be in the range of $258 million to $261 million, representing approximately 14% year-over-year growth at the midpoint. Total adjusted operating income is expected to be in the range of $41 million to $44 million. This represents approximately 19% growth year-over-year at the midpoint. As a reminder, our revenue projections are subject to conversion rate movements predominantly between the U.S. and Canadian currencies. For our fourth quarter and full year guidance, we used a 72% conversion rate in our projections. Let me now pass it back to Margi. Margaret Tooth: Thank you, Fawwad. The results this quarter are strong. They reflect solid execution and a growing recognition for a solution to enable greater access to veterinary care. By the end of this year, we will have grown adjusted operating income at a 5-year compounded annual growth rate of 21%, generating over $0.5 billion of adjusted operating income to fund high-return pet acquisition. We have and will continue to remain disciplined, focusing on enrolling pets price to our margin profile and educating members through improved retention activity. This focus is most clearly evident with our AOI per pet growing at a cumulative 37% over the past 5 years. With our pricing now tracking alongside the rate of veterinary inflation, our position is strong, which in turn affords us the opportunity to continue to invest in ways to educate pet parents directly and to tell our story and share our solution more boldly than before. Trupanion is uniquely positioned to address the challenges of access to care by covering the veterinary invoices directly and instantly, which allows veterinarians to focus on medicine and empowers pet parents to seek timely and appropriate treatment when it matters most. Partnering with the animal health sector will always be at the heart of our strategy. That foundation, which we've been cultivating for 25 years, now provides the opportunity to expand the presence of the Trupanion brand to raise awareness and connect with pet parents earlier in their journey before they ever set foot in a veterinary hospital. We plan to accomplish this through intentional development of partnerships and complementary channels. Earlier in the quarter, we announced our first-of-its-kind collaboration with the Seattle Reign FC, a mission-based and deeply aligned partner now possible with our greater investment flexibility. This partnership exemplifies a new chapter in our brand development, broadening our reach and engaging with pet parents with a shared connection of pets and community. And most recently, earlier today, we were very pleased to announce our new partnership with BMO Insurance, part of the BMO Financial Group, one of Canada's largest banks. It's a great example of how we're extending our leadership in Canada by broadening access to our solution through trusted complementary partners. With rightsized margins, strong retention and greater investment flexibility, we're excited to further nurture and strengthen our veterinary focus while adding more creative ways to broaden our reach and engage pet parents through authentic partnerships that align with our mission and ambition. With that, we'll open it up for questions. Operator: [Operator Instructions] We have the first question from the line of Brandon Vazquez from William Blair. Brandon Vazquez: Congrats on a nice quarter here. I think, first, I kind of wanted to start with a high-level picture. Look, it feels like after a couple of years of trying to stabilize the business and return some of the operating margins, things like that, this might be the first quarter where there's a little bit of an inflection, right? You have some of the gross adds, things like that returning back to year-over-year growth. Talk to us a little bit just high level again, like as we go into next year, what does this business look like in terms of commercial strategy when you go maybe from defense to offense, what are some of the things that we should expect from you guys that might start to accelerate growth even further? Margaret Tooth: Yes. Thank you, Brandon. We're very pleased with the quarter and the performance. Third consecutive quarter, as you mentioned, of net pet growth and for us, seeing that 16,000 pets coming in at 45% year-over-year growth is something that we're very proud of. And in combination of the strategy, which, first and foremost, through the last 9 months has been focusing on level setting our margins, getting our investment in retention to really help our members understand what that value proposition looks like. And then finally, reaccelerating pet growth, and we're at the tail end of that strategy for this year and pleased to have seen that growth pet adds come up to the 4% year-over-year. It is very much momentum we expect. We're being a lot more aggressive with our investments. We're in an incredibly strong financial position. We have record levels of margin and free cash flow while honoring our value proposition for our members. So we expect the same. We've got the momentum starting to come. We expect to continue to be aggressive. We're in a very strong position to do so. And as you said quite rightly, we're moving into offense position, which is where this company has always operated in a heavily underpenetrated market. We'll continue with our strategy of helping pet parents to budget for the unexpected cost of care, which is a greater need today than it ever has been. We are perfectly positioned to leverage both what we have today in market and also taking those learnings from the last 5 years in our strategic plan to aggressively go forward and support more pet parents in the future. Brandon Vazquez: Okay. Great. And maybe follow for you as my follow-up. As we start to just clean up our models for 2026, I appreciate we'll probably get a hard number on a guide for '26 on the next quarter call. Maybe some of the key -- like walk us through some of the key puts and takes that we should be keeping in mind. And I think one that we talk about often that will help us kind of fine-tune our models here is what level of growth should we be expecting from price versus volume in the sense of ARPU versus gross adds? Any commentary you want to give us on '26 for the Street models to be aligned would be great. Fawwad Qureshi: Yes. I think I can say a few things. As you mentioned, when we get to year-end, we'll obviously give the full year guidance. We're still very much focused on Q4. I think some of the things we're thinking about thematically going into next year, we do expect investment to increase, as Margi said. Really happy about the just overall financial position we're in the $20.4 million we spent in PAC. This quarter was the highest we've ever spent. And so it gives us some good momentum as we exit this year and start thinking about next year. I think in terms of contribution to revenue, as you mentioned, this year has really been more pricing driven. And over time, we would like to have pets continue to contribute at a higher and higher level. So I think from a contribution standpoint, we'd like to see pet count contribute more and pricing contribute less. And then from a margin standpoint, we're very pleased with the progress on margin. As Margi mentioned, it's been a journey over the last 2 years. And our overall margin expectations, our goals that we set, I think, are largely going to be the same given the first and second half seasonality as we go into next year. Those are kind of the broad strokes of what we're thinking about at this point. Operator: We have the next question from the line of Katie Sakys from Autonomous Research. Katie Sakys: I guess my first question is on some of the growth dynamics that you guys saw this quarter. My math might be a little off here. It took me a while to get the slides up. But I was sort of hoping you could break down the growth dynamics you saw amongst the European subscription pet cohort versus those in the U.S./North America and whether or not the growth rates that you saw this quarter are the levels of growth you think you can deliver upon going into the new year? Margaret Tooth: Yes. Thank you for the question, Katie. So specifically, when we think about our focus, I would say that the last -- we've really kind of upped the increase in that acquisition investment in the last 3 months -- 3 quarters, sorry, we've been focusing heavily on the core Trupanion subscription business. So the majority of our investment has been going into that business. Now we've rightsized those margins and focusing on retention. The other products on the -- and specifically, as you called out, the European have very limited investment right now. We're really kind of looking at building those businesses and helping to get them stabilized before we invest heavily. I expect over the next several years, naturally, we anticipate there's a lot of opportunity in the European market where that investment will increase. The wonderful thing now about our margins being where they are is that we have that free cash flow and then the opportunity to invest the adjusted operating income dollars that we didn't have previously. So excited to be able to take those numbers up and invest and expect those lines of businesses to contribute more meaningfully in the future. Katie Sakys: Awesome. And then maybe shifting to the new opportunity with BMO Insurance in Canada. Can you clarify which Trupanion products will be offered via that partnership? And how much realistically you think that can contribute to the pet base next year? Margaret Tooth: Yes. We're really excited about this partnership to announce it today, fresh off the press. So it's exciting for us because it really is representative of our position within the Canadian market. We are the market leader by some way, and it's where we were established and founded and partnering with a brand as established and as significant as BMO for us is really exciting. The core Trupanion product will be offered through that channel. So it's the same product that we have across most of our business and the majority of our growth. And for us, as you mentioned, it takes a long time for products and partners to come to fruition. It's a lot of hard work. We align with brands that we believe share the ethos of Trupanion. BMO is definitely one of those. We wouldn't expect it to contribute meaningfully in the short to midterm. These things do take time to build. What we're particularly excited about, though, is having a brand like BMO standing proud next to them and really helping to bring our brand into more households across Canada. Operator: We have the next question from the line of Wilma Burdis from Raymond James. Wilma Jackson Burdis: How are you guys thinking about pricing going into 2026? Are we still on track for the 15% inflation? I know you guys have been talking about that most this year into January. Inflation seems to be accelerating a bit in the broader market. So just curious to hear what you're seeing there. Fawwad Qureshi: Yes. Thanks for the question. I can certainly comment on inflation that we saw in the quarter. It was approximately in line with what we saw in Q2. So there was a little bit of reduction in the U.S., a little bit of inflation in Canada. But on balance, it was pretty much flat. And as we talked about in the Q2 call, we saw it coming down about 1 point. From that point, it's relatively stable. I think it's too early at this point to try and predict what next year will look like. Margaret Tooth: Yes. I mean I would add just in terms of pressures within Animal Health, Wilma as well. Obviously, we're a cost-plus model. So the cost of goods in the marketplace are really what's going to dictate that. I think as we go into next year, we certainly wouldn't anticipate pricing getting back to levels that we saw 4, 5 years ago. It's still a heightened inflation. And to Fawwad's point, we will monitor that very closely and make sure that we're in a position to continue to offer the same value proposition that we've always been targeting. Wilma Jackson Burdis: And then could you give a little color on what you're seeing with your customers? The sales appear to be very high. But on the one hand, we're hearing about some pockets of pressure on consumers. And on the other hand, we also understand that the protection can be very attractive when the costs are rising. So how do you think the current environment impacts your sales going forward? Margaret Tooth: Yes. I mean we're really pleased with the quarter that we've just posted. I think that's a consolidated strategy over a number of quarters to really get to the point where we can start pushing into new markets and to reach new pet parents, and that's reflected in the gross adds this quarter. You're right, there is an increasing pressure on consumers and naturally an insurance product is one that if you get it right, you have to sell it. People have to understand the need behind it. I think we have historically proven that we do a good job of that through our routes to market through the vet channel, through breeders, through shelters at a grassroots level. So pet parents understand how much it's going to cost to make sure they can take care of their pet. It's our job to ensure that we continue to articulate that value proposition. I think the teams are doing a good job. The more investment we put into the funnel, the more opportunity we have to test and learn and we're excited to keep doing that. There is absolutely a need for Trupanion today, and we can see that with the number of leads and the number of pets we've enrolled and maintained. And we think our role is much bigger still to play in the future. So happy that we're in a position to do that. Operator: We have the next question from the line of John Barnidge from Piper. John Barnidge: Can you talk about the interest rate savings and any onetime items in advance of ending the old credit facility and whether we should be waiting for 1Q '26 to see all the savings? Fawwad Qureshi: Yes. Thanks for the question. Yes, obviously, we're very pleased with the PNC deal that we announced today. It not only puts us in a better position from a cost of capital standpoint, but just the opportunity to work with the bank, PNC being one of the largest financial institutions, opens up a variety of services they're going to be working with us on as, for instance, treasury management. So there's benefits outside of just the interest rate. The interest rate by itself, our current debt is SOFR plus 5.15%. The new debt will be SOFR plus 2.75%. So it's about a 240 basis point benefit in terms of interest savings. So our expectation is that at the end of this, we'll have approximately $115 million of debt. So it would be interest savings against that somewhere in the range of $8 million to $9 million. John Barnidge: And then -- can you talk about the potential additions you're thinking through with the important fourth quarter for when open enrollment occurs for the group channel? Margaret Tooth: Yes. Thanks, John. So specifically speaking to Aflac, we don't anticipate seeing anything meaningful in the quarter as a contribution from Aflac. It's still a very nascent channel for us. It's one that we have a lot of learnings from. Aflac continues as always, to be a great partner for us. I would say we're learning that the product that we have in market is perhaps not quite what we need. And so we're looking at refining that over time. We still have a lot of expectation and believe in this channel, but I wouldn't anticipate a lot for this quarter coming up for Q1. Operator: Ladies and gentlemen, this concludes our question-and-answer session. I would now like to hand over the conference to Margi Tooth for closing comments. Margaret Tooth: Thank you, and thanks, everyone, for your questions and participation today in our call. We're incredibly proud of the financial discipline that's brought us to where we are this quarter and even more excited about what it enables. We'll have continued investment in high-quality growth in our new partners and our existing partners and in the broader veterinary ecosystem. We will stay disciplined in our investment while continuing to build our brand and expand awareness to help even more pet parents get the care they deserve. And thank you very much for your time this afternoon. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Thank you for standing by. My name is Jayle, and I'll be your conference operator today. I'd now like to pass the call off to Robert. Please go ahead. Robert Wright: Good morning, and welcome to the Delek US third quarter earnings conference call. Participants joining me on today's call will include Avigal Soreq, President and CEO; Joseph Israel, EVP, Operations; and Mark Hobbs, EVP, Chief Financial Officer. Today's presentation material can be found on the Investor Relations section of the Delek US website. Slide 2 contains our safe harbor statement regarding forward-looking information. Any forward-looking information shared during today's call will include risks and uncertainties that may cause actual results to differ materially from today's comments. Factors that could cause actual results to differ are included here as well as within our SEC filings. The company assumes no obligation to update any forward-looking information. I will now turn the call over to Avigal for opening remarks. Avigal? Avigal Soreq: Thank you, Robert. Good morning, and thank you for joining us today. In the third quarter, excluding SREs, Delek reported strong adjusted EPS of $1.52 and adjusted EBITDA of approximately $319 million. These results are a reflection of Delek's strong momentum. We had excellent contribution from our enterprise optimization plan with a notable progress from all business units. As a result, we are again increasing our EOP guidance to at least $180 million on an annual run rate basis. During the third quarter, EPA approved several of our pending 2019 to 2024 SRE petition, and we expect to receive proceeds of approximately $400 million for monetization of the granted RINs. We are also encouraged by the guidance EPA has issued about SREs for future RVO. From everything we see today, we continue to expect appropriate action on SREs in the future. Some of the part efforts also continue to progress well. DKL continued to make progress in improving its premier position in the Permian Basin. As a result of the strong progress DKL has made this year, we are increasing DKL's full year EBITDA guidance to between $500 million and $520 million. As I always do, I will now give an update on our key long-term priorities in more detail. First, safe and reliable operations. We had a strong operational quarter in our refining system. SRE had a record throughput quarter, and it's continuing its strong momentum since its turnaround last year. Congratulations across Tyler, El Dorado, and Big Spring also had strong operations. Now I would like to discuss our EOP progress. As a reminder, we started EOP with an aim to improve DK cash flow by $80 million to $120 million on a run rate basis, starting in the second half of 2025. The structural changes we are making in the way we run our company are delivering meaningful results across all business units. In the third quarter, supply and marketing had a strong contribution, driven by structural improvement in our wholesale business. We are very proud of the way the commercial team is looking in the entire wholesale value chain to serve our customers. During the third quarter, we estimate approximately $60 million of EOP contribution to our P&L. Based upon these strong results, we are once again increasing our target of an annual run rate EOP improvement from the midpoint of $150 million to at least $180 million. I'm proud of how EOP has become a cornerstone of Delek continuous improvement culture, and I'm confident EOP will remain a core strength well into Delek future. As I mentioned before, during the third quarter, the EPA cleared the backlog of pending SRE petition from 2019 to 2024. We see this announcement as a critical part of the current administration and EPA energy policy. This SRE announcement have 3 important implications for our business. First, for the grant years of 2023 and 2024, we have followed a proactive strategy to monetize the granted RINs. We expect to receive approximately $400 million in proceeds from this monetization over the next 6 to 9 months. We intend to prudently use this cash flow in line with our consistent capital allocation framework. For years 2019 to 2022, while we appreciate EPA granting our petition, EPA remedy is invalid and encourage the strategy followed by our peers who chose not to comply. We are making efforts to get full value from these grants in line with the intention of the RFS law. I'm confident EPA will continue its methodical approach to SRE grants, furthering energy dominance and supporting high-paying jobs in the heart of rural America. I'm also proud of the progress DKL is making. With commissioning of DKL Libby 2 plant, and the completion of intercompany agreements, we are making great progress in making DK and DKL economically independent. We are working in an industry-leading comprehensive sour gas solution, including gathering, treatment, acid gas injection acid gas injection, and processing along with providing market access for residue gas and NGLs. This capability will provide DKL the ability to fully capitalize on all of its growth opportunity in the Delaware Basin and maintain its best-in-class EBITDA growth and distribution yield. Based on the progress Delek Logistics has made, we are increasing DKL full year 2025 EBITDA guidance to between $500 million and $520 million. This final piece of our strategy is being shareholder-friendly and having a strong balance sheet. During the quarter, we paid approximately $15 million in dividend and bought back approximately $15 million of our shares. Our strong balance sheet, improved reliability, and confidence in EOP has enabled us to continue countercyclical buyback in 2025. I'm proud to say that over the last 12 months, Delek had the highest total return yield, buyback plus dividend among all of its refining peers. We remain committed to a disciplined and balanced approach to capital allocation and look forward to continue rewarding our shareholders. In closing, thank you to our team for their dedication. We are optimistic about finishing 2025 strong, and building on this momentum into the future. Now I will turn the call over to Joseph, who will provide additional color on our operations. Joseph Israel: Thank you, Avigal. Operations reliability in the third quarter was consistent with our guidance with the third consecutive record high throughput set in Krotz Springs. Our refining system continues to implement EOP initiatives at all sites. We have been successful in debottlenecking, improving liquid yield recovery, maximizing production value, and optimizing sulfur and benzene balances. At the same time, the commercial team has reworked contracts and optimized our new logistics to expand market optionality. Starting with Tyler, total throughput in the third quarter was 76,000 barrels per day. Our production margin was $11.32 per barrel and operating expenses were $4.93 per barrel. For the fourth quarter, our estimated total throughput in Tyler is in the 70,000 to 78,000 barrels per day range. In El Dorado, total throughput in the third quarter was approximately 83,000 barrels per day. Our production margin was $7.43 per barrel and operating expenses were $4.50 per barrel. EOP implementation is well reflected in our margin realization as we continue to trend toward our $2 per barrel of incremental capture in our El Dorado system. Our planned throughput for the fourth quarter is in the 67,000 to 75,000 barrels per day range, considering seasonal trends. In Big Spring, total throughput in the third quarter was approximately 70,000 barrels per day. Our production margin was $10.99 per barrel and operating expenses were $7.20 per barrel. In the fourth quarter, the estimated throughput is in the 62,000 to 70,000 barrels per day range. In Krotz Springs, total throughput in the third quarter was approximately 85,000 barrels per day. Our production margin was $9.01 per barrel and operating expenses in the quarter were $5.35 per barrel. Our planned throughput for the fourth quarter is in the 72,000 to 80,000 barrels per day range. Our implied system throughput target for the fourth quarter is in the 271,000 to 303,000 barrels per day range. This late outlook for the fourth quarter is strong as we are pushing our 42% distillate capability system accordingly. Moving on to the commercial front. Excluding SREs, supply and marketing contributed approximately $130 million in the quarter. Of that, approximately $70 million was generated by wholesale marketing. Asphalt contributed a gain of approximately $6 million with the remaining contribution coming from supply. In summary, the third quarter marked another successful execution of our operating plans. The focus on the fundamentals has allowed us to focus on capture improvements through EOP. Mark will now address the financial variance. Mark Hobbs: Thank you, Joseph. Referring to Slide 5, we show the breakout of adjusted EBITDA and adjusted EPS, approximately $319 million and $1.52 per share, respectively, excluding SREs. This breakout removes the impact of historical SREs of $281 million and the impact of 50% RVO exemption recognition for the first 9 months of 2025 of approximately $160 million. Moving to Slide 16. For the third quarter, Delek had net income of $178 million or $2.93 per share. Adjusted net income was $434 million or $7.13 per share, and adjusted EBITDA was approximately $760 million. On Slide 18, the waterfall of adjusted EBITDA from the second quarter of 2025 to the third quarter shows that there were 3 main drivers for the increase in EBITDA. First, a $583 million increase in refining, reflects improved refining margins as well as an increase of $281 million due to our recognition of historical SREs, the $160 million impact of our 50% RVO exemption recognition and improvement in our overall business that continues to be positively impacted by our EOP initiatives. Second, in the Logistics segment, we continue to have another strong quarter, delivering approximately $132 million in adjusted EBITDA, about an $11 million increase over our previous record of quarterly adjusted EBITDA achieved in the second quarter. These improvements were mitigated by slightly higher cost in the Corporate segment of $5.2 million compared to the prior period. Moving to Slide 19 to discuss cash flow. Cash flow provided by operations was $44 million. This includes our net income for the period, adjusted for noncash items and a net outflow related to changes in working capital of $106 million. The working capital movements include the timing impact related to SREs granted in the third quarter as we expect monetization of the grants to occur over the next 6 to 9 months. When adjusting for working capital, cash flow from operations was $150 million. This was an improvement of $202 million when compared to the third quarter of last year. Investing activities of $103 million includes approximately $44 million for growth projects, primarily at DKL. Financing activities of $75 million includes $15 million in share repurchases, approximately $15 million in dividend payments, and approximately $22 million in DKL distribution payments to public unitholders. On Slide 20, we show our actual progress under the 2025 capital program. Third quarter capital expenditures were $91 million. Approximately $50 million of this spend was in the Logistics segment, where we had $44 million in growth capital at DKL, primarily related to our crude and natural gas G&P initiatives. All of the remaining capital spend during the quarter was in the Refining segment, addressing planned sustaining capital initiatives. Our net debt position is broken out between Delek and Delek Logistics on Slide 21. Excluding Delek Logistics, we spent approximately $71 million on cash return to shareholders and capital expenditures in the third quarter, while our Delek stand-alone net debt decreased slightly to $265 million at the end of the quarter. Moving now to Slide 22, where we cover fourth quarter outlook items. In addition to the guidance Joseph provided, for the fourth quarter of 2025, we expect operating expenses to be between $205 million and $220 million. Our guidance for the fourth quarter incorporates increased operating expenses associated with the ramp-up of our new Libby 2 plant at DKL. G&A to be between $52 million and $57 million. D&A is expected to be between $100 million and $110 million. And net interest expense to be between $85 million and $95 million. With that, we will now open the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Doug Leggate of Wolfe Research. Douglas George Blyth Leggate: Hopefully, I'll make this relatively easy. I've got 2 questions related to the SREs. Obviously, tremendous update from you guys this morning. But my question is on the refining throughput guidance, because you've given an RVO risk number, it looks like, for 2025. But it looks like all 4 of your refineries are basically going to be at or below the SRE threshold. So my question is, if that's the case, why should we not risk the RVO at 100%, in other words, you get 100% of the number? And then I guess, how should we think about that going forward? That's my first question. My second question is really more -- is kind of hypothetical, I guess, because we've got a Trump EPA currently. So presumably, because you've gained the SREs under the Trump administration, the minimum we should probably assume is you get the Trump EPA duration, which I guess is 4 years. My question is, what is your view on whether the rulemaking, the legal case and so on could transcend administrations? In other words, this becomes a perpetual SRE exemption for Delek. Avigal Soreq: Doug, thank you for the great question. And I will start, with your permission, obviously, with giving a bit overview on SRE and looking that on the big picture, and then Mohit will finish the technical part of the question, if you're okay with it. So listen, we said it very clear on our financials that we have $200 million impact on Q3 earnings, right? And we also -- I said on my prepared remarks that we have $400 million of cash coming at us in the next 6 to 9 months. And I want to make another point very, very clear, right? We're going to use this cash prudently with -- in line with our overall capital allocation guidance we gave many times. So we are not going to deviate from that. So I wanted to take a moment or 2 to talk about the 2019 and 2022 RINs. While we really appreciate EPA clearing the backlog, obviously, EPA remedy is invalid. We all understand it, right? It's very clear. But we believe that the relief and eligibility are not discretionary items. That's a very, very 2 words that I just -- very important 2 words I just said. And we are committed and confident to give to our shareholders and company full value of those pending petition from 2019 to 2022, both the court and the law are behind us, and we're going to follow through and make it happen. We have seen the precedence in the past around that, and we are confident we'll get it as well. Our throughput is completely normal with regular seasonal, so we can check that box. And I will let Mohit finish. Mohit Bhardwaj: Yes. Thanks, Doug. Thanks for the question. As far as the 50% piece is concerned for 2025, that is not our expectation. Our expectation is 100% of our refining capacity qualifies for SREs, and we expect to get 100% of SREs for 2025 as we go forward. If you look at your other question about sustainability of these SREs beyond the current administration, we believe we are a country of law where the law is followed, and the law is clearly on our side. The courts, their decision is on our side, and we are very optimistic that this will transcend beyond the current administration. Operator: Your next question comes from the line of Manav Gupta of UBS. Manav Gupta: Congrats on a great quarter, guys. I just have a quick clarification question. The $688.6 million reported in total adjusted refining margin for the quarter, does it include the SRE benefits? Or does that exclude it? And similar -- and on similar line, the Slide 17, the margins that you have reported gross margin, it doesn't look like they have any SRE benefits. But could you clarify because some of your peers are reporting these gross margins with the benefits included. So if you could clarify on those things. Avigal Soreq: Yes, it's easy, $688 million includes and the margin that we reported do not include. So it's very, very easy to answer. I don't know, Mohit or Mark, if you have anything to add. Mohit Bhardwaj: Yes. Manav, I'll just make one more point. So the reported gross margins for the refineries actually also have the RVO obligation in it. So the RVO obligation that we have flows through our gross margin. So they are post that obligation. That's what we are reporting. Manav Gupta: And one quick question more. I understand it's more on the midstream side. But look, Permian Sour Gas opportunity just continues to expand. You guys were there before many others. Help us understand what it means for, obviously, your midstream business, and then obviously, how DK benefits just because DKL benefits from this growing Permian Sour Gas opportunity? Avigal Soreq: Yes. Manav, thank you for the great question. And the sour gas opportunity in the Delaware Basin is something that we are all very excited of. We see that opportunity. We were ahead of the curve with the 3B -- 3Bear acquisition, and also ahead of the curve with the [ 2 Water ] acquisition. You see they multiple today, nothing that you can buy those assets today. [ Reuven ], here next to me, is going to give more extended discussion about the sour gas. That's a very big deal for us, and we were on the right timing with the right permits, and we are very happy about that. Unknown Executive: Thank you, Avigal. The construction and the start-up of Libby 2 has been above our expectation, on time, on budget. Originally, and based on producers' forecast when we started Libby 2, we anticipated to fill the plant with sweet gas, but the landscape has changed and producer needs solution and rapid solution for sour gas. As a result, we accelerated our sour programs to provide solution in a more rapid time line. We have very, very high confidence in not only filling up Libby 2 with sour gas, but because of the full sweet, sour gas, crude and water solution that we provide, we will need to expand processing capacity earlier than our previous expectation around sour. Operator: Your next question comes from the line of Vikram Bagri of Citi. Vikram Bagri: I wanted to ask about SRE cash. When does it hit the balance sheet? I was wondering if you've done the RIN sales with deferred delivery already or you're going to sell RINs in open market and liquidity will be there? Avigal Soreq: Yes. So Vikram, thank you for joining us today. We'll stick to the answer we gave in the prepared remarks that we expect to see the cash in the 6 to 9 months, and we leave the technical of trading outside of this call. And we are very happy about the improving of the position and very optimistic about SRE in general, and we'll leave it to that. Vikram Bagri: And as a follow-up, you've raised the guidance. It has been raised multiple times, the EOP cash savings guidance. Can you talk about what the drivers of the most recent increase were? What initiatives you've taken? If there has been any change in underlying assumptions that drove the increase or you've seen opportunities and where those opportunities are? Avigal Soreq: Yes. Thank you for asking that question. That's really something I'm very proud and love to talk about. I have a lot of energy around the topic. Listen, first of all, EOP, it's not a project, it's a lifestyle. And it's a lifestyle across the organization. And we see how well it runs across our company and how confident we are with that, right? It's not just cost, it's cost and margin. We've seen a very nice improvement in margin this quarter. And we have 73 initiatives we are running on a weekly and a daily basis to make that happen. It's very clear in our earnings, very clear in our EBITDA, very clear in our cash flow. So all of that has cleared very, very well for us. A majority of those projects are in margin, but they are not related for the most part for market conditions. So that's another point of strength in our program. As you said correctly, this is the fourth time we are increasing the guidance. We started from a midpoint of $100 million, and now we are saying over $180 million, and that's going very well for us. So more to come. I do want to make another important comment. We started Q4 very well, and we see more upside on that going into this quarter. Operator: Your next question comes from the line of Alexa Petrick of Goldman Sachs. Alexa Petrick: We wanted to ask, it looks like the wholesale side was particularly strong this quarter. I think you mentioned some structural improvements, and we know it's also been part of the EOP initiative. So can you unpack that a little, talk about some of the progress there? Avigal Soreq: Yes, absolutely. The bottom line is that's a bigger portion of the EOP progress we are doing. And I will let Mohit, that was very close to that, answer the rest of it. Mohit Bhardwaj: Yes. I think wholesale is a great enterprise optimization plan story, and we have been improving the business in 3 phases. The first phase started by with our refining operations, and we started producing a lot of different kinds of products that we can sell in the market. We improved our logistics to get access to different kinds of markets, and that has helped our Wholesale business over the last 12 months or so. In the second phase, we started renegotiating our contracts. So these contracts have been renegotiated, and they are getting us the full value that our products deserve, based upon the markets that we serve. And the last phase, the Phase 3 in which we are, hopefully, it's not the last phase, but it's the Phase 3 in which we are. We are exiting some of the markets which are not as profitable for us, and we are entering new markets which are more profitable for us. And a combination of this strength is shown in our numbers. And as Avigal mentioned, that this strength has continued in the fourth quarter, and we expect to keep delivering these results on a go-forward basis. Alexa Petrick: And just a follow-up, recognize we're still early into 4Q, but we're seeing cracks hold in pretty well. Anything we should keep in mind quarter-over-quarter on captures? Or what are you seeing through your refiners? Avigal Soreq: Yes, absolutely. So we are focusing on what we can control and what we can control is EOP. And as I said earlier a few minutes ago, Q4 on an EOP basis started very well for us, and we are very optimistic about how Q4 is shaping out. Mohit, why don't you finish? Mohit Bhardwaj: Yes. And Alexa, Joseph mentioned in his prepared remarks as well that distillate is a big piece of what we produce. We have a very high distillate yield. Distillate cracks are showing strength. So we are very optimistic about how the fourth quarter is panning out. Operator: Your next question comes from the line of Paul Cheng of Scotiabank. Paul Cheng: The third quarter, I mean, wholesale at $70 million and the supply at, say, $50 million to $60 million. Can you help us to understand that how much is related to your EOP and how much is being given to you from the market? In other words, that what is, say, core repeatable within that -- those 2 numbers? That's the first question. Avigal Soreq: Okay. So I think we have a slide on that in our deck that emphasize, if memory serves me right, around $40 million or so for market condition and the rest you can allocate to EOP. And as I said earlier, Paul, and you probably heard it loud and clear that Q4 looks very good from EOP standpoint. And the $60 million of EOP is something that we are very proud of. Paul Cheng: So Avigal, so let me make sure I understand. So out of that $120 million that on the supply and the wholesale, $40 million is from the EOP -- $40 million is from the EOP, and then, say, $80 million is from the market? Mohit Bhardwaj: Yes. So Paul, you got those numbers wrong. Let me just try to clarify it for you very quickly. The $40 million is the market impact. And as I said in the last -- answer to the last question, wholesale is the one which is driving it. We are seeing a lot of structural strength in the business. We have seen this trend continue in the fourth quarter. And we have clearly highlighted what the market impact was. There's obviously seasonality in it, because second quarter and third quarter are stronger than the fourth quarter and first quarter, but we've seen the fourth quarter strength continued from the third quarter this year. And as far as the specific division is concerned, I can take that offline with you post the call. Paul Cheng: And just curious that with the SRE, is that going to impact in your how you run El Dorado and Krotz Springs? I suppose that you want -- you probably want to keep your crude throughput for those 2 facilities to be below 75, even when the margin is very high. Is that how you're going to run it or that you're going to look at them somewhat differently? Because if the margin is really good, it may be better off for you not to get the SRE and still get a better margin. So I want to understand that how is the decision-making tree is going to look like? Mohit Bhardwaj: Yes, Paul, thanks for that question. I'll try to answer this question as well. So we've seen -- you've seen our history. We have stayed in full compliance with the law, and we intend to stay in full compliance with the 2025 RINs obligation, RVO obligations as well. As far as the throughputs are concerned, our throughput guidance is very clear, and it is based upon the usual fourth quarter seasonality that we experience. Operator: And your last question comes from the line of Jason Gabelman of TD Cowen. Jason Gabelman: I just wanted to go back to the supply and trading results, because, I guess, it's still kind of not completely clear how much is structural in nature. And historically, you've talked about some of the wholesale and supply strength related to Group 3 pricing over the Gulf Coast. So how much of the 3Q result and going forward is sensitive to that spread versus other improvements that you've made? Mohit Bhardwaj: Jason, thanks for the question. So as I've mentioned in the previous answer, our whole idea of enterprise optimization plan is to reduce our dependence upon things like that, the one that you just described, like dependence -- excessive dependence upon Group 3 market or any specific market. Once you reduce that dependence, these changes become extremely structural, and that is what we are seeing. So the $70 million that you saw, obviously, it has helped from the seasonal benefit as far as wholesale is concerned. But as far as structural part is concerned, we are very, very confident, and that's why we are seeing the strength continue in the fourth quarter. And as far as if you have more questions in terms of divisions, and how much is flowing through the numbers, I can take that with you offline as well. Jason Gabelman: And sorry, I may have missed this earlier, because I didn't completely hear the question. But in terms of the monetization of that $400 million, can you talk about kind of upside and downside risks to hitting that $400 million number? Avigal Soreq: No. I think $400 million is a good number to model, and we'll leave it to that. Obviously, we're going to keep, as I said in my prepared remarks, we're going to keep the capital allocation policy we have, a very strict dividend throughout the cycle, balanced approach to dividend -- to buyback and balance sheet. And I think the market knows by now that we had a very, very good quarter, a very, very good year in terms of return to investors. We are very proud of being the first one among all of our peers, and we are very committed to keep rewarding our shareholders. Operator: That concludes our Q&A session. I will now turn the conference back over to Avigal for closing remarks. Avigal Soreq: Thank you. I want to thank my colleagues around the table for a great quarter. I want to thank our Board of Directors of trusting on us. I want to thank our investors in this call of keeping up with the story, and enjoy the fruits of it. And I want to mainly thank our entire employees that make this company as good as it is. We'll talk again in the next quarter. Thank you. Operator: This concludes today's conference call. You may now disconnect.
Operator: Thank you for standing by, and welcome to Motorsport Games, Inc.'s Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would like to turn the conference over to Ben Rossiter-Turner from Motorsport Games. Please go ahead. Ben Rossiter-Turner: Thank you, and welcome to Motorsport Games Third Quarter 2025 Earnings Conference Call and Webcast. On today's call is Motorsport Games' Chief Executive Officer, Stephen Hood; and Chief Financial Officer, Stanley Beckley. By now, everyone should have access to the company's third quarter 2025 earnings press release filed today after market close. This is available on the Investor Relations section of Motorsport Games' website at www.motorsportgames.com. During the course of this call, management may make forward-looking statements within the meaning of U.S. federal securities laws. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Except as required by law, the company undertakes no obligation to update any forward-looking statement made on this call or to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise. Please refer to today's press release and company filings with the SEC, including its most recent quarterly report on Form 10-Q for the quarter ended September 30, 2025, for a detailed discussion of certain risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. In today's conference call, we will refer to certain non-GAAP financial measures such as adjusted EBITDA as we discuss the third quarter 2025 financial results. You will find a reconciliation of these non-GAAP measures to their most directly comparable GAAP measures as well as other related disclosures in the press release issued earlier today, which is also available on the Investor Relations section of Motorsport Games website at www.motorsportgames.com. And now I'd like to turn over the call to Stephen Hood, Chief Executive Officer of Motorsport Games. Stephen? Stephen Hood: Thank you, everyone, for joining this conference call today. I'm delighted to say that the positive trends reported in Q2 have continued into this quarter's results. We've entered a profit generation phase. The restructuring enacted some time ago continues to pay off. Our key gaming product in Le Mans Ultimate is scaling, and this helps improve margins quite significantly. Our model is working. Our player base is growing. Cash and cash equivalents, once a challenging element of our business has improved considerably relative to our scale, and we're again generating profit from operations for the second consecutive quarter. We have continued to improve and expand our core gaming offering in Le Mans Ultimate and associated service platform, RaceControl. This has demonstrated a commitment to product improvement and resonates well with our audience. It's a testament to the unwavering energy of our prized employees, contractors and partners. This quarter delivered more success for our current focus product, Le Mans Ultimate, fresh from a record-breaking month in June, the title exited the Steam Early Access program into a full release on July 22. This delivered another record high concurrent and daily active user counts. What is particularly pleasing about these numbers is that they were achieved outside of the noise and fanfare of the real-world 24 hours of Le Mans. Players were strongly and actively engaged in what our game offered and we're not just reacting to the licensed event upon which our game is based. We believe this bodes well for our future product planning, which I will touch on shortly. Since then, our player engagement has remained higher as we delivered the first elements of our latest Le Mans Ultimate expansion pack, the licensed European Le Mans series, which runs alongside the real-world championship on which our core game is based. This new downloadable content or DLC entry is being delivered in installments with the iconic Silverstone Circuit and a new class of car with the Ligier JS P325 LMP3 alongside a season pass for a pack of 3 DLCs. This popular series is adding some much requested new circuits, a key focus for the team to deliver new optional content for the title. We have also been making great progress on a key user feature, driver swaps in team racing. For our most engaged users, these racing experiences where a team of players share the same car is the pinnacle of a collective racing simulation experience. Cheering on your team as you battle mentally and physically against rivals across multiple hours elicits a unique challenge and one that builds a very strong audience bond to the product. Being part of a team is an important component in today's gaming landscape, and our title is built around this social community-driven aspect to great effect. This feature is of particular importance as it forms the foundation for the return of our highly respected and viewed eSports series, Le Mans Virtual. In its last season, it was responsible for over 10 million viewers as verified by data analysts at UDelv. With an improved ecosystem underpinned by a dedicated game in Le Mans Ultimate, we are confident this series will prove to be a valuable marketing opportunity, not only for game and DLC sales, but also our subscription service, RaceControl which will power a more meritocratic approach to the series. We are in the final stages of planning and hope to announce qualifying in the coming weeks and months and are currently in active negotiations to finalize partners to support the series. The interest from players, real-world drivers and teams and potential partners was evident when our team visited the SimRacing Expo in Europe last month. We're excited to bring this great series back with a dedicated game, and we'll be presenting in person to the official manufacturers, drivers and sponsors at the real-world season finale of the 2025 World Endurance Championship in Bahrain this week. Our service platform, RaceControl, which drives our subscription offering has continued to grow with its highest performing quarter to date. We continue to drive new levels of engagement in this service with extensions to the custom delivery feature. This has resulted in an almost 100,000 deliveries being processed from our engaged subscribers. And now we are allowing players to share and download others designs in one click through the livery market that I spoke about in our last conference call. We have turned this feature, Livery Hub, and it is available at our portal website, RaceControl.gg. This has driven much higher engagement from our players on the site, and we believe it to be a great showcase of what we can turn this platform into. We are building an ecosystem where you can access our service from anywhere at any time to engage with our products. There's more to come on that, and we can't wait to share. I have often spoken about the opportunity to bring Le Mans Ultimate to console, and I am pleased to announce that work on this project is underway. Utilizing a highly respected outsourcing partner, we are able to maintain our existing pace on the current main revenue driver, Le Mans Ultimate on PC and our RaceControl subscription service without impacting the live service we're providing. In fact, many of our fans will be pleased to hear that some of the technologies required for this port to gaming consoles is going to be making its way back into the core PC product in the coming releases, even before the console product launches. Delivering our core gaming product, which is still growing on PC to a console audience on PlayStation and Xbox will be another milestone for our revitalized business and could potentially turn this title into a long-term franchise for the company. Whilst we are currently financing the early stages of the console project, we are in active conversations with several interested parties who may put up the entirety or some of the investment required to bring this exciting project to market. Beyond the financing investment, some of the proposals include useful marketing and publishing efforts that could increase the chances of success for our console product release. The core PC title performing so well has accelerated these conversations and opened new and exciting opportunities, which we are carefully considering. The exact date for a console version of Le Mans Ultimate remains subject to further development progress. But realistically, we expect this to be sometime around late 2026 or early 2027. We plan on selecting the best release window and not to deliver a product out of financial necessity. Our CFO, Stanley, will talk in detail about the financial numbers recorded in Q3, but I would briefly like to draw attention back to the journey we have been on as a business. Upon my return to the company in April 2023, the company had negative cash flows of around $2 million per month. Now in 2025, the hard work is shining through. For the last 2 quarters in a row as a company, we are proudly able to say that we are reporting an operational profit. Additionally, we now believe that the company has cash on hand to sustain itself for some time and even invest in meaningful projects that could lead to additional revenue opportunities. Cash on hand from June 2025 to October 31, 2025, has increased by $2.2 million. This is a testament to our team and our resilience. We are accelerating our growth plans, exploring new opportunities and sensibly increasing our team size to deliver more for Le Mans Ultimate, but also begin work in the very near future on additional titles from our first-in-class development team at Studio 397. A new title is not expected to be announced for some time, but we are incredibly confident in the technology and market for player-driven multiplayer rating simulations across multiple platforms based on the success of Le Mans Ultimate. To this end, we continue to look at how best to structure our teams and processes to take advantage of our current momentum and abilities by setting up our teams for success whilst remaining lean. We have learned a great deal over the last 24 months and routinely explore ways in which we can learn and improve, including through the deployment of AI, not as a crutch to replace human input and creativity, but as a tool to accelerate growth and productivity. Now I would like to invite Stanley Beckley, our Chief Financial Officer, to talk about the financial results for the third quarter of 2025. Stanley Beckley: Thank you, Stephen, and good evening, everyone. As with previous earnings calls, I won't be offering any forward-looking guidance today. Instead, I will focus on providing an update on our financial results and highlights from the third quarter of 2025. I will be providing some information shortly on 2 significant milestones that the company achieved during the third quarter of 2025. Revenues for the quarter were $3.1 million, up by $1.3 million or 71.9% when compared to the same period in the prior year. The increase in revenues was primarily due to a $1.8 million increase in 2025 from sales of our Le Mans Ultimate racing title, particularly DLC sales, a $0.4 million increase from RaceControl and a $0.1 million increase in our rFactor 2 title compared to 2024 offset by a $1 million decrease in NASCAR-related revenues, a gaming title we are no longer authorized to sell starting in 2025. With the release of our Le Mans Ultimate title in February 2024, the company has more than made up for the loss of revenues from our NASCAR title, the license to which we sold in October 2023. NASCAR-related revenues were approximately $1 million and $3.5 million during the 3 and 9 months ended September 30, 2024, respectively. In comparison, revenues from our Le Mans Ultimate title were approximately $2.3 million and $5.7 million during the 3 and 9 months ended September 30, 2025, respectively, significantly more than NASCAR-related revenues during the same prior year period. Net income for the third quarter of 2025 was $0.8 million compared to net loss of $0.6 million for the same period in the prior year, an improvement of approximately $1.4 million or 234.1%. The increase in net income is driven by an increase in consolidated revenues of $1.3 million, decreases of $1.3 million and $0.1 million in operating expenses and cost of revenues, respectively, offset by a decrease of $1.4 million in other operating income. Net income attributable to Class A common stock was $0.14 per share for the third quarter of 2025 compared to net loss per share of $0.18 for the same period in the prior year. The company has achieved another significant milestone in its history. After adjusting for other nonrecurring losses of approximately $25,000, Q3 2025 was the second consecutive quarter that income from operations was generated by the company. Q3 2025 and Q2 2025 now stand as for only 2 quarters in the company's history that income from operations has been generated. We are reporting adjusted EBITDA of $1.1 million for the third quarter of 2025 compared to $0.1 million for the same period in the prior year. The improvement in adjusted EBITDA of $1 million was primarily due to the same factors driving the previously discussed change in net income for the third quarter of 2025 when compared to the same period in the prior year, as well as the decrease in stock-based compensation compared to the prior year period. As it relates to liquidity, as of September 30, 2025, we had cash and cash equivalents of $4.1 million, which increased to $4.5 million as of October 31, 2025. For the 9 months ended September 30, 2025, we generated an average positive cash flow from operations of approximately $0.3 million per month that was primarily due to increased profitability, $0.8 million from the Wesco Insurance Company settlement in June 2025 and $0.5 million from the settlement agreement with HC2 Holdings 2 Inc. in March 2025. The other significant milestone we achieved in Q3 2025 relates to the growing concern disclosures included in prior financial statement reports being removed in our Q3 2025 report on Form 10-Q. Thank you all for your time. And now I will turn the call back to Stephen for closing remarks. Stephen Hood: Thank you, everyone, for joining this call today. We're delighted with the ongoing progress outlined today. For a second consecutive quarter, we've turned to profit from operations and have built a healthy cash reserve off the back of continuing success of our core product, Le Mans Ultimate and the online platform, which supports our ecosystem approach, RaceControl. This puts users first and they are repaying us with enormous support. Base game sales continue at pace, additional content or DLC sales for our game remain very strong and more people are joining our value-adding RaceControl subscription service every month. We're now in active development of a console version of our Le Mans game and believe we are not too far from another major step forward for the company as we become a multi-format developer and publisher. We believe in our future, and I hope you follow our journey. Thank you again for joining this call today. I'll now pass it back to the operator. Operator: [Operator Instructions] And it does appear that there are no questions at this time. This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful rest of your day.
Operator: Good day, and thank you for standing by. Welcome to the DiamondRock Hospitality Company Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Briony Quinn. Please go ahead. Briony Quinn: Good morning, everyone, and welcome to DiamondRock's Third Quarter 2025 Earnings Call and Webcast. Joining me today is Jeff Donnelly, our Chief Executive Officer; and Justin Leonard, our President and Chief Operating Officer. Before we begin, let me remind everyone that many of our comments today are not historical facts and are considered to be forward-looking statements under federal securities laws. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ materially from what we discuss today. In addition, on today's call, we will discuss certain non-GAAP financial information. A reconciliation of this information to the most directly comparable GAAP financial measure can be found in our earnings press release. Turning to our results. Corporate adjusted EBITDA in the third quarter was $79.1 million and adjusted FFO per share was $0.29, each ahead of our expectations. Free cash flow per share for the trailing 12 months, defined as adjusted FFO less CapEx, increased approximately 4% to $0.66 per share. Comparable RevPAR declined 0.3%, exceeding our expectation of a low single-digit decline with each month of the quarter performing slightly better than expected. RevPAR outpaced both our weighted average STR class and our comp sets in the quarter. Occupancy was flat year-over-year and ADR declined 0.4%, both again slightly better than expected. Looking at our revenue segments, business transient led the way this quarter with almost 2% growth, while leisure transient declined 1.5% and group room revenue declined 3.5%. All year long, we had been highlighting the difficult group comparisons our portfolio would face in the third quarter, largely due to last year's Democratic National Convention in Chicago in August as well as fewer city-wide conventions in Boston. Despite this headwind, both of our hotels in Chicago were able to drive RevPAR growth in the quarter. Despite the slight decline in RevPAR, our out-of-room revenues increased 5.1%, resulting in total RevPAR growth of 1.5%. Total RevPAR grew in both our urban and resort portfolios. Food and beverage was once again a bright spot, both on the top and bottom line. F&B revenues increased 4%, with banquets and catering up almost 8%, while outlets were down modestly. Last quarter, we highlighted that our food and beverage margins expanded by 105 basis points. This quarter was even stronger with F&B margins expanding by 180 basis points, aided by our continued efforts in reengineering menus and focused staffing. Other contributors to the increase in out-of-room revenues in the quarter included spa, parking and destination fees, which were each up over 10%. Total hotel operating expenses increased 1.6%, resulting in only a 3 basis point EBITDA margin contraction and hotel adjusted EBITDA growth of 1.4%, which to date is an industry-leading result. Wages and benefits, which represent almost half of our total expenses, increased to just 1.1%. Now to highlight the resorts of our urban hotels and our resorts for the quarter. Our urban portfolio, which accounts for over 60% of our annual EBITDA, achieved RevPAR growth of 0.6% in the quarter. Total RevPAR growth was 150 basis points stronger at 2.1%. As expected, August was our softest month and September was our strongest with 6.1% RevPAR growth, showing gains in both occupancy and rate. The strongest RevPAR growth in the quarter was achieved by our hotels in Salt Lake City, New York, Atlanta and Chicago, which helped to offset some of the renovation disruption at the Palomar in Phoenix. Turning to our resorts. RevPAR declined 2.5%, but total RevPAR increased 0.4% on 4% growth in out-of-room revenues. Excluding our Sedona hotel under renovation and Havana Cabana, where we made the decision to accelerate a capital project during a lower occupancy period, resort RevPAR declined just 0.4% and total RevPAR increased an even stronger 1.7%. We continue to see a bifurcation in resort performance with the higher ADR resorts outperforming those with lower ADRs. We expect that performance variance will continue to benefit our luxury resorts for the foreseeable future. Although the top-line trends of resorts have received elevated focus, we believe it is most important to focus on bottom-line results. Despite a 2.5% decline in RevPAR at our resorts this quarter, EBITDA margins expanded by over 150 basis points with wages and benefits flat and total expenses down 1.5%. Said differently, our resorts made more money in Q3 '25 than they did in Q3 '24 on roughly the same amount of revenue. Before turning to the balance sheet, I'll make a few additional comments on our group segment. Group room revenues across the portfolio declined 3.5% in the quarter, with room nights down 4.5% and rates up over 1%. We faced tough comparisons, particularly in August. However, our hotels were quite successful in converting short-term leads to in-house groups. During the quarter, we booked 38% more groups for the balance of the year than we did the same time last year. Looking to 2026, our group pace is up in the mid to high single digits, and we entered the fourth quarter with almost 60% of our 2026 group revenue on the books, on pace towards the 70% we typically start with each year. Moving on to the balance sheet. Early in the quarter, we successfully refinanced, upsized and extended the maturities under our senior unsecured credit facility, the proceeds of which were used to pay off our last 2 mortgage loans. Our portfolio is now fully unencumbered by secured debt. All of our debt is fully prepayable without fees or penalties and with extension options, our earliest maturity is in 2029. Importantly, we have recast all of our debt to market rates, thus eliminating the overhang of below-market maturities on our FFO per share growth for the next several years. Inclusive of interest rate swaps, 30% of our debt is fixed rate and 70% is floating rate, a notable advantage in this declining interest rate environment. We have paid a quarterly common dividend of $0.08 per share to date this year and expect to declare an additional stub dividend for the fourth quarter. At the midpoint of our updated guidance, our current dividend to FFO per share payout is approximately 30% as compared to just under 50% in 2019 as we continue to utilize a portion of our net operating losses to offset our taxable income. During the third quarter, we utilized our free cash flow to repurchase 1.5 million common shares at an implied cap rate of approximately 9.7%. Year-to-date, we have repurchased 4.8 million common shares for $37 million or $7.72 per share on average. We anticipate ending the year with over $150 million of cash on hand and continue to view the repurchase of our common shares and/or the redemption of our 8.25% Series A preferred shares to be highly attractive uses of capital in this environment. Before turning the call over to Jeff, I'll wrap up my comments with our updated 2025 guidance. We are maintaining the midpoint of our RevPAR and total RevPAR guidance while tightening the ranges. This revision implies a slight decline at the midpoint in the fourth quarter. However, in light of the continued success our team is having controlling expenses, we have raised the midpoint of our adjusted EBITDA guidance by $6 million to $287 million to $295 million and raised the midpoint of our adjusted FFO per share guidance by $0.03 to $1.02 to $1.06. With that, I'll turn the call over to Jeff. Jeffrey Donnelly: Thank you, Briony, and thank you all for joining us this morning. I want to start by congratulating our hotels and our team at DiamondRock for their hard work and ingenuity to deliver another quarter of results that exceeded expectations. In the last month, our portfolio has been awarded several prestigious honors, a handful I'd like to share here. Cavallo Point was recognized with 2 Michelin keys, The Gwen was honored with 1, and Lake Austin Spa Resort was again named the #1 destination spa in the United States by Conde Nast. Well earned, and congratulations to the teams for these rare achievements. While we have unwavering pride for every Diamond Star TripAdvisor rank and top meeting hotel honor and the demanding work that goes into delivering the service to earn those awards, our North Star at DiamondRock remains driving outsized free cash flow per share. To us, it is simple. We are in the business of making money for our investors, and driving outsized free cash flow per share growth has, over time, historically resulted in outsized total shareholder returns. The accolades are not the end game, but they are an aspect of delivering on our promise to shareholders. At DiamondRock, we strongly believe in the alignment of interests. So 100% of our officers' performance-based long-term equity incentive awards are tied to relative total shareholder returns and common equity is a component of every employee's compensation. We believe in being efficient with our shareholders' money. And in that regard, our G&A per owned hotel is nearly 45% below our peer average. It's one of the many ways we work to preserve capital. I'm going to focus my comments today on the strategy behind our differentiated CapEx program, the current transaction environment and how we intend to participate in it, our view on the remainder of 2025. And lastly, I will provide some context around our outlook for 2026. The strategy behind our CapEx program has become a key discussion point with investors and analysts as they lean into what differentiates DiamondRock versus our peers. Between 2018 and 2024, we executed 4 strategic upbrandings, 2 unbrandings and 9 life cycle renovations, yet spent approximately 9% of revenues on CapEx. In the last 3 years, we have spent just 7% of revenue on CapEx, while peers have spent 10.5%, an over 300 basis point spread. In dollar terms, that difference is over $100 million or almost $0.50 per share on our stock. We are often asked how we can target annual CapEx spending at 7% to 9% of revenue when our peers repeatedly choose to spend 10.5% to 11% of revenue and some even up to 14%. First off, with only 5% of our hotels brand managed, we have a competitive advantage of exerting more control over the scope and timing of renovations. As owner, we are in the best position to determine the balance between operating performance, value creation and capital expenditure, not the brand manager. We are making capital decisions that will drive our outperformance and maximize our total shareholder return. They are playing a different game. They're paid off the top line, understandably focused on brand standards, but less concerned with an owner's ROI. So how is it we keep our CapEx spending so efficient? It's important to mention that hotel brands typically mandate room renovations every seven years. We work hard to elongate that cycle and reduce the cost of renovations when undertaken. How do we elongate the cycle? Strong RevPAR index and bottom-line profits evidence your product remains competitive. Performance matters. With it, we can justify a lighter and less frequent renovation. An extra 2 years on our renovation cycle is a 28% reduction in our average annual expenditures. How do we reduce the cost of a renovation? Our hotels on average are newer, so they're more code compliant with fewer surprises behind the walls. Our internal design and construction team plans our renovations at least 2 years in advance to target precise timing to minimize profit disruption. The longer planning window gives us time to fine-tune and negotiate the scope. Supply chain is monitored. We analyze how improvements can increase labor productivity and boost profitability. Every single fixture, surface covering and piece of furniture is reviewed for their cost design and durability. We assess what components can be kept and what can be refined. Our Kimpton Palomar in Phoenix is a prime example. This is the #1 hotel in the downtown market, and we recently completed the hotel's first room renovation since opening in 2016 at a cost of just $21,000 per key, and it looks terrific. In our view, if the asset still looks fresh, competes effectively and is operating efficiently, then we do not need to renovate every 7 years. It's simply not a prudent use of our shareholders' capital to play a role in someone else's design war. To be clear, we are not anti-brand. Branding is a choice. And in the right circumstances, brands deliver exemplary performance. Instead, I would say we are pro flexibility. The way we have chosen to invest in our portfolio preserves capital for investment and has translated to FFO per share and free cash flow per share outperformance. Based on the midpoint of our raised guidance, our 2025 free cash flow per share would be 2% above our 2018 level, while peers averaged 30% below. Now this isn't to say that we don't like a strong ROI project. We do. They can provide a great risk-adjusted return. Take our recently completed The Cliffs at L'Auberge, which is now fully integrated into our adjacent property, L'Auberge de Sedona. In the first full quarter post renovation, The Cliffs realized a 65% ADR increase. As we look more broadly at the market, we are incredibly pleased to see that The Cliffs' RevPAR Index increased to over 130 from a level of 108 last year. Importantly, over that same period, L'Auberge de Sedona maintained its RevPAR index at over 160 within its own luxury comp set. Meaning one hotel is not taking from the other, but together have become one stronger integrated resort. The group sales team at L'Auberge has been busy. The group revenue pace is up approximately 25% in the fourth quarter and up 55% in 2026. Standardizing product quality and combining the hotels has created a stronger group channel than either hotel enjoyed on its own. As a reminder, we spent $25 million on this renovation and remain quite comfortable this ROI project will achieve a 10% yield on cost at stabilization. We are hosting a tour of the integrated L'Auberge ahead of Dallas REIT World, and we look forward to showing those in attendance what a DiamondRock ROI project looks like while experiencing the unparalleled hospitality of L'Auberge. With respect to the transaction environment, we continue to underwrite acquisition opportunities, mostly group-oriented hotels, urban select service hotels and resorts. While we had our eye on a few potential candidates this past quarter, we did not feel the ultimate pricing was defendable after considering realistic CapEx needs versus where our shares are trading. In general, we see upper upscale resorts with asking cap rates in the 7% to 9% range, but inclusive of near-term CapEx needs, the all-in cap rate was closer to 5% to 7%. Similarly, the ask for luxury hotels remains in the 5% to 7% range or about 4% to 6% all in. At that pricing, our strong preference is to reinvest in the luxury and upper upscale hotels DiamondRock already owns through share repurchases. On the disposition side, we continue to have active conversations around the disposition of a handful of our assets, and we expect to remain active in the market in the coming year. We have nothing to share at this time, but we believe we will see elevated capital recycling in the next 12 to 18 months compared to our history. Now to our outlook for 2025, as Briony noted, we are raising the midpoint of our adjusted EBITDA guidance range by 2% and raising the midpoint of our FFO per share guidance by 3%. Our new guidance reflects our better-than-expected results in the third quarter and a slightly moderated expectation for the fourth quarter, predominantly due to the impact of the federal government shutdown. To look forward, it helps to look back at how we got here. We knew about a year ago that our third quarter comp would be difficult, and we aggressively worked to chip away at that deficit. Heading into the third quarter, our group revenue pace was down 9.6% from the prior year, yet we exited the quarter around 600 basis points better. Our operators pushed hard to drive profitable short-term group business. On the transient side, our revenues were essentially flat and in line with our expectations. Making our way to the bottom line this past quarter, I was incredibly pleased with the results our operators and asset managers delivered. Our team is driven to be innovative in their efficiency and productivity efforts, and we were successful in that execution once again. When you look back at our fourth quarter last year, you will note our RevPAR and total RevPAR were up in the mid-5% range, making the fourth quarter our toughest revenue comparison of this year. Our playbook for Q4 remains the same as it was in the third quarter, identifying new strategies to drive revenues and grinding away to realize expense efficiencies. It's our team's tenacity from DiamondRock asset managers to our hotels teams that results in exceeding expectations and driving free cash flow per share. The federal government shutdown has increased uncertainty with respect to short-term group pick up, attrition and on-time transient guest arrivals. In this regard, we have seen our group revenue pace for the fourth quarter take a small step backwards from October to November. As I mentioned earlier, we have slightly moderated our fourth quarter forecast and our 2025 guidance to recognize that the impact of the shutdown is building. Our guidance assumes the shutdown is resolved in short order and travel resumes its normal cadence. Looking ahead to 2026, it is difficult not to be excited about the trajectory of the lodging industry and specifically for DiamondRock. The industry's tailwinds are well known at this point with easier comparisons created by Liberation Day, the country's longest federal government shutdown, the holiday calendar, the United States' 250th anniversary and an improvement in net inbound, outbound international visitation. I'd like to take a few moments to focus specifically on tailwinds unique to DiamondRock. First, our renovations this year are expected to negatively impact our 2025 RevPAR growth by approximately 75 basis points, creating a built-in tailwind to start 2026. We have previously highlighted our expectation that the ROI project at The Cliffs at L'Auberge should drive an incremental 25 to 50 basis point RevPAR tailwind in 2026 on its way to a 10% yield on cost. Second, we have the highest exposure to FIFA World Cup games based upon the importance of games per our recent analyst report. We expect compression around these games to be material and create a compelling rate story for DiamondRock next summer. Third, in 2026, we have a solid base of group and contract business, which typically accounts for 35% of our total demand, with group pace up in the mid to high single digits. We expect to be able to tell you our hotels achieved new highs for group revenue sequentially in 2024, 2025 and 2026. Top line growth does not mean much unless it makes its way to the bottom line as free cash flow. We are among the very few full-service lodging REITs to achieve free cash flow per share growth since 2018, and we expect to widen that disparity versus our peers next year. 2026 is around the corner, but there's still much work left to do in 2025. We look forward to seeing many of you at conferences and tours over the next few months to update you on our progress. Thank you for your time this morning, and we are happy to answer your questions. Operator: [Operator Instructions] Our first question today will be coming from the line of Cooper Clark of Wells Fargo. Cooper Clark: It seems like you continue to make really strong progress on the expense side as cost controls continue to be a major focus for the sector. Could you speak to how much of this is driven by head count reduction? And if we should expect continued momentum on the expense control side into '26? Justin Leonard: Sure, Cooper. It's not necessarily head count reduction per se, although we have made some success on the contract labor side. It's really just been a persistent company-wide focus on finding additional productivity throughout the portfolio and finding ways where we can get our existing employees to be more efficient, which translates to less hours worked. So there's not one silver bullet there. It's, frankly, just a lot of blocking and tackling from the asset management team and from our operators. But simple things like just reducing front desk staffing during a 3-day group event when we have no check-ins and checkouts even though the hotel is full, those little things can cut hours work by a point or 2, and it really go a long way to mitigating year-over-year wage increases. Cooper Clark: Okay. Great. And then I guess as we think about some of the further value creation within the portfolio, how are you thinking about some of the recent or upcoming franchise expirations? And what are some of the options you're considering to maximize value there? Jeffrey Donnelly: This is Jeff. There's a few options. I'll let Justin refer to the Westin Boston. But there's a couple of situations that we have where our Kimpton Shorebreak in Huntington Beach, technically, that contract has expired. We have options to terminate upon sale in Phoenix. And I think in about 2 years, our Courtyard, which in Denver, which is really kind of a lovely building, it's a historical building that it's in, there will be flexibility there as well. So we look at all situations, Cooper, I mean, I think there will be some where there could be upbranding scenarios. There's some where maybe it's just better as an independent or sticking with the flag that we have. So we're really kind of looking at what drives the best return for us over time. But I don't know, Justin, do you want to kind of talk about. Justin Leonard: I mean I think in Boston, specifically where our franchise agreement is up at the end of next year, we're in the middle of running a brand RFP process with most of the major brands. I think we've been very positively impressed with the amount of interest. It's just very difficult for brands to get that kind of distribution in a major Northeast city attached to the convention center. So we're going to continue to evaluate the best option for shareholders going forward and whether that's a significant amount of inducements upfront or trading that in exchange for kind of lower run rate fees over the duration of an extended franchise agreement. Operator: And our next questions come from the line of Michael Bellisario of Baird. Michael Bellisario: Just want to stick with your CapEx theme. Just what projects looking out to next year on the docket, anything that would be disruptive or offset the 75 basis points of tailwind that you expect to recapture from this year's projects? Jeffrey Donnelly: No, nothing that stands out. Frankly, we always have projects going on. And I think pretty consistently, we've had about $2 million to $4 million a year of EBITDA disruption. And I think going forward, looking at 2026, I think it's going to be a very similar number. For example, our Courtyard Midtown East will have some renovation work done in the first quarter, but that's going to be comping against renovation work we did also in the first quarter at the Hilton Garden Inn in New York. So I don't think there's going to be any unique noise or cadence change to renovation impact in 2026. I think it will be a pretty clean year. Michael Bellisario: Okay. Understood. Helpful. And then just on your disposition comments, it sounds like you're going to be highly likely a net seller. So as you sit here today, do you take those proceeds? Do you lean into share repurchases? All else equal, do you build cash? Just kind of help us think about the earnings power and per share impacts looking out 12 to 24 months. Jeffrey Donnelly: Yes. It's a great question. I mean share repurchases are very compelling at this level. I think it's reasonable to assume that some component of it will go there. It's hard for me to forecast in the future what opportunities may be out there. But I think there's -- it's likely that share repurchases will be a beneficiary. I think it's possible that some could go into other assets if we can find situations where we see better growth and better yields because it's potentially a lot of capital that could be recycled down the road. It's hard to predict the timing and magnitude of dispositions. But again, we're always trying to find a way to maximize our earnings growth going forward and make sure that we're not sitting on too much cash for too long. I think that doesn't serve our shareholders well. Michael Bellisario: And then just one follow-up there in terms of disposition candidates. Is it -- do you think of more opportunistic asset sales? Or would it be more older properties, lower RevPAR, ones that are in need of CapEx? And that's all for me. Jeffrey Donnelly: Yes, it's a good question. It's a mix. We've had some unsolicited interest in assets that if it's at a compelling price, we would certainly consider it. And there's others that we're targeting for disposition that we just don't think are a good fit for us going forward. So it's honestly kind of a mix of assets that we're looking at. Operator: And our next question will be coming from the line of Smedes Rose of Citi. Bennett Rose: As you emphasize your ability to drive margin in a relatively flat RevPAR environment is impressive. And I just wanted to ask you, just in general, how are you thinking about just the pace of labor costs for 2026? What's kind of built-in and presumably, you can continue to find efficiencies? But what do you think just wages and benefits could pace at that? Justin Leonard: I think we're probably not going to see the same 1% that we've been able to achieve, I think, on a year-over-year basis as we start to comp some of the efficiency gains we found this year. But we don't -- outside of New York, which rolls in the middle of the year, we don't have any significant union exposure in terms of fixed labor bump up that we're necessarily worried about. And I think we're now kind of turning our focus away from line level labor and more to administrative and sales labor. I think that's become a big focus of every company. It's just as you sort of lean into additional efficiency tools in the forms of AI, how do we make more streamlined processes that may allow us to use a little bit less labor overseeing the assets on an asset level basis. So the hope is that maybe that can mitigate some of that what would otherwise be probably 2.5% to 3% growth and some of the middle of the P&L efficiency can continue to drive less than run rate on the wage side. Bennett Rose: And then, Jeff, you mentioned that you have a solid exposure to FIFA next year. How are you guys, I guess, positioning yourself into that? Are you selling room blocks into FIFA games? Or how are you sort of looking to take advantage of that? Justin Leonard: I think it really depends on the market. I think we're being very cautious with it, candidly, until we see the actual teams that drop for the particular locations. I think we're well aware that if we get Cote d'Ivoire versus Qatar, it's probably not going to be the demand generation that Germany against Argentina might be. So I think it's -- in the short term, we're just -- we are in some of the blocks. We frankly haven't put them in a lot of our pace numbers. If they are, they're in there pretty heavily washed. And I think once we see the team grouping develop, we'll have a better sense of what the real compression is going to be. Operator: Our next question will be coming from the line of Austin Wurschmidt of KeyBanc Capital Markets. Austin Wurschmidt: Just going back to your comment, Jeff, on elevated capital recycling. I guess, can you provide a range for the number of hotels or maybe a dollar amount that you're considering? And then given the comments or the cap rates that you cited, do you think that you can effectuate the capital recycling in a neutral or accretive manner? Or is this something you'd be willing to kind of sacrifice near-term earnings dilution maybe for a better growth profile? Jeffrey Donnelly: That's a good question. I don't have a great answer for you because there are some assets that we have -- and we've talked about them in the past that candidly kind of skew to the smaller side, and there's some that we've talked about in the past that are very large and very chunky. So it's just -- it's difficult to give a number that I think would be beneficial for you. But in the past, we've kind of talked about there's sort of 2 to 3, 2 to 4 assets that we've looked at. But as I mentioned, there is some interest in -- unsolicited interest in some of our what I would describe as core assets as well. And it's just a function of whether or not we can achieve pricing there that would work for us. So I don't have a specific number for you, but we're trying to be opportunistic about execution. As far as recycling, that's our intent is to try and do this in a way that is an accretive manner to shareholders. That would be beneficial to us, particularly when you think about it is, as I mentioned before, like the capital costs that you're effectively selling off versus those that you're taking on with the new asset. So it's fully intended to be accretive to our earnings story as opposed to dilutive in the name of quality. Austin Wurschmidt: That's helpful. And then, I mean, would you expect kind of this recycling to change the profile of the company in any way by either business segment or exposure? Is that the intent? Jeffrey Donnelly: It could be the outcropping of it, but I wouldn't describe it as material -- well, I wouldn't describe it as material. I mean we've talked in the past about Chicago Marriott as being a potential disposition. I mean it's our single largest asset. So to the extent we are successful in some time frame of selling that asset, it would certainly shift our geography and some of our exposures. But again, it sort of hinges on whether or not those come to fruition. So that's why I say it can -- it's hard to say definitively. Austin Wurschmidt: Got it. And then just last one. I mean, within the resort portfolio, I was curious, what percent of the EBITDA would you characterize as kind of high ADR that you said is performing much better? And how wide is the performance variation between kind of those 2 buckets of high ADR versus low ADR assets? That's all for me. Jeffrey Donnelly: Thanks. We've done sort of an analysis where we had looked at properties that had RevPAR that was sort of -- or ADR north of $300 versus below $300. And I think the gap between those 2 was about 500 basis points. So it's been a pretty wide bucket. And I'm just eyeballing this like in the third -- in just our resorts, if that's the bucket that you're looking at. I think if you look like in the third quarter, for example, I think our luxury resorts were about 60% of the resort EBITDA just among all resorts. Operator: The next question we have is coming from the line of Chris Woronka of Deutsche Bank. Chris Woronka: I guess, Jeff, on the resource side, you guys have had, I think, overall, slightly better experience this year than several of your peers. And I know a lot of that credit goes to your operations team and your original site selection. But the question is kind of do you think there's something about the resorts you have collectively, whether it's size or specific market or segmentation that's allowing them to outperform? And secondarily, are you seeing -- have you seen or are you seeing any changes in booking windows or sourcing or pricing or anything like that at those resorts? Jeffrey Donnelly: Yes, I'll take a stab. And if Justin wants to chime in, he can as well. I guess one of the observations I would make is that in a lot of cases, we are sort of the best game in town. Whether you think about sort of Sedona or Destin or Tahoe or Sausalito or what have you, some of these markets that are candidly don't fit the bill of being in Orlando or more sort of top 10, top 20 market. I think it's beneficial to be not only sort of maybe the only game in town or the best game in town, but it's really sort of a unique destination and it's not as competitive, I would say, that's one thing. I don't know. Justin Leonard: I mean I think the other thing that's worth looking at is we talk a lot about differentiation amongst our resorts, but our resort ADR over the course of the year in totality is roughly $400. Like we just don't have a lot of lower-end exposure to the resort space. I think seasonally, like we -- our exposure to sort of the mid-price customer is like August and South Florida. It doesn't mean that those hotels are necessarily mid-priced hotels. It's just there's a moment in time where we kind of cater to a different part of the population. But I think in the aggregate, we kind of have a higher-end resort exposure, which has done better given what we've seen kind of the differentiation in economy. Chris Woronka: Okay. Fair enough. And just as a follow-up, you guys have -- I think it's 3 assets in New York City, and I think 2 of them are doing pretty well year-to-date. I'm not sure if there's a renovation at the third one coming next year. But the question would be, we've obviously seen an election result, and I'm curious as to whether you guys, yes, adding the benefit of seeing what's going to happen, does it make you more or less bullish on New York? And secondarily, do you have any kind of contingency plans in place should there be -- should things get a little less calm in New York? Not saying I expect that, just I'm sure it's something you guys give thought to from a planning perspective. Jeffrey Donnelly: It's a good question. I guess I would say my initial reaction is I'm not sure how much is going to affect things. I understand that there's a lot of -- on both sides, there's always a lot of campaign promises made, but not all of them can be realized either. So yes, we'll see what comes to pass. I mean, hopefully, it brings sort of more energy to New York City going forward. I'm not sure that's really going to change as sort of a financial capital for the world. But -- and a lot of what's being discussed there, I'm not sure how directly it impacts us. But fortunately, we're in a position where we're very nimble. I mean, again, these are all sort of third-party managed franchised hotels. We can be very flexible and pivot well. And I think being all-select service provides some advantages to us as well. Operator: [Operator instructions] And our next question will be coming from the line of Duane Pfennigwerth of Evercore. Duane Pfennigwerth: Just on your group commentary, maybe you could remind us if your target mix has changed at all, if the target for next year is different maybe than it has been in years past? And then the profile of your groups, corporates versus social, average group size, any industries that might stick out from a recovery perspective? Obviously, it's a little bit more complicated at the moment with the shutdown. But clearly, given the change that you kind of came into 3Q with, with your commentary about pacing on 2026, any industries or types of groups that stick out in terms of that recovery that you were seeing? Jeffrey Donnelly: Facetiously, I want to say those that pay the most. But no, I would say like from a mix standpoint, I mean, I don't expect any dramatic changes as we go into next year. I mean, oftentimes, hotels are always well served by having as much group on the books as possible, generally speaking. But I don't expect there will be a dramatic change. I'm trying to think about it as industry groups. I mean we don't have a lot of government, for example. I think we've always kind of estimated that it's about 2% of our overall business and within our group segment. So I don't think that's going to change. And if it does, it probably goes lower. But I'm trying to think other industries, it's pretty broad-based. I mean we're not just social group that we have, but in the corporate side, it's across different industries. We do financial services off-sites in Sedona. We do sort of tech sector off-sites in Sausalito. And certainly, in Boston, we participate in all the citywides that come to that convention center. That's a big chunk of that demand. Yes, it's all sorts of things. Like Western Fort Lauderdale, there's a boat show. So I don't see a lot of those types of businesses or the pieces of business is changing year-to-year at this point, so. Duane Pfennigwerth: Okay. And then maybe just for my follow-up, you gave some industry tailwinds from a comps basis. You gave some portfolio-specific tailwinds. Any -- would you venture a guess in how that adds up to a specific initial look on 2026 RevPAR? Jeffrey Donnelly: No. We're actually just early in the process of doing budgets truthfully. So I appreciate the ask, but I don't want to hazard a guess at this point. Duane Pfennigwerth: All right. We'll try and read between the lines here. Operator: Our question will be coming from the line of Kenneth Billingsley of Compass Point Research. Kenneth Billingsley: So a question is, I know you talked about RevPAR growth doesn't matter if you can't get it to the bottom line. And just looking at this quarter versus last, F&B and other revenues as a percentage of total revenues was up about 120 basis points. Is there an expectation that you can continue to increase revenues from them? And part 2 of that is, are you able to control the expenses? Are the margins better on that, so we'd actually see an increased flow to the bottom line? Jeffrey Donnelly: It's a good question. I think earlier in the year, we really began an initiative to be constantly reworking menus, staying on top of menu pricing just given the volatility of what was going on in food costs. So I think that's one of the reasons why we've continued to benefit this year through better F&B production, whether it's outlets and banquets. I'm not going to say that it goes on forever that you can always be growing your F&B better than your room revenue for years and years and years. But near-term, it's something that we're working on, and it's something that you can adapt very quickly. So I'm optimistic that we'll continue to have some success there. Briony Quinn: In particular, this quarter, the reason why you see the uptick in the percentage of F&B was really just the function of us having a lot more in-house group this quarter as compared to last quarter when it was more citywide based. So there's a lot more group contribution this quarter in our F&B. Kenneth Billingsley: And then also on the other line, kind of what all, parking and maybe some other things -- be careful about what we mentioned. But what are some of the things that are included in other that don't have additional expenses associated with them or increasing expenses? Justin Leonard: I mean I think other for us is predominantly parking. We have a fairly significant spa business at 3 to 4 hotels. And so we saw a nice uptick double digit on our spa revenue and then the other that falls in there are just resort and destination fees. So I think the nice thing about all of those revenue streams is they tend to also be non-commissionable. So the costs associated with them are pretty much fixed. So if we can move parking $5, for instance, or we can move the cost of a spa treatment up $10, most of that does flow to the bottom-line. It doesn't really change the cost model of providing the service. Operator: And our next question will be coming from the line of Chris Darling of Green Street. Chris Darling: Just hoping to get your bigger picture thoughts around the steep NAV discounts at which lodging REITs trade, you and your peers, potential privatizations. Do you think there's an appetite for large-scale portfolio transactions today? And if not, do you think that might change going into next year as some of the tailwinds you mentioned ultimately come to fruition? Jeffrey Donnelly: Yes, it's a good one. I think there is an appetite. I think for a while there earlier this year, it probably had a little bit of a pause. I think it's coming back because I think there's an expectation that RevPAR growth is going to be stronger next year. Interest rates are coming lower. So it feels like probably a better environment where they could sort of strike and get the growth that they need to sort of drive the returns that private equity would need if you were looking for those types of situations. The only thing I would just caution, and I say this to everybody is that ultimately, a lot of that math works where you can drive financing on assets. And for financing, you need cash flow. Effectively, it's very hard for people to kind of underwrite assets in markets where cash flow is not recovered. It's one of the struggles even we have when we look at some of the markets. For example, like on the West Coast, where you can have RevPAR recovering but assets still losing money. That's very hard from a pricing standpoint. And I would say that applies to public companies, too. So it's just something to note, I guess, I would say. Operator: At this time, I'm not showing any more questions in the queue. And I would like to turn the call back to Jeff for closing remarks. Please go ahead. Jeffrey Donnelly: Well, I appreciate everybody joining us today, and I look forward to seeing all of you at Nareit. Thank you. Operator: This does conclude today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Welcome to the Dream Office REIT Q3 2025 Conference Call for Friday, November 7, 2025. During this call, management of Dream Office REIT may make statements containing forward-looking information within the meaning of applicable securities legislation. Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond Dream Office REIT's control that could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. Additional information about these assumptions and risks and uncertainties is contained in Dream Office REIT's filings with securities regulators, including its latest Annual Information Form and MD&A. These filings are also available on Dream Office REIT's website at www.dreamofficereit.ca. [Operator Instructions] Your host for today will be Mr. Michael Cooper, Chair and CEO of Dream Office REIT. Mr. Cooper, please go ahead. Michael J. Cooper: Thank you very much, operator, and good morning to everybody, and thank you for joining our call. This morning, we're here once again with Jay Jiang, the CFO; and Gord Wadley, our Chief Operating Officer. We think the third quarter was a pretty significant quarter for Dream Office. We have been able to secure high-quality tenants and are filling up a lot of vacant spaces as we turn over some of our weaker tenants. We've seen a much stronger leasing market. And we hope that over the next couple of quarters, some of the tenants that are committed and not in place will take possession and we'll continue to lease more space. I think the most interesting number is, excluding 74 Victoria, which the federal government vacated at the end of last year, the rest of our downtown Toronto portfolio is now over 90% committed. And we can identify many vacant spaces that are quite leasable, and we expect to make progress throughout the balance of this year and into 2026. So we're feeling pretty good about the shape we're in. With some of the large deals that we've done, getting long-term leases with stable tenants, we have given up some occupancy to make space for them, and Gord will go over that in more detail. But generally, we're seeing the demand for space to be increasing. We see a lot more people back to work. And the market seems to be getting a little bit stronger, and we expect to see that continue throughout the next few quarters. So with that, I'll turn it over to the team to make their prepared comments. Gordon Wadley: Well, that's great. Thanks very much, Michael. Good morning. I hope everyone is keeping well. As always, it's really nice to get a chance to connect with you all today and share some of the work that our team has been doing year-to-date. I also look forward to taking the opportunity to share some of our priorities to close out 2025, as well as key milestones regarding our asset strategies, operating performance and leasing. We remain very committed and I would say, laser-focused on leasing up and improving the quality of our assets despite operating in a challenging environment for the sector. For the last 2 years, we've continued to see very steady and measured growth across the portfolio. As a management team, we've been very consistent in the messaging where we'd say there would be incremental net absorption quarter-over-quarter, and we've been very hypersensitive in identifying and managing risks well in advance to mitigate any material drop in income or committed occupancy. This approach has yielded another consecutive quarter where we've seen committed occupancy growth directly in line with the guidance we shared throughout the year. For Dream Office, leasing continues to actually be quite resilient. We've done over 630,000 square feet of gross leasing year-to-date, and that's made up of 110 deals across the portfolio. More specifically, in Toronto, we've done 520,000 square feet completed across 92 deals. And of that, 252,000 square feet were new leases and 270,000 square feet were renewals. We are in advanced negotiations on another 60,000 square feet of deals, which would bring our annual total, just from Toronto, to 580,000 square feet. For context for everybody, the 3-year average annual leasing volume in Toronto was about 530,000 square feet. This puts us on track to exceed this level in 2025 with even fewer assets. For the 252,000 square feet of new leasing, NERs are outperforming the business plan at about $18 a square foot versus $15. This outperformance is driven by longer WALTs, which allow higher TI and LC costs to be amortized over the extended terms. The average new lease term is 8.5 years versus 5 years what we had in the budget, reducing effective cost to $11 a square foot per year versus $16 a square foot per year. While net rents remain in line with our guidance and top of the market for their respective classes in the mid-30s. For the 267,000 square feet of renewals, NERs are in line with guidance, even with a few large deals executed at lower NERs to accommodate certain blend and extends and protect occupancy. Most notably, IFDS at 30 Adelaide to accommodate a large new tenant at 30 Adelaide to backfill the space we got back. On the balance of the renewals, we've seen improved performance with the weighted average NERs kind of low to mid-20s when you exclude those big blend and extends. To quickly touch on other markets, year-to-date, we've completed 110,000 feet of leasing across 21 deals in Western Canada, including 23,000 square feet of new leasing across 10 deals and 87,000 square feet of renewals across 11 deals. We are well in line with our 3-year average annual leasing volume in other markets or Western Canada. Deal velocity and absorption and committed occupancy is honestly what I get asked the most about by investors, analysts and researchers. I want to give you all some very important context. Our best year of total leasing was 2023, where we did approximately 604,000 square feet gross. And subsequently, the best year of leasing volume, the number of deals that we did was 2024, where we did 104 deals. We're quite pleased year-to-date that we've eclipsed total square footage leased already with 630,000 square feet and total deal volume with over 110 transactions. We still have another quarter to go. We have consistently said our goal is to get incrementally better each quarter, and we have from an occupancy -- committed occupancy perspective quarter-over-quarter since 2023. A big catalyst for our absorption has been our model suite program. Since 2024, we built out 26 model modified suites across 120,000 square feet of vacancy in the portfolio. By being proactive and investing the capital and improving space to attract move-in-ready tenants, we've leased 20 of the 26 spaces for 85,000 square feet. We're also conditional on another 3 for an additional 15,000 feet, which would be 101,000 of the 121,000 or approximately 90% of the units. This summer, many of you might remember, but we had a slide at our AGM that illustrated the growth in occupancy on our Bay Street Collection assets. In Q2 2024, we are at 72% occupancy. We showed that to close out Q1 2025, we were up almost 400 basis points to 76%. And now with our model suite deals completed on Bay Street and the 2 conditional deals we have in the pipeline, we're up another 500 basis points to 81%, just on the Bay Street Collection. As such, we're pretty pleased to see some steady growth in committed occupancy since Q1 2024 in that specific note. Over the course of the year, we have consistently worked and guided our committed occupancy to be in the high 80s, the mid- to high 80s to close out 2025. We're well on pace to achieve this and feel confident to reach about 86.5%, supported by deals signed this year on vacant space with future commitments. A great example is our largest asset at Adelaide Place. Currently, it has 78.5% in-place occupancy. I'm pleased to share that we've done significant leasing in that asset the last 12 months to the tune of 220,000 square feet, bringing our committed -- not our in-place, but our committed occupancy to 95.7%. These deals, while not immediately contributing to NOI, we'll see our NOI go from $15.5 million to just over $18 million in the next year at AP alone. This derisks and anchors the portfolio by being a large fully leased asset with strong steady cash flow, great covenants, long term. Going asset by asset, when you drill down a little further, if you net out our largest single exposure being the remaining vacancy that we had at 74 Victoria, our committed occupancy for the portfolio, as Michael said, is about 90%. As a quick reminder, we had PSPC informed us just over 18 months ago that they were leaving the building in full, giving us 200,000 square feet of vacancy. Since then, we've secured 70,000 square feet direct with PSPC. We completed another deal for 44,000 square feet, and we have a very active prospect in advanced negotiations for another 25,000 square feet. That would take us to over 130,000 square feet of the vacancy that we had received just over a year ago. We had about 187,000 square feet of expiries this year, of which 91,000 square feet are renewals, and it got us to a renewal ratio over the year of about 48.7% year-to-date. What I would like everybody to know is, on top of that, we did another 40,000 square feet of new leasing on that exact same expiring space in advance of them vacating this year, which gets us to 74% coverage on units that are expiring. Ultimately, the management team feels quite good going into 2026 and carrying on the momentum as the Toronto portfolio has about 340,000 square feet of expiries next year. Of these, about 40% are addressed net of known vacates, we only have about another 110,000 square feet of unaddressed expiries. When you look at the deal velocity and absorption we've had over the years, it's quite manageable. Of this 110,000 square feet, we currently have proposals with about 76,000 square feet. So we feel like we're in good shape on addressing year-over-year rollover and more importantly, backfilling space as it comes up. And we've got a track record of doing that over the course of the past 18 months. In closing, our Q3 results reflect the strength and resilience of Dream's Office strategy and execution. Despite ongoing sector challenges, we've tried to be transparent and share with everyone our guidance and really work towards the guidance and do what we say we're going to do. Our team's proactive approach to leasing, risk management and asset quality has delivered consistent growth in occupancy and net absorption. Our Toronto and other markets are outperforming historical averages to date over the last 5 years. Our model suite program and targeted investments continue to attract high-quality tenants while our disciplined management of renewals and backfilling expiries position us to achieve our committed occupancy targets for year-end and beyond. As we look ahead to 2026, we remain very confident in our ability to sustain this momentum, drive portfolio stability and create long-term value for our stakeholders. Thank you to our team for all their efforts and continued commitment, and thanks to you all online for your continued support and interest. I'll now turn it over to my good friend and CFO, Jay Jiang. Jay Jiang: Thank you, Gord. Good morning, everyone. Today, I'll walk you through our third quarter financial results and share our outlook for the rest of the year. Please note, we'll provide formal guidance for 2026 during our fourth quarter conference call in February. This quarter, our diluted funds from operations were $0.60 per unit, matching both our internal expectations and with year-to-date FFO at $1.90 per unit, we're on track to be within the range of guidance we provided on our August conference call. Compared to last year's third quarter, FFO per unit declined $0.17 per unit. The decline was largely driven by the sale of 438 University, the sale of our vendor take-back mortgage in Calgary and 5.9 million units of Dream Industrial REIT. The cumulative impact of these asset sales reduced our FFO by approximately $0.19. These dispositions brought in approximately $180 million of cash proceeds, which we used to repay mortgages and credit facility, which improved our debt-to-gross book value by 280 basis points. At an estimated cost of debt of 5%, we saved approximately $0.11 for the quarter by reducing debt. So the net FFO dilution is approximately $0.08 in exchange for $180 million of debt reduction, improved liquidity and a safer balance sheet. Note that on a cash basis, impact is further reduced by additional $0.03 because the cash distribution forgone on the Dream Industrial REIT units sold is $0.05 versus $0.08 of FFO. Year-over-year, the weighted average interest on our total debt balance increased by approximately 23 basis points. FFO declined $0.06 due to refinancing mortgages at a higher interest rate environment and drawing on our revolver to fund some of our larger long-term lease completed this year to improve committed occupancy. Year-over-year comparative net operating income from our income portfolio was flat for the quarter despite losing $2 million of NOI at 74 Victoria from the federal government expiry. We were able to offset this decline with increased NOI at Adelaide Place, 36 Toronto and 30 Adelaide. Our year-over-year straight-line rent reduced by approximately $0.05 as in the prior year, there were 2 larger tenants that began operations in their premise prior to economic commencement of the lease. Those tenants are now paying contractual rents. We are up $0.03 on the completed development and rent commencement of 366 Bay and down $0.01 on taking 606-4th Avenue in Calgary into development and terminating some of the in-place leases. We're pleased with the progress of our 2 properties under development at 606-4th in Calgary and 67 Richmond in Toronto. Once stabilized, these 2 projects are expected to contribute over $4 million in annual NOI at our share or roughly $0.20 per unit. Other items, including the elimination of previously accrued tenant liabilities and expenses that are no longer required and higher property management expenses offset to 0. Year-over-year, our debt-to-gross book value increased 130 basis points to 53.2% as a result of fair value declines in the income portfolio. Over the past 12 months, the weighted average cap rate of our income portfolio increased from 5.72% to 6.15%. Our debt over trailing 12-month EBITDA improved to 11.4x versus 11.7x on a comparative basis. Currently, there is approximately 450 basis points of spread between our in-place and committed occupancy, which represents approximately $6.7 million of annualized EBITDA, of which $1.7 million comes online at the end of 2025, $4.2 million over the course of 2026 and the remaining $0.8 million in 2027. Once the leases take commencement and we continue to improve our occupancy, we expect our EBITDA to grow and improve our leverage ratios over time. On the financing front, we've already addressed all $741 million of our 2025 debt maturities, which represented 53% of our total debt stack. We've already actively begun to work on $166 million of debt maturities for next year and are confident in our ability to secure favorable terms and higher refinancing balances and maturity. This quarter, we repaid our $8.7 million of mortgages on 606-4th Avenue and then sold 50% of our interest in the project to Pomerleau Capital. Having Pomerleau as a partner in this project makes strategic sense for us as they are one of Canada's largest construction companies and their wholly owned subsidiary, ITC Construction Group, will be the construction manager. In addition, we were able to reduce development risk and repatriate $15.3 million of proceeds to reduce our own debt. Construction is already underway, and we anticipate completion in the fall of 2027 with stabilization by mid-2028. On stabilization, we anticipate that the asset will produce approximately $3.6 million of NOI at a development yield of approximately 5.6%, including land at 100%. We closed on the ACLP loan for $64 million for a term of 10 years at a rate of 3.3%. So the project yield provides an attractive spread of 230 basis points to the cost of borrowing. In addition, we have also worked with 9,000 square feet of tenants to relocate them into our adjacent building at 444-7th. This relocation improved occupancy at 444-7th by 340 basis points. We're overall pleased to have obtained a creative solution that helps us reduce risk, improve liquidity and enhance income and value in our remaining property in an otherwise very challenging office market in Calgary. At 12800 Foster Street, Overland Park, our existing lease with U.S. Bank concludes in November 2025, and we have listed the asset for sale earlier this year. We have received expressions of interest from prospective buyers and are negotiating with them on the sale. We are targeting a transaction in early 2026, and we will provide more information on pricing and timing as we make more progress. On our August conference call, we provided updated guidance of between $2.40 to $2.45 per unit and annual comparative property NOI to be relatively flat to slightly positive for 2025. We are still on track with that guidance to close off the year. Our business planning process is scheduled for December, and we'll provide 2026 guidance during our February call. We believe our portfolio is well positioned for growth in income and value, especially if the downtown Toronto market continues to improve. With that, thank you. And now I'll turn the call back to Michael for Q&A. Michael J. Cooper: Thanks, Jay. Thanks, Gord. And operator, at this time, we'd be happy to answer questions. Operator: [Operator Instructions] Your first question comes from Sairam Srinivas with Cormark Securities. Sairam Srinivas: Gord, this one is probably for you. When you look at the demand that's kind of come up in September across Bay Street, is that more specifically for a certain kind of flow plate? Or is that generally across-the-board where people really need space now and are willing to actually come to smaller plates? Gordon Wadley: Yes. Good question. It's a combination of both. So we're catching a lot of tenants that are in around the 3,000 to 5,000 square foot range that are looking at our Bay Street Collection. And the bulk of the tours, I mentioned are model suites. So they're really kind of coveting improved suites that are move-in ready. And we're starting to see for the first time, a few kind of start-ups dip their toe in the water, but the profile is mostly still professional services firms. Deals we're doing are with money managers, law firms, people that kind of covet having a Bay Street address, but it's in about the 3,000 to 5,000 square foot range we're seeing the most velocity of tours. Sairam Srinivas: That makes sense. And probably looking at 74 Victoria and considering the leasing you guys have done to date on that space and what's remaining out there, is there something that stands out in the space that remains that makes it may be less or more challenging to kind of lease out? And is that something which should probably meet the current requirement out there? Gordon Wadley: Yes. I'm glad you brought it up. So 74 Victoria would be, by any class considered almost a typical government building, like a low B, C class type building. We expect some capital to redo the common areas, which has attracted more tours and help the deal velocity. We just finished the lobby renovation. We've done 2 floors into high-quality model suites that really show what the potential is. But the difficulty with that building is that, it is an old building. It's a large footprint. And as such, it kind of caters to a bit of a submarket in Toronto that has less velocity than the Class AAA or the A class market. It's almost a tale of 2 buildings. Like if you look at Adelaide, for example, our committed occupancy is almost 96%. And if you look at 74 Victoria, a different class of asset, well located. It caters to a different group where you're seeing less velocity of tours and interest. Michael J. Cooper: We might a little bit more positive on 74 Victoria. It's in an incredible location. The floor plates are big, and it probably is good for larger tenants that are looking to have a decent space that is very cost friendly. And I think there's a fair amount of tenants like that. We got a lot of space back last year. We're making progress leasing it. And I think we'll continue to do fairly well leasing that building over the next 24 months. Gord, how long would you budget it to re-lease the space at the federal government left at the end of last year? Gordon Wadley: We put that just about 2 years, Michael. Michael J. Cooper: Yes. So I think like when you have such a big change to a building, it does take time to backfill. And I think we're doing pretty good. So I'm pretty impressed with how well that's going. Sairam Srinivas: That's great. Maybe just looking at the assets out here, I look at the list of assets here right here, 36 Toronto, 330 Bay and 250 Dundas. One thing that's common between all 3 is the in-place committed right now is around between 70% and 75% right there. When you think about these assets and the demand, like do we feel that in the next 12 to 24 months, we'll probably see incremental flow of leases out here? Gordon Wadley: Yes. So 330 Bay -- sorry, Michael. I was just going to go through each of the assets you asked questions on. So 330 Bay, we've seen a real velocity in tours. We've actually done quite a bit of leasing in the building that has forward commitments. So we're quite optimistic about it. 350 Bay, I think, was the other building you mentioned and 250 Dundas. 250 Dundas is a site, I'll let Jay talk about, but it's a site that's a redevelopment site for us. So we've just been holding on to in-place tenants for cash flow purposes. And then on 350 Bay, we had a low in-place occupancy there. But on that building, I don't want to give too much forward-looking information. We're getting pretty close on a deal that would take the occupancy to almost 100%. And we're hoping that deal will be done by the end of the year. Operator: [Operator Instructions] This concludes -- my apologies. We have a question from Anish Thapar with Scotiabank. Anish Thapar: So my first question is, is the impact of the return to work policies on the market vacancy consistent with the prior expectations of 6 to 12 months? Michael J. Cooper: Generally, I think so. We're pretty impressed with how many people are coming back to work and how various governments and banks have been encouraged back to work. But Gord, do you want to go in a bit more detail? Gordon Wadley: Yes. I think really the only group that is trailing back to work is the government. I think the banks that we have in our buildings, they've been communicating with us. They're in at least 4 days a week. The provincial government, they're in 5 days a week. Municipality is starting to come back, but it's just the federal government that hasn't quite landed on a return-to-work program. We're seeing a lot of our private sector tenants. I'd say the vast majority are now in 5 days a week in some capacity. So my personal observation is I feel like everybody's return to work is normalized, saving except the federal government. Anish Thapar: All right. So what's the breadth of the tenant demand right now in Toronto today by category? Is it like majority by banks? Or is it diversified with other industries as well? Gordon Wadley: Good question. So our portfolio, it's all -- the majority are kind of like low-rise buildings, smaller floor plates. So we see quite a mix of tenants through. We're seeing a lot of professional services firms come through. We're starting to see more consulting firms to our buildings. And I think if you read the budget and some of the infrastructure that's coming out with the Fed, a lot of these consulting firms are tying their interest to different provincial and federal government contracts. So we're starting to see some consulting firms come through. The provincial government is very active in space accommodations. They're out looking at vacancies as well as other buildings. And then I'd say, predominantly -- and the other thing we're seeing, too, is I mentioned it before on the first caller is, we're starting to see some more start-up interest, which we haven't seen over the last little while, a lot of tech start-ups have been touring some of our smaller units. And what's appealing to them is, we've got some growth potential in the portfolio as well. So when we speak to them, we say, look, you may be 2,000 today, but let's stay in touch, let's communicate and let's see if we can grow you organically. And then we just kind of show them examples of how we've done it. And it helped us strike a few deals, which is great. Anish Thapar: Nice. Good to know. My next question will be on the NERs. So what kind of trends are you seeing on the NERs on smaller that is like less than 10,000 square feet and the larger deals? Gordon Wadley: Yes. So for net effective rents, I mentioned on new deals, we're doing better than we had budgeted. We're seeing kind of high-teens, low-20s. We were seeing a real aversion to term lengths the last few years, but this has kind of changed. We've been able -- I think you could see in our stats, our WALTs have gone up as well, too. So that's helped net effective rents get stronger. We have more time to amortize the cost. So on new deals, we're in and around high-teens, low-20s. Our renewals were brought down a little bit this past quarter just because we did some blend and extends. And on these blend and extends, we put some costs in to attract and retain some of our largest tenants. We were successful in doing it, but it did cost us some free rent and some TIs to do so. The other thing that's contributing to NERs, and I'm not complaining about it because it's a necessary function in the market is leasing commissions for brokers have more than doubled over the last 2 years. So the whole market is susceptible to that, and that contributes to NER compression as well. Anish Thapar: All right. Makes sense. Just the last one. So do you see any incremental pickup in the Toronto office buyer sentiment? And how should we think about your disposition plans for 2026? Michael J. Cooper: That's a great question. I think that there's definitely a better mood around office. There was a recent transaction that closed at 70 York. And that was interesting because that was somebody buying an office building as an office building as most of the trades over the last few years have been buying office buildings to use this institutional quality. So we think it's marginally getting better, but it's not very deep. So I think that will take some more time, but there's definitely more people who are getting educated on it, studying the market. So we'll see what happens. Anish Thapar: All right. And any disposition plans for 2026? Can you give any color on that? Michael J. Cooper: Well, I think that in the other category, I think that Jay mentioned our Kansas City asset. If we can, we might lighten up there a little bit. In Toronto, we really like what we have. We may sell a building, but I don't think we're intending to sell much in Toronto over the foreseeable future. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Cooper for closing remarks. Michael J. Cooper: Thank you very much, operator. I just want to close with a little retrospective. For those who may not recall, at our year-end for 2015 in February 2016, we announced that we were concerned about suburban assets and some other assets, and we were going to sell a lot of assets and buy back stock. So between 2016 and 2019, we sold 38 of 40 buildings in Alberta. We sold 142 buildings in total. We reduced the size of the REIT from $7.2 billion by 60%. We bought back about 60% of the stock. And by the time we got to 2019, we were in great shape. There was like less than 3% vacancy in Toronto, rents were very high, buildings were full competition for space. And then we woke up at the beginning of this decade with COVID and people not being able to go to the buildings. And that was a total shock. Work from home was something that was really a fringe item before that. And it's basically been one thing after another with inflation going up, interest rates going up, uncertainty around policies with the U.S. and elsewhere. And we're going into 2026, which is actually the seventh year of this decade. So there's no doubt it's been a tough sector to be in office. But we're pleased with the budget. We're pleased this morning, there was just a bunch of new jobs created in Canada. The unemployment rate went down. It's a relatively mixed environment, but we think that there's becoming more confidence. So the question was, is it just banks that are expanding? Well, they definitely are expanding as they bring tenants back, but we're seeing with the budget and the incentives in it. We expect that there's going to be more and more businesses taking chances and growing. And we think things look more positive than they have for a while. But that doesn't mean that we don't -- that we're not fully aware of just how difficult it's been to be in the office sector for the last 6 or 7 years. So I think we're quite optimistic for what's going forward. I think we're through a lot of the difficult times. We've made huge adjustments, but continues the way it's been for the next couple of quarters will be good. But there's no quick fixes, but we're pleased with the progress we're making. So I guess that's my summary. It's a little bit -- it's just like what we've been doing in the last decade. And we're hoping now we're through most of the difficult times and things are getting better. With that, I'd like to thank the listeners. And please know that Gord, Jay and I are available at any time to answer any more of your questions. Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Welcome to Onex' Third Quarter 2025 Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. I will now turn the conference over to Jill Homenuk, Managing Director, Shareholder Relations and Communications at Onex. Please go ahead. Jill Homenuk: Thank you. Good morning, everyone, and thanks for joining us. We're broadcasting this call on our website. Hosting the call today are Bobby Le Blanc, Onex' Chief Executive Officer; and Chris Govan, our Chief Financial Officer. Earlier this morning, we issued our third quarter 2025 press release, MD&A and consolidated financial statements, which are available on the Shareholders section of our website and have also been filed on SEDAR. Our supplemental information package is also available on our website. As a reminder, all references to dollar amounts on this call are in U.S., unless otherwise stated. I must also point everyone to our webcast presentation for our usual disclaimer and cautionary factors relating to any forward-looking statements contained in today's presentation and remarks. With that, I'll now turn the call over to Bobby. Robert LeBlanc: Good morning, everyone. Before providing my comments on the quarter, I wanted to provide some thoughts on our pending acquisition of Convex and new strategic relationship with AIG. These transactions are a transformational step forward for Onex with the potential to meaningfully enhance long-term shareholder value. Since becoming CEO, one of my main priorities, beyond optimizing the business and focusing on those areas where we have a right to compete, has been to identify opportunities to deploy our balance sheet to create enterprise value. I truly believe these relationships with Convex and AIG, 2 industry-leading organizations that are well aligned with our own culture and principles, is one of these opportunities. In Convex, we are not only acquiring an outstanding organization and proven leader in the insurance industry, we are strategically and intentionally leaning into a business and ecosystem that we know extremely well and where we have been able to generate outsized returns. In just 6 years from its inception, the business has delivered well beyond expectations and still has excellent growth prospects. Further, the informational advantage we have built up related to Convex puts us in a far superior position, with much lower risk than if we were acquiring a business we didn't know as well. What Stephen Catlin and Paul Brand have achieved to date with Convex is truly remarkable. We'd like to thank Stephen and Paul and the rest of the employees at Convex for their efforts and results. They are one of the most talented teams in the industry and we're delighted to remain their long-term partners. In addition to the strength of the team, Convex has built a differentiated underwriting platform, one that has grown gross written premium by 22% annually since 2022. Profitability has also improved steadily with recent combined ratios in the high 80s to low 90s as the business continues to scale into its expense base. Convex has also demonstrated prudent underwriting and has had consistent favorable prior-year reserve development since 2022. Importantly, it carries no legacy insurance liabilities having been established as a de novo insurer in 2019 with the support of Onex and our LPs. Convex' efficient cost structure with no legacy technology burden and a focus on outsourcing noncore functions should allow for meaningful incremental operating leverage as the business continues to grow. As we highlighted in the investor presentation available on our website, Convex' key performance indicators clearly position it ahead of its peers, particularly on an organic growth basis. At our entry price of 1.9x Q3 tangible book value, we see meaningful upside as Convex continues to compound tangible book value through disciplined underwriting and retained earnings. As we have consistently outlined to our shareholders, we only want to deploy capital in areas where Onex has deep domain expertise and a clear right to compete. We've spent decades building experience and relationships across the insurance sector, and Convex is a great example of our deep domain expertise. Owning a property casualty insurer gives us 2 powerful engines of value creation. First, from through-cycle underwriting profits, which can be reinvested back into the business or become available for future dividend distribution. Second, as Convex' investment portfolio, which is currently around $8 billion, grows, allocation to alternative assets will grow with it, which will include Onex' own private equity and credit funds. This should drive incremental AUM growth and fee-related earnings for our asset management business. While the P&C market is not immune to cyclicality, we're comfortable with that risk given we expect to be a long-term owner of the business and Convex is still in the early stage of its growth trajectory. The business has significant opportunity to capture additional market share, underpinned by its high-quality relationships and reputations with brokers and clients. The combination of best-in-class growth and high-quality underwriting should allow Convex to compound its equity value at attractive rates through the cycle. We see that growth as a meaningful driver of Onex' future shareholder returns and a key contributor to the ongoing expansion of our net asset value over time. Turning to AIG's investment. This new relationship with one of the world's largest and most sophisticated insurance companies is an incredibly positive development for Onex. Their $2 billion commitment to our private equity and credit funds will contribute an incremental $15 million to $20 million of fee-related earnings, more than offsetting the impact of dilution. Moreover, this opens the door to a number of other benefits, including the potential to collaborate on future investments and a range of other initiatives that could prove significant over time. Overall, our relationship with AIG not only reflects a shared perspective on both the upfront value and long-term prospects of Convex, but is also an endorsement of the Onex platform and our ability to create future shareholder value. Across our existing businesses, we are also thinking strategically about how to best enhance enterprise value. Upon closing, Convex will account for 42% of our balance sheet. With the remaining $5 billion of investing capital, we will continue to grow it and deploy it through 2 key areas. First, by allocating up to 10% per fund into our own strategies while relying increasingly on third-party fundraising to scale FG AUM and related FRE. Second, by pursuing direct on-balance sheet investments. These would be in areas where we have a clear right to compete, but with differing risk-adjusted return, holding period and leverage parameters so as not to conflict with OP and ONCAP opportunities. Added to this will be a continued focus on growing fee-related earnings. We have made significant gains on FRE throughout 2025 in large part due to the work of our credit team, and we are now positioned to exit the year with a positive total FRE run rate that is ahead of plan. This growth will be accelerated by AIG's commitment to our alternative asset strategies as well as the addition of future investment into these strategies by Convex. As we work towards our objective of closing the transaction in the first quarter of 2026, we will keep shareholders updated on key developments and we'll continue to look for opportunities to provide the appropriate information to understand and value this transaction, including why we believe Convex deserves to be recognized at a premium valuation within our overall NAV. And now a few comments on the quarter. Again, credit continues to outperform our expectations this year, led by the ongoing momentum in structured credit. The team priced 22 CLO transactions through October, raising or extending $10.7 billion of fee-generating assets across our structured credit and tactical allocation platforms. The performance of our CLO portfolio continues to be top tier across important risk metrics. Our private equity teams continue to be active in Q3 with both realizations and deployments, ensuring that we continue to return capital to our limited partners while putting new investment money to work on opportunities that align with our chosen sectors. Onex Partners announced a sale of approximately 55% of its investment in OneDigital, in a transaction that values the business at more than $7 billion, which was completed at a valuation almost on top of our Q2 mark. In addition, we successfully closed the sale of our 25% stake in WestJet at more than a 40% premium to our mark. Including these 2 transactions and pro forma for the closing of the Convex transaction, Onex Partners V will have reached DPI of 0.7x, a strong achievement relative to the average DPI of comparable funds in this vintage. Following the sale of Precision Concepts in Q2, the ONCAP team successfully closed their sixth investment in Fund V, which is now approximately 50% invested. On the human capital front, we announced that Meg McClellan will join Onex as our new CFO following Chris' decision to step down from the role he has held since 2015. We are looking forward to welcoming Meg, who will assume the CFO responsibilities following our year-end call. I'm pleased that Chris has agreed to stay on in a leadership capacity to help ensure a smooth transition and provide continued guidance and support. I also want to acknowledge Tawfiq Popatia's confirmation as Head of Onex Partners. Tawfiq has always shown great leadership and strong investment acumen and is a true ambassador of the Onex culture and entrepreneurial spirit. Finally, I want to thank everyone for their condolences and support following Nigel Wright's passing. Onex lost a friend and colleague. Nigel was a gentleman in the truest sense of the word. I'll now turn it over to Chris. Christopher Govan: Thanks, Bobby, and good morning, everyone. While most of my remarks will focus on our results for the quarter, I'll also take some time to address some financial aspects of our acquisition of Convex and relationship with AIG. So let's start with our investing segment. Onex ended Q3 with investing capital per share of $121.61, up slightly from Q2 and representing a return of 7% for the first 9 months of the year. The 5-year CAGR on investing capital per share is 13%, just below our target range. Our PE portfolio was up slightly during the quarter. While Onex Partners V, the Onex Partners Opportunities Fund and ONCAP IV continued to generate positive returns across a broad range of their portfolio companies, these gains were mostly offset by losses in Onex Partners IV. As Bobby said, it was an active period for our PE teams on both realizations and deployments. In September, Onex Partners V announced the sale of 55% of its investment in OneDigital, which is expected to close later this year. We also had 2 partial exits closed since Q2: ONCAP IV's sale of approximately 80% of its interest in Precision Concepts International and OP V's sale of 25% of its stake in WestJet to a consortium of leading global airlines. The combined proceeds to Onex from these realizations will be approximately $360 million. It is worth noting that the last 13 realizations across our PE platform, dating back to 2022, have been completed at attractive values relative to their prior quarter's mark. In fact, only 1 was executed below the prior quarter's mark, and in that case, at only a 3% discount, and 5 were done at premiums of 15% or more including the recent partial sale of WestJet at a 40% premium. On the new investment front, in September, the Onex Partners Opportunities Fund announced the acquisition of Integrated Specialty Coverages or ISC. The company is a technology-enabled insurance platform that fits well within the portfolio, with our long history of successfully investing across the entire property and casualty insurance value chain, particularly in founder-led businesses like ISC. And in October, ONCAP V announced an investment in CSN Collision, a leading network of collision repair centers. As some of you will recall, ONCAP has experience investing in this industry having previously owned Caliber Collision, an investment that generated a 7.5x multiple of capital to Onex Corporation. Both the Opportunities Fund and ONCAP V are off to strong starts with investment pace on target. On the asset management side of the business, Onex ended the quarter with $42 billion of fee-generating AUM, with private equity and credit increasing by approximately 22% and 18%, respectively, during the year. The increases primarily reflect the earlier commitments made to ONCAP V and the Onex Partners Opportunities Fund, as well as the issuance of new CLOs. The asset management segment generated earnings of $20 million in Q3, of which $11 million was fee-related earnings from the PE and credit platforms. After factoring in the costs associated with managing Onex Corporation's capital and maintaining the public company, total firm-wide FRE was $1 million for the quarter and year-to-date. Credit continues its strong FRE trajectory, with an end-of-quarter run rate of $50 million. By year-end, we expect this run rate to increase to approximately $60 million, exceeding our 2023 Investor Day target. With credit FRE ahead of plan, we also expect to exit 2025 with positive firm-wide run rate FRE. As we noted in the presentation we posted last week, our forecast is to exit 2025 with firm-wide run rate FRE of approximately $17 million based on Q4 FG AUM initiatives in process. And this is before any of the benefit that we'll accrue from the $2 billion of allocations to our alternative asset strategies from AIG. At this point, we're estimating incremental FRE of $15 million to $20 million on this $2 billion of AUM. And we'd expect an increased allocation of capital from Convex to Onex strategies to be additive here. The actual FRE impact will depend on the strategies to which AIG and Convex ultimately allocate capital. But in all cases, we expect a very high conversion of management fees to FRE. As we've discussed before, we're at a point in both PE and credit where the infrastructure can manage incremental capital with very little in the way of additional costs. As the capital from AIG and Convex gets allocated, we'll continue to update our run rate FRE reporting to reflect the actual benefit. Now turning to Convex and AIG. As Bobby said, we think this is a terrific evolution of Onex, and we're confident it will allow us to accelerate enterprise value creation for the benefit of shareholders. I thought it would be helpful for me to add some color around the funding of the transaction and Onex' go-forward liquidity. Onex' funding could be affected by further PE realization and investment activities between now and closing. But at the moment, we expect our $3.8 billion investment in Convex to be funded by a combination of $1.5 billion of cash from our balance sheet, a $1 billion draw on the new NAV loan facility, rolling over our existing $700 million investment in Convex, including carried interest, and finally, approximately $600 million from the issuance of Onex shares to AIG. After factoring in cash flows from PE transactions we've already announced, we expect to have approximately $300 million of cash on Onex' balance sheet at close. In addition, Onex will have $200 million of undrawn capacity on the NAV loan. We're very comfortable that $500 million of liquidity is sufficient in the near term. And if you look out over the next 1 to 2 years, we expect Onex to generate meaningful additional liquidity, mainly from net PE realizations. As I mentioned, we expect to generate positive overall FRE going forward. And our credit business will continue to grow without the need for meaningful net new allocations of Onex capital. So that leaves our PE investing as the key driver of medium-term liquidity. Ignoring Convex, Onex has approximately $5 billion of PE investments in the ground, relative to only $750 million of unfunded PE capital commitments, of which only $400 million are to fund in their commitment period. So with that ratio, we expect meaningful net realizations from PE will allow Onex to pay down the NAV loan in relatively short order. Overall, the acquisition of Convex and strategic relationship with AIG position Onex to create long-term enterprise value. In one fell swoop, we're better leveraging our balance sheet to reduce the historic cash drag, allocating about 40% of our investing capital to an investment we know really well that will compound value over the long term, and paving the way for strong growth in FRE by demonstrating our commitment to an asset-lighter model and securing significant new AUM from AIG and Convex. That concludes the prepared remarks. We'll now be happy to take any questions. Operator: Certainly. And our first question for today comes from the line of Bart Dziarski from -- research analyst. Bart Dziarski: Great. It's RBC Capital Markets. Wanted to ask around the -- with the AIG new partnership, Bobby, would love your thoughts in terms of how you're thinking about this having the impact around fundraising. Does it change any of the outlook in terms of OP VI timing, sizing, et cetera? Robert LeBlanc: Yes. So look, I think having an organization like AIG look at where we brought our asset management business to over the last couple of years and want to invest in Onex Corp., it's a really strong endorsement. And I think it's only additive or a positive for fundraising going forward. I don't think it impacts timing of our fundraisers coming up for OP, ONCAP or credit. Specifically for OP, I would still target sort of mid-2026 as a fundraising launch date. And again, Chris mentioned it, the 0.7x DPI is a very significant stat for that platform, and it looks very, very good relative to other PE firms in that vintage. Bart Dziarski: Okay. And could you remind us, like what percentage of the fund are you in OP V? And would that be a similar percentage for OP VI that Onex invests in? Or are you thinking maybe more capital-light direction where you'd be a lower percentage of that fund? Robert LeBlanc: Yes. So for OP V, we were $2 billion, of about $7 billion. And again, we expect to be up to 10% of our various funds going forward. So it will be a much more capital-light model, if you will, from Onex Corporation's perspective and balance sheet perspective. Bart Dziarski: Okay. Great. And the last one for me is, we're hearing lots around the kind of this private credit narrative within alternative asset managers. I would love your thoughts around are you seeing anything in your portfolio? Maybe walk us through how you differentiate in terms of origination to protect the book. Any thoughts there on private credit? Robert LeBlanc: Yes. So private credit has had a couple of big blow-ups over the last couple of months. I'm happy to report that our credit team had no exposure to those blow-ups. I think Ronnie and the team have a "protect the downside" mentality. And when they see problems come up, not in those particular names, because we weren't in those names, but they tend to move very quickly when they see a problem and not wait for the problem to get confirmed. So I don't think it's systematic on what we're seeing. I think there were reasons why those credits went bad from governance, control and other reasons. But from our own portfolio, we haven't been in any of those to date, which I give again the credit team a lot of kudos for. Operator: And our next question comes from the line of Graham Ryding from TD Securities. Graham Ryding: Can you just talk about the strategic shift underway here with this Convex acquisition? So if we look out over the next 1 to 3 years and you are successful in monetizing some of your existing PE co-investments, should we expect a similar strategy going forward where you make some further concentrated investments in sort of majority type positions? And if so, what's the right mix? How many of these would you think would be the right mix to sit within your NAV? Robert LeBlanc: Yes. So again, just to step back a bit, but I'll answer that specific question, there's really 3 things that I'd like our shareholders and fellow owners to focus on in the near term. First is the acquisition of Convex, we'll own 63% of it on the balance sheet. And again, we have controlled that company for 6 years, so the informational advantage that we had going in, in terms of doing 6 years of due diligence, essentially, and the fact that AIG invested more than $2 billion in the Convex at the valuation that we had, makes me feel very good. At least initially, right? That part of our NAV ought to be looked at very differently than our NAV has been looked at going -- historically, sorry. On the asset management side, I think it's nothing but positive to have AIG and incrementally more Convex dollars coming in, I think, is going to help our PE platform, is going to help our subscale credit products that I've been talking about wanting to get the profitability to get outsized FRE growth. And just the endorsement of those organizations on our overall platform, I think, is going to be a net positive for fundraising. But you point out a very important third leg of the strategy, and that's as we become more of an asset-lighter model in terms of Onex Corp.'s balance sheet commitment to our various products, there is an opportunity, and I use the word opportunity, to redeploy, or reorient is a word I like to use, that $5 billion of capital into Convex-like transaction, that will -- my goal would be that would make perfect sense to our fellow owners in terms of where we have a demonstrated right to compete as that capital gets deployed. But think about it in terms of lower to no leverage like a Convex. It could be a junior security, it could be a control position. But we'll have enough influence in whatever we're doing to make sure that we have the ability to explain it well to our shareholders. And importantly, you're going to much, much more transparency around those types of investments. You'll notice what we put up on our website in terms of the transparency around Convex and all the financial metrics that one looks at to evaluate a company like that, you'll see that for anything that we do on the balance sheet, so again, so our fellow owners will know how to value the pieces. But I see it being very concentrated, just so you understand, maybe 1 or 2 other ones. Insurance obviously is a very natural one for you to think about. But there's other things that we really have done remarkably well over the years that we would be open to as well. But it will not be something opportunistic that isn't one of our demonstrated areas to have the right to compete. Graham Ryding: Okay. Great. And you talked about having a 6-year sort of due diligence period here on Convex. Going forward, would it make sense for you to follow a similar pattern here and look closely at your existing portfolio companies as likely candidates for further kind of concentrated investments? Robert LeBlanc: Yes. The one thing that made Convex different, because it was a de novo, it really was never a leveraged buyout, even though it had a PE return for Onex and our LPs. I think it will be very difficult for me to do a traditional PE-type deal with a huge chunk of our capital, i.e., something I need to do 5x leverage or something like that to get the appropriate return. So I see -- I don't see immediate opportunities where the next one would come from that set of opportunities, but I would never close my mind to it because you never know. Graham Ryding: Okay. Understood. On the FRE side, Chris, I just want to make sure I'm understanding the guidance correctly here. You talked about in your presentation last week of a $17 million overall FRE run rate as you exit 2025. Should I be -- or should we be expecting sort of Q4 25 FRE annualized to be $17 million? Or is it more like Q1 2026 annualized? Christopher Govan: Yes. No, not Q4, because it is a run rate calculation so there's always a little bit of a lag effect. Just -- so I would think you'd probably see us grow into that on an annualized basis, probably more in Q2 when the stuff -- the capital we raise between now and the end of the year is kind of fully online and fully fee-paying. Robert LeBlanc: And Chris, just -- sorry, shareholders, just define run rate and what it actually means, so people truly understand it. Christopher Govan: Sure. What -- in a lot of cases, when we raise capital and start earning management fees, there's just a lag associated with when the management fees actually kick in versus when the capital is allocated or invested. So we're simply looking at our fees -- or excuse me, our FG AUM that's sort of in the house and in the ground, and calculating what the management fees are on that capital sort of on a fully deployed basis. And then we also obviously just look at our expense base sort of as where we are at that point in time given what we need to spend to manage the capital that we're calculating the fees on. So it's a bit of a forward-looking calculation as opposed to backwards-looking calculation. Graham Ryding: Okay. And essentially, by Q2 2026 then, not Q4 2025, you're expecting to be delivering kind of a $4 million plus FRE in the quarter? Christopher Govan: That would make sense. But again, the run rate will again have probably grown from annualized $17 million to something much better than that at the end of Q2. But yes, I think in terms of actual reported in the period, that would be a pretty good estimate. Graham Ryding: Okay. Understood. And then my last one, if I could, just fundraising on the credit side. I always find it a little bit confusing when you make reference to sort of extended AUM and new AUM. Can you give us a bit of an update on what's the sort of new AUM fundraising in the quarter and year-to-date on the credit side? Christopher Govan: Sure. Let me just get that data pulled up for you. Robert LeBlanc: While he's looking for that, they're also having really good success on OSCO II, which is our structured credit fund; ONCAP, which is our dynamic credit fund; and again, the high yield and senior credit. The fundraising for credit has been pretty good across the board. But Chris, go ahead if you have those answers. Christopher Govan: Yes. So across credit through the end of Q3, FG AUM -- new FG AUM raised was, call it, just over $5 billion in the year. Operator: Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Bobby Le Blanc for any further remarks. Robert LeBlanc: Thank you for your time today. We are truly excited about the strategic steps we made last week with the acquisition of Convex and the new partnership with AIG. We look forward to having a dialogue with you in the coming months to answer any of your questions and make sure you fully understand exactly how we're thinking about Onex going forward. But we think it's a very exciting time. Have a great weekend, everybody. Thanks. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: Good morning. My name is Gigi, and I'll be your conference operator today. I would like to welcome everyone to The Chemours Company Third Quarter 2025 Results Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded. I would now like to hand the conference call over to Brandon Ontjes, Vice President, Head of Strategy and Investor Relations for Chemours. You may begin your conference. Brandon Ontjes: Good morning, everybody. Welcome to the Chemours Company's Third Quarter 2025 Earnings Conference Call. I'm joined today by Denise Dignam, Chemours' President and Chief Executive Officer; and our Senior Vice President and Chief Financial Officer, Shane Hostetter. Before we start, I would like to remind you that comments made on this call as well as in the supplemental information provided on our website contain forward-looking statements that involve risks and uncertainties as described in Chemours' SEC filings. These forward-looking statements are not guarantees of future performance and are based on certain assumptions and expectations of future events that may not be realized. Actual results may differ, and Chemours undertakes no duty to update any forward-looking statements as a result of future developments or new information. During the course of this call, we'll refer to certain non-GAAP financial measures that we believe are useful to investors evaluating the company's performance. A reconciliation of non-GAAP terms and adjustments is included in our press release issued yesterday evening. Additionally, we posted our earnings presentation and prepared financial remarks on our website yesterday evening as well. With that, I will turn the call over to Denise Dignam. Denise Dignam: Thank you, Brandon, and thank you, everyone, for joining us. During today's call, I will begin by discussing highlights from our third quarter performance and will then turn it over to Shane, who will provide details around our outlook. Finally, I will provide updates on meaningful progress on our Pathway to Thrive strategy, along with strategic developments before taking your questions. For our third quarter performance, we exceeded our adjusted EBITDA expectations despite the persisting macroeconomic weakness that affected some economically sensitive sectors of our business. Our stronger earnings were driven through diligent commercial execution in stationary aftermarket sales of Opteon Refrigerants under the backdrop of the 2025 U.S. AIM Act stationary equipment transition, further supported by lower corporate costs. While we had highlighted some anticipated operational disruptions heading into the third quarter, these issues are now resolved, aided by our manufacturing center of excellence, enabling quicker response and enhanced issue mitigation. Now turning to each segment's performance in the third quarter. Starting with TSS. Our TSS business reported another quarter with results exceeding earning projections as Opteon sales maintained double-digit growth of 80% compared to the prior year quarter. This marks a third quarter record for Opteon sales. The increase in Opteon was primarily due to higher pricing and volume associated with sales into the stationary aftermarket in connection with the U.S. AIM Act's residential and commercial HVAC equipment transition this year. Throughout this transition, the TSS team displayed its focus on commercial excellence, capturing sales opportunities while making efficient use of our quota allowances. As a result of the achievement, Opteon Refrigerants now account for 80% of total refrigerant sales, an increase from 58% in the previous year. TSS' excellent commercial discipline drove earnings performance and a 35% adjusted EBITDA margin, underscoring the strength of our differentiated portfolio and ability to capture profitable growth tied to the regulatory transition. This earnings performance also reflected some higher-than-anticipated onetime costs associated with continued investments to commercialize our liquid cooling product. The latest notable achievement in this journey being the recent successful technical qualification of our two-phase immersion cooling fluid by Samsung Electronics. Altogether, this was an industry-leading performance from TSS, outpacing our third quarter adjusted EBITDA expectations and setting a solid foundation as we head into the fourth quarter and next year. Turning to APM. APM also drove solid top line performance for the third quarter, which ensured earnings performance was in line with our expectations. Washington Works was back up and safely running by mid-August following the external utility disruption due to the diligent response efforts from our site team. In addition to driving expected earnings results, the APM business continued to make notable progress to execute upon our portfolio management efforts, completing the shutdown of the SPS Capstone product line during the third quarter. Adding to this strategic execution, the APM business also announced an agreement with SRF Limited in India to support needs for essential applications. This partnership positions our company to benefit from a more flexible and robust operational footprint while providing optionality to better serve our dynamic customer base. Moving to TT. In the third quarter, TT delivered overall results below our expectations, primarily due to sustained macro weakness across the global TiO2 market. In our key Western markets, we experienced seasonal trends compounded by some near-term destocking that was partially offset by some sequential pricing strength. In these Western markets, we view this destocking activity as short term as customers look to preserve cash as they navigate uncertainties in exiting the year. Alternatively, in our non-Western markets, sequential pricing weakness was offset by sequential volume strength. Despite challenges in the broader market, our team demonstrated resilience while effectively addressing anticipated disruptions. Through our efforts, we are now well positioned to minimize future disruptions and respond proactively to external factors that may arise. While the broader market has yet to indicate improvements, we remain steadfast in our pursuit of a value-based commercial strategy. This approach is aligned with the higher product quality that we provide to our customers and is reflective of the competitive advantages that we provide in reliability, customer service and sustainability. In line with this approach, in the fourth quarter, we recently communicated a global pricing increase, which is reflective of our value in the market. As we look at global market capacity, during the third quarter, we continued to see capacity rationalization of Chinese production and other Western producers as the market continues to realign to a weaker demand environment. While it is clear that exports of Chinese product continue, albeit at lower rates than last year, much of this inventory continues to be exported to Southeast Asia, the Middle East and Africa and parts of Latin America. In light of this, we are seeing the recent fair trade actions in Europe holding strong, but with additional supply in the market due to excess inventory from a Western producer's inability to continue operations in the third quarter. Also, we were pleased to see finalized fair trade actions taken in Brazil and the Kingdom of Saudi Arabia. However, note that it will take some months for the existing oversupply of titanium dioxide inventory to work its way through the system in these markets. We believe these changes in the global supply environment provide longer-term opportunities in Western markets, but they are more muted in the near term due to the continued macro weakness and additional inventory in the system. I will provide additional perspectives on our strategic progress and our path for TT after Shane shares an update on our guidance for the period ahead. At the corporate level, we continue to make progress against our underlying cost structure, while we did incur some slightly more favorable costs, partially due to the timing of certain legal spending, a portion of these lower costs are due to the continued cost efforts that the company has executed over time. With that, I'll turn it over to Shane to walk through our outlook. Shane Hostetter: Thank you, Denise, and good morning, everyone. As shared in our earnings materials as well as in the supplemental prepared financial remarks available on our investor website, I would like to now discuss our expectations for the fourth quarter and as we look ahead. Beginning with TSS. For the fourth quarter, we expect net sales to decrease sequentially in the high teens to low 20s percentage range, driven by traditional seasonality with continued double-digit Opteon growth. This Opteon performance is anticipated to more than offset declines in our Freon business year-over-year. TSS' adjusted EBITDA is expected to decrease sequentially, ranging between $125 million and $140 million, also driven by seasonality. As we make progress on our next-generation refrigerants and liquid cooling solutions, we anticipate continued investments to support our commercialization and product sampling efforts. Similar to the $22 million in costs we saw this quarter, reflective of some onetime production-related costs, we expect another $8 million in the fourth quarter, bringing our full year estimate of product development costs to approximately $40 million. As we look ahead into next year, we anticipate that we will continue to achieve double-digit year-over-year Opteon growth into the early part of the year, as OEMs continue to transition to R-454B in the U.S. We also expect modest benefits from our cost-out efforts driven by our expanded capacity through our recent Corpus expansion, which will continue to expand margins over time. Also, we anticipate product development costs to be closer to $20 million next year, consistent with earlier expectations for annual spend. Overall, we anticipate continued sales growth for TSS paired with improved earnings as we head into next year. For our APM business, we expect net sales to decrease in the low single-digit percentage range sequentially due to market weakness in the global industrial end markets where we have more sensitivity to macroeconomic conditions. Adjusted EBITDA is expected to approximate $30 million to $40 million in the fourth quarter, driven by a return to normal operations at our Washington Works site, paired with continued progress on cost reduction efforts. We believe that APM's fourth quarter EBITDA will reflect our continued focus on operational excellence to drive increased reliability, paired with continued cost-out efforts and should be at a more normalized level of earnings, which we expect will continue in future quarters. For our TT business, we expect sequential net sales to decrease in the high single digits to low teens percentage range, driven by seasonality, regional sales mix as well as near-term destocking, which we see continuing until the end of the year. Adjusted EBITDA is expected to decrease sequentially, ranging between $15 million and $20 million. During the third quarter, the company decided to lower its production volumes concurrently with what we are seeing in TT's value chain, while near-term demand expectations remain muted. This decrease in production will result in a $25 million cost impact to TT's adjusted EBITDA in the fourth quarter, offsetting sequential benefits from improved operations and cost reductions, but will improve TT's cash generation. As Denise shared earlier, we anticipate that this destocking will be short term as downstream customers look to conserve cash moving into the end of the year. Looking to 2026, we anticipate some restocking efforts in the first quarter. In connection with this first quarter restocking, we expect improved earnings as we head into next year, supported by improved operational performance. However, we do anticipate muted market conditions to persist in the quarters ahead. Considering these weaker conditions, we are placing a greater emphasis on promoting improved cash generation, and we will seek to closely align our production with anticipated demand. To this, when the broader market demand profile improves, we will align production, which will drive improved cost absorption across our circuit. With our resolve unchanged, we continue to make good progress on costs. However, recognize that the full benefit of these reductions may be masked by the impacts of our lower circuit operations. On a consolidated basis, we anticipate our fourth quarter net sales to decrease 10% to 15% sequentially, with consolidated adjusted EBITDA expected to range between $130 million to $160 million. Also, we anticipate corporate expenses to range between $40 million and $45 million, considering the timing of certain accrued expenses. Our capital expenditures for the fourth quarter are expected to be in the range of $50 million, with free cash flow conversion expected to be between 50% and 70%. Based on these metrics, we would anticipate that full year 2025 sales would range between $5.7 billion and $5.8 billion, with adjusted EBITDA to range between $745 million and $770 million, with CapEx in the range of $220 million for the year. Looking forward to 2026, at a consolidated level, we anticipate overall sales and earnings growth with improved cash flow performance, supported by continued progress on our cost-out efforts. We remain committed to improving our enterprise's financial position to support our Pathway to Thrive strategy. Beyond the recent recapitalization of our U.S. term loan, which extended the maturity of the facility from 2028 to 2032, we continue to review our businesses' portfolio as well as looking at other avenues to create value, similar to critical minerals, which Denise will discuss in a minute. We are also taking a disciplined approach to the review of our nonoperating real estate footprint to determine how it can be optimized without impacting existing operations. Efforts like these aim to ensure that our resources are being used effectively and efficiently to further our strategic goals and to balance our financial flexibility. With that context, on our look ahead, I'd like to now hand the call back over to Denise to share perspective on our engagement in critical minerals and our continued strategic execution under Pathway to Thrive. Denise Dignam: Thank you, Shane. We continue to execute our Pathway to Thrive strategy with clarity and conviction to build on the progress we have achieved to date across all our pillars. With that perspective, I'd like to provide additional context on where we participate in the area of critical minerals, which is concentrated in our TT business, supporting our enabling growth pillar. While our minerals business is limited, we currently estimate approximately $90 million in mineral sales annually with roughly half consisting of high-value minerals comprised of monazite and precision investment casting zircon. The monazite that we process domestically through our mines, which support existing titanium dioxide feedstock operations, contains a uniquely high portion of heavy rare earth elements that are used to produce permanent magnets critical for the electric vehicle and defense markets. This attribute differentiates our domestic supply of monazite compared to other forms of rare earths found in North America. Additionally, we are the only qualified zircon supplier into U.S. precision investment casting applications, which is critical to the aerospace industry for both defense and commercial end uses. While our access to mines in Florida and Georgia provide the opportunity to extract these minerals, our TT business also possesses the ability to separate these critical minerals. Considering our specialized experience in the mining and mineral separation space, which has spanned over 75 years, we have been able to leverage this expertise to more recently attract government funding around our separation capabilities. This funding is designed to support innovative separation assets and to provide a framework to drive future growth in this space. Total grant funding awarded for 2025 and 2026 approximates $10 million. While an area that we have operational experience in, we look forward to continuing research of this innovative separation technology to develop future critical mineral opportunities in the United States. The presence of our mineral sales in the business today, combined with the potential of government support for future opportunities, provides an exciting pathway for our company to enable growth while continuing to serve the needs of these critical end markets. With regard to the execution of our operational excellence pillar, we have also launched the Chemours Business System to take the next step in operational excellence, applying lean principles to drive step change improvements in safety, quality and efficiency across our business operations. As we build on our recent operating improvements, we are also focused on pursuing further rigor in our commercial effectiveness. We believe that the reduced operational disruptions and enhanced commercial efforts will drive earnings growth as we head into next year. As we've shared in recent quarters, we remain focused on controlling what we can control while pursuing commercial growth opportunities where we can. We are confident in our ability to close out the year and remain committed to driving long-term value for our shareholders through disciplined execution, strategic growth and operational rigor. As we continue to execute on the four pillars of our Pathway to Thrive strategy, we are routinely evaluating our existing portfolio for opportunities where there may be a more efficient path to return value to our shareholders. Our senior leadership and Board remain grounded in our belief that the execution of our transformation strategy will provide a greater degree of strategic flexibility and position the business to thrive. Our team continues to pursue new ways to enable growth, remaining focused on optimizing our portfolio management efforts and is steadfast in our advocacy and execution to strengthen the long term for Chemours. Thank you for your continued support. With that, I'd like to open the line for your questions. Operator: [Operator Instructions]. Our first question comes from the line of John McNulty from BMO. John McNulty: So maybe the first question is just on the TSS business. It sounds like despite what we've been hearing from some of the residential HVAC OEMs around kind of what looks like a volume speed bump. It sounds like you're not really seeing that, and you don't expect it as you look to 2026. I guess, can you help us to understand why that would be some of the smoothing mechanism that you may have in place and/or -- look, maybe it's just not -- while it was a big improvement this year, it may not be -- it's not the only part of your business. But I guess help us to understand why we're not going to see that speed bump work through the refrigeration side of the business. Denise Dignam: John, thanks so much for the question. Yes, I mean, we, as a business, are focused always on maximizing value of our quota. So we have a broad portfolio outside of the HVAC OEMs from an application, from a product, from a regional perspective. So we're always focused on just maximizing the quota. We expect double-digit growth going into the fourth quarter and as we start 2026. I feel really proud of what the team has been able to deliver. If you look at our refrigerant sales, we're up year-over-year 32%, 80% increase in Opteon year-over-year. And from a segment, our sales are up 20%, and we've had margin expansion from 30% to 35%. John McNulty: Got it. Okay. Fair enough. No, it's -- look, it's been a great performance this year so far. Okay. And then I guess the second one I wanted to dig into kind of goes to your last point where you're constantly kind of reviewing the path to return value to the shareholders. And I guess, to that, you've got -- you have a lot of balls in the air at this point. You've got the data center opportunity. It sounds like you at least have some opportunities around critical minerals as well as kind of running the other core businesses. So kind of a lot going on. I guess, do you think Chemours has the bandwidth to manage all of that? Or are there other potential owners of some of these assets that might be better owners, not that you guys aren't good owners, but maybe better owners for specifically, the way to get as much out of these assets as they could? Denise Dignam: Yes, John, thanks for the question. We actually feel really good about the things that we're working on and really aligned with our Pathway to Thrive strategy. When you think about the strategy that we put in place, it really is about strengthening the company over the next several years. So we look at operational excellence, getting out $250 million of costs, enabling growth, getting to a 5% CAGR. On portfolio management, as you talked about, the critical minerals or data centers and even around our APM portfolio, some of the things that we've done. And then our last pillar, strengthening the long term, around our legal legacy liabilities and advocacy and really strengthening the whole portfolio. So it's really about creating a strong company, strong balance sheet and to give us optionality as we move beyond Pathway to Thrive. Shane Hostetter: Yes. Just to add to that, John, as you think about the third pillar about portfolio optimization going to -- are we the right owners, et cetera, we'll do whatever the right thing is to optimize the value to our shareholders, and that's including as we're managing these internally and thinking through our options there. Operator: Our next question comes from the line of Pete Osterland from Truist Securities. Peter Osterland: So first, I just wanted to start on just operating performance within the TT business. It looks like you're guiding for the impact from operational disruptions to be zero in the fourth quarter. So I was just wondering if you could give a bit more detail. I guess, what specifically were the major improvements you've made operationally here? How much opportunity is there to improve further in the coming quarters and potentially offset some of the cost impact if you have to continue running at lower production rates? Denise Dignam: Thanks, Pete. From an operations standpoint, we're feeling very, very good. Many of the issues that we faced were onetime distinct issues. We've put contingency plans in place around those issues. We have brought in really strong operational leadership. We stood up our manufacturing COE, and reliability is really one of the key elements of that work. You saw we responded extremely well in the third quarter, and it was really through the resilience of that teamwork. And we're moving forward, even bolstering further, putting in a standardized operating system throughout the company. So I feel really good about it. I'm going to turn it over to Shane to kind of talk through the numbers. Shane Hostetter: Yes. Pete, thanks for noticing it. We don't anticipate the one-off operational issues that we saw earlier part of this year in the third quarter, going forward, given all the efforts that Denise just mentioned and continued excellence will be. That said, we did call out $25 million of, call it, fixed cost absorption that we're going to see in the fourth quarter, just given that we are decreasing production to align with what the demand is that we see ahead of us. Those costs will continue, but it will depend upon where we ramp up production depend upon as we view demand ahead of us. That, as you mentioned, potential offsets, we continue, that first pillar and Pathway to Thrive, and really driving out costs within TT. They are somewhat masked based on these fixed cost absorptions, but we'll continue to optimize and control what we can control. Peter Osterland: Very helpful. And then just as a follow-up on TT. Just on your announcement of the TiO2 price increase effective in December, what gives you confidence that this will be implemented given that global demand conditions are still pretty weak? And I guess, by region, are there specific areas where you think market conditions are relatively more or less likely to support a price increase? Denise Dignam: Yes. Actually, I feel really good about it. We've talked about our strategy being to maximize value and focusing on the fair trade markets. We've seen -- throughout the year, we've actually seen price stability in these markets. There's obviously stuff going on at the end of the year. There's onetime issues. They're temporal, right? So you have liquidation of inventory from a Western player that's unable to continue operations. You have liquidation of inventory from CPs, Chinese producers. There was uncertainty in tariffs that was introduced by India, but that's going to get resolved. And if you look at the value chain, there's destocking from the value chain. We're confident that our customers are going to be restocking in the first quarter. That ADD is going to be resolved in India, and we're going to start seeing the impact of the other areas, in Brazil and Saudi Arabia. So we're confident moving forward. As I said, we've seen stability in the fair trade markets we play in and in particular, in EMEA and in North America. So we're confident moving forward. Operator: Our next question comes from the line of John Roberts from Mizuho. John Ezekiel Roberts: How are you thinking about the replacement market for HFOs? How fast do you think that develops? And does it become financially material in the next 18, 24 months to sort of move the overall HFO numbers? Shane Hostetter: John, as we look ahead, we gave perspectives around '26 that we see double-digit Opteon growth into the first part of next year. Obviously, that is driven by the HFO market. As we look at growth into '26, we gave a guide just overall growth in sales and earnings and cash flow for TSS, and that's going to be driven primarily by that HFO transition, both in the OEM side and the aftermarket. Operator: Our next question comes from the line of Arun Viswanathan from RBC Capital Markets. Arun Viswanathan: I guess maybe I'll start with TT. So when we go back about a year or so, it looks like we were thinking that the segment would be maybe in the $300 million or so range for EBITDA, and then you're significantly below that. And similarly for the company, we were kind of in the $875 million range. Now you're in the $750 million range. So I guess as you look back on this year, would you say that the main shortfall has been in TiO2 demand and -- or would you cite something else as well? And it's just -- because we went in this year thinking that the Pathway to Thrive would add maybe $100 million or $125 million of cost reductions. And it seems like the demand weakness has more than offset that. So maybe you can just comment on what kind of played out in TiO2 this year, and if it was worse than what you expected. Denise Dignam: Yes. Thanks, Arun. Definitely, demand played a part in TiO2. Also some of the -- I'll say, the shakiness with the tariffs and the duties implementation as well as these -- as I talked about these onetime operational issues, we are very confident in our $125 million cost out. You can see it in many places already, disguised in some -- but I'm going to turn it over to Shane to give you a little bit more color on that. Shane Hostetter: Yes. Thanks, Arun. As we look coming into this year, I don't think we expected the $100 million -- close to $100 million in operational impacts in the year, certainly a step back, as well as the impacts on TT, whether it be the destocking areas that we've seen or as Denise mentioned, some of the operational impacts of just overall lack of demand in slow markets. Now on the flip side, right, I think we are really pleasantly surprised on the impacts of TSS and really what they've driven in the year from a solid performance. So I just really wanted to applaud that group as we're looking at some of the decreases in the year, but also we've had really solid performance in our TSS business. Arun Viswanathan: Great. And I guess maybe I can just ask a follow-up on TSS. So maybe you can kind of give us some of the drivers for that growth that you expect next year. Again, it seems like we're coming off a pretty strong step-down year as well as shortages that maybe drove some pretty robust pricing. So when you look into next year now that Corpus is running up, would that be a contributor, maybe the chiller adoption, does that get you into kind of double-digit growth? Or how should we think about TSS, especially in light of some of those HVAC inventory OEM overhangs? Shane Hostetter: Yes. Thanks, Arun. As we look ahead to '26, one thing to note, as you look at the OEM transition, about 75% has transitioned in. So we still have that runway going in as well as we believe the aftermarket will grow somewhat as well. We feel confident in our commercial execution. If you look at what happened in '25, we really think just looking ahead that our commercial group is primed to continue the growth in TSS given the transition aspects. The other area there, as you look at just cost out and controlling what we can control, you mentioned the expansion of Corpus Christi. We do believe that will be a tailwind going into next year as we drive further cost optimization. And then lastly, we did have some higher onetime costs related to our next-generation refrigerants as well as our liquid cooling venture, which we don't anticipate to recur. I put that is -- this year, it's going to be roughly about $40 million, and we believe the annual run rate is going to be in the $20 million range. Arun Viswanathan: Great. And just as a quick follow-up. So when you think about -- again, when you think about this year and how it played out, there were a number of operational disruptions. There were, again, weak demand. How do you kind of foresee the next year? I mean, do you think those operational disappointments are kind of in the rearview mirror? What can you do to not necessarily have those kinds of disruptions impact you next year and really kind of show that growth that we know that the portfolio can achieve. It's just been a little bit disheartening at times when we know that the growth is there. It's just not kind of -- it's just getting offset by some of these factors that some of which appear to be somewhat in your control. So maybe you can just address what you're doing to really tighten that up. Denise Dignam: Yes, definitely. I completely agree. And this has been a #1 focus. Our first pillar is operational excellence. And we've made a lot of investments. We talked about the manufacturing COE in leadership and operations and just investments in really how we work and our processes. And I feel really good about that. I agree. It's something that we look at, is in our rearview mirror. Operator: Our next question comes from the line of Josh Spector from UBS. Joshua Spector: I had a few follow-ups on TSS. I'll just weave together. First, just to confirm on the liquid cooling investment, the $22 million versus the targeted $5 million. That flowed through EBITDA, correct? And just what exactly drove that delta versus your expectation? Shane Hostetter: Yes. Thanks, Josh. It did flow through EBITDA, yes. And what drove it was as we're continuing development of the liquid cooling venture and thinking through that side, there are areas that we continue to develop specific to the charge related to an intermediate, related to the product development side that we had to essentially take a charge off for. So it's a onetime area. It's not something we anticipate going forward. Joshua Spector: So is that something you spent money on, that you're writing off related with liquid cooling? Or is that some other investment? Shane Hostetter: No, it's a noncash item. As we look ahead, we do anticipate value coming out of that. It was more of an accounting-related area. Joshua Spector: Okay. And then secondly, with the whole TSS moving parts of what you've had. So if we look at what you reported in 3Q and 2Q, you beat your expectations that you put out there by about $20 million. I mean, if we then add back this item that we're discussing, that's maybe $35 million in the third quarter. I guess if you separate the pieces, we know your competitor had some issues with sales, and you guys benefited in the aftermarket. How much of that is sustainable, and that you've won share, you keep it? How much of that would you characterize as potentially temporary due to the supply constraints and just the dynamics within 2Q, 3Q that do not repeat into next year? Denise Dignam: Josh, thanks for the question. Yes, I mean, we feel confident in our commercial capabilities. Certainly, there's a little bit of a competitive aspect, but we really delivered, and we know the customers and the value chain appreciated it. We also have other levers, as Shane talked about relative to margin with the scaling up of our Corpus facility and the continued growth in the aftermarket segment where we've demonstrated a lot of strength. Joshua Spector: But I guess to be clear on that last point, scaling Corpus helps you maybe $20 million, $30 million. Does that offset some of the shift that you would expect, and therefore, that's neutral? Like is that rough framing about right? Or would you characterize it differently? Shane Hostetter: Yes, Josh, I'll go back to the guidance we provided, which is, we anticipate earnings growth going in from '25 to '26. That's inclusive of the Corpus expansion, but also inclusive of where we believe our top line revenue is going, as I indicated, sales, we're going to grow. As you mentioned, right, we've had some really good performance in Q2 and Q3. We believe we can hold on to that performance and in the material amount and going into '26 as well. Operator: Our next question comes from the line of Duffy Fischer from Goldman Sachs. Patrick Fischer: Could you help size for me, as we've kind of pushed the Chinese out of Europe with ADD, Venator liquidating, how much opportunity or how much volume does that open up for you guys to go after? Same thing for Brazil and India. And then relative to your market shares in those markets, would you expect to be below kind of at your market share or above your market share in winning the business that's kind of foregone by those actions? Denise Dignam: Thanks, Duffy. Yes, I mean our strategy is to grow our share in the fair markets. And we expect about 800 kilotons around, if you think about all those areas, Europe, India, Brazil. So yes, it's a great opportunity for us, and we expect to be focused on growing share. Patrick Fischer: Okay. And then could you size for me on your ore inputs, how important is Rio's African operations? As you know, publicly, they've said that they're looking at that. You don't know what hands those could end up in, potentially maybe a Chinese competitor. So how important is their ore in your operations? And if that fell into the hands of somebody who is a competitor, what would be the needed steps you'd take to offset that? Denise Dignam: Yes. I mean we have -- our strategy is really around, as we've talked about in the past, a really large portfolio of ores that we can accept and the diversity of the way we're able to run our manufacturing plants. So we don't see that as having any material impact on us. Operator: Our next question comes from the line of Hassan Ahmed from Alembic Global Advisors. Hassan Ahmed: A question around the near-term Q4 sort of TT guidance you guys gave. If I read correctly, you guys are guiding to sales declines in the high single digits to low teens. I'm just trying to reconcile that. From the sounds of it, it seems you're looking for sort of maybe low single-digit volume declines. And I'm just trying to reconcile that with one of your larger sort of Western competitors talking about 3% to 5% volume increment sequentially in Q4. I mean, is this a geographic footprint thing? Is this a market share thing? All of the above? I would love clarity around that. Denise Dignam: Yes. Thanks, Hassan. I mean we have -- obviously, from our -- from different competitors, we have different customers. We have strength in different regions. This is what we see where we are, and it's also the strategy that we're executing. Hassan Ahmed: Understood. Understood. And as a follow-up, just your thoughts on anti-involution. I mean, since 2023, it seems 1.1 million tons of titanium dioxide capacity has been shuttered. And if I sort of take a look at some of these older subscale facilities, in China, they amount to maybe around 700,000 tons. So I mean, what's your thought process around potential shuttering of those 700,000 tons of capacity in China? Denise Dignam: Yes. I mean our current belief is that -- based on the research we've done, is that at least 300 kilotons will be permanently shut down. I would expect that more would shut down, especially as the duties really come into play. I mean we've seen it in the U.S. We've seen it in Europe. With that -- with the duty structure, it really does protect the Western players from the dumping of the Chinese producers. So at least 300 expected to be more. Hassan Ahmed: And Denise, just to clarify, that 300 would be incremental to the 1.1 million that's already been announced, correct? Denise Dignam: No, it will be inclusive. Operator: Our next question comes from the line of Laurence Alexander from Jefferies. Laurence Alexander: Could you roll up the comments around destocking and give some perspective as you look back on the year? How much of a net headwind do you think those kinds of dynamics might have had, so that we can think about level-setting for 2026 and 2027? Denise Dignam: Yes. I mean from the destocking standpoint, it really is on both sides, right? So it's on the producer side as well as on the -- I would say that is really more kind of third quarter-ish, going maybe a little into the fourth quarter. And then from a customer value chain perspective, really seeing, in the markets where we serve, going into the fourth quarter. But I'll let Shane maybe add some color around the numbers. Shane Hostetter: Yes. Thanks, Laurence. I mean, obviously, we've seen a volume impact this year since '24 to '25. I think there's a balance there between the destocking we saw in the beginning part of the year and going into the end of the year, but offset by some really good diligence with the commercial team and gaining share. So quantifying such, I'd rather not get into at this point. But really, it's a balance between the share gains and really the destocking decrease on the other side. Laurence Alexander: And secondly, just on the TT side, can you give sort of an update on how important architectural coatings are to the overall profit pool for you? Denise Dignam: Yes. I mean architectural coatings are very important for us. It's about, I would say, 70% of our TT business. Laurence Alexander: And then on the refrigerant gases, can you give us a sense for kind of what the next wave after Opteon Refrigerants might look like? And in particular, I guess I'm curious if there's eventually going to be fluorogas that is also sort of engineered to self-destruct, sort of to deal with the -- to basically -- like are there ways in fluoropolymers and fluorogases, to deal with the forever chemicals, by sort of crafting ones with the same functionality, but also kind of vulnerability in certain environments. Denise Dignam: Yes. I mean I would say our work around our next-generation refrigerant, I mean, at this -- in this business, we continue to kind of reinvent the category, and our next-generation refrigerant is along those lines, and we're going to continue to innovate even beyond that. Operator: Our next question comes from the line of Jeff Zekauskas from JPMorgan. Jeffrey Zekauskas: When you look at titanium dioxide market, is there price erosion in the United States, as you see it? Or is it really confined to the other geographies? Denise Dignam: Yes. I mean I can really -- talking about our portfolio, as I said, we've had actually stability in pricing in 2025 in the U.S. Year-over-year, there has been a decline. But as we said, this year, we've seen stability, and we're moving forward with a price increase. Jeffrey Zekauskas: And in India, do you think that a ruling on the stay of the duties will come in the fourth quarter? Or will it take till next year? Or really nobody can tell? Denise Dignam: Our current intelligence and thinking is that it will happen by the end of the year. Operator: Our next question comes from the line of Vincent Andrews from Morgan Stanley. Vincent Andrews: Denise, you sort of referenced earlier in TT that Pathway to Thrive is sort of being obscured by the challenging demand environment in terms of your profitability. So if you could just bridge us, let's assume that the assets run reliably for a full year. Where -- how much volume growth do you need before you think we would see sort of the full blossoming of Pathway to Thrive in the TiO2 segment from a margin perspective? Denise Dignam: Yes. I mean I think that even if you just look at where we are now, I think a modest increase in demand will actually get us on track. We've had some operational issues, which have hindered us in 2025. So we're feeling positive about it going into 2026. Vincent Andrews: Okay. And then, Shane, if I could ask you, you mentioned the real estate strategy. So I don't know how significant this could be. If you want to tell us about some assets you have that maybe you could completely monetize? Or are you just looking to do sale-leaseback kind of things and just get stuff off your balance sheet? But -- maybe just a little detail on that. Shane Hostetter: Yes. That was really one of a couple of things that I pointed to as we think about looking at our portfolio and our assets and our infrastructure and just thinking outside the box to unlock value, right? So I pointed to, obviously, our portfolio optimization pillar, the critical minerals, which Denise just mentioned during the call as well as the real estate portfolio as we look at strategic areas. I didn't want to get into the specifics, but I do think there's areas there that can help us from a cash flow perspective going forward, so as not to disrupt our current cash flow. Operator: Our next question comes from the line of Roger Spitz from Bank of America. Roger Spitz: Can you give us a sense of the impact on industry pricing and volumes when Venator Materials, sort of, is liquidating their inventory, which we understand has impacted materially Q3. And I'm thinking it's going to take a lot longer than 1 quarter, I presume, for them to liquidate their inventory. I mean is this something that's going to take them several quarters, that we'll see this headwind? Shane Hostetter: Thank you. We don't anticipate several quarters. We really see this probably kind of coming through in the current quarter from that perspective. I would say just pricing and volume impacts, obviously, was a material impact to us and to the market as we saw in Q3. I don't really want to get into the specific numbers, though, Roger. Roger Spitz: Got it. And I know you don't know either these two technologies, but you are very good with chloride process TiO2. So you've got this announcement of Lomon Billions buying Venator's chloride process TiO2 in the U.K. And I'm wondering if you have -- guys have any sense of how different or similar the effectively ICI chloride process technology is to the Lomon Billions who's using, I understand the PPG's chloride process technology, like Lomon Billions is trying to improve that PPG operations. Is getting their hands on the ICI chloride process technology something that will help them operate better in China? Denise Dignam: Yes. I mean first of all, this is still hasn't been settled, right? And there's many questions around that transaction. All I can say is, we understand the technologies in the industry. Our technology is really the premium technology. And from a competitive standpoint, we don't see that as an issue. Operator: Our next question comes from the line of Aaron Rosenthal from JPM. Aaron Rosenthal: I guess I was looking at the 10-Q, and I noticed the commentary on the government shutdown was pretty interesting. It seems like a lot of moving pieces. But is there any risks that implicate anything tied to the HFO transition or anything on the EPA front, maybe as it relates to TSS broadly or even in the context of addressing the legacy environmental liabilities? And then maybe if you could also help us frame the magnitude of the potential, call it, cash payments or collections that are at risk tied to existing government contracts and maybe where exactly within your portfolio, this would be relevant to? Denise Dignam: Thanks, Aaron. Yes, relative to the government shutdown in TSS and HFOs, we see basically no impact. The is market already transitioned, and we don't see that coming -- that changing. Really from the comments around the EPA, I mean, we've talked about it before, our fourth pillar around strengthening the long term, a lot of it is about advocacy. And we've had an open door talking with various agencies within the government. And for us, with it being shut down, it's kind of slowed that down a bit. So we're really excited and hoping that they reopen soon so we can really continue to advance that pillar of our strategy. Shane Hostetter: Yes. And your last point there as it relates to government business and any perspectives around accounts receivable or cash flow, we don't see any material impacts due to the shutdown. Aaron Rosenthal: Okay. And then maybe just taking a look at the balance sheet and the upcoming maturities. So following the USD term loan being extended, you still have the euro piece out there and then the 27 unsecured, which presumably will be addressed 12 months out from the May '27 maturity. Will you be approaching these refinancings piece by piece or all at once? And I guess, is there any willingness to issue new secured debt to refinance the existing unsecured bonds? Shane Hostetter: Yes. Thanks. Obviously, we were out in the market extending the term loan B on that side recently, pretty proud of where it closed just given the hard market that we were facing. I think as we look at other expirations and coming up on that side, we'll continue to be opportunistic when we hit the market, if it allows on that side. I would say with the near-term notes, right, you mentioned refinancing that 12 months out, we will look for differing structures to ensure that those do not come up for -- to be current. So that's kind of where I will leave that, from that perspective. Aaron Rosenthal: Great. And then if I could sneak one more in. If you could just remind us what your current secured debt capacity is maybe following that term loan exercise? Shane Hostetter: Yes. We feel very good about the headroom on our secured side, this side. We have at least 2x turns on that side. Operator: Thank you. We have reached the end of our question-and-answer session. Thank you for joining the Chemours Third Quarter 202 Results Conference Call. You may now disconnect.