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Operator: Good day, and welcome to The GEO Group's Third Quarter 2025 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Pablo Paez, Executive Vice President of Corporate Relations. Please go ahead. Pablo Paez: Thank you, operator. Good morning, everyone, and thank you for joining us for today's discussion of The GEO Group's Third Quarter 2025 Earnings Results. With us today are George Zoley, Executive Chairman of the Board; Dave Donahue, Chief Executive Officer; and Mark Suchinski, Chief Financial Officer. This morning, we will discuss our third quarter results as well as our outlook. We will conclude the call with a question-and-answer session. This conference call is also being webcast live on our investor website at investors.geogroup.com. Today, we will discuss non-GAAP basis information. A reconciliation from non-GAAP basis information to GAAP basis results is included in the press release and the supplemental disclosure we issued this morning. Additionally, much of the information we will discuss today, including the answers we give in response to your questions, may include forward-looking statements regarding our beliefs and current expectations with respect to various matters. These forward-looking statements are intended to fall within the safe harbor provisions of the securities laws. Our actual results may differ materially from those in the forward-looking statements as a result of various factors contained in our Securities and Exchange Commission filings, including the Form 10-K, 10-Q and 8-K reports. With that, please allow me to turn this call over to our Executive Chairman, George Zoley. George? George Zoley: Thank you, Pablo, and good morning to everyone. Thank you for joining us on our third quarter earnings call. During the first 3 quarters of the year, we believe we've made significant progress towards meeting our financial and strategic objectives. Since the beginning of 2025, we've entered into new or expanded contracts that represent over $460 million in new incremental annualized revenues that are already under contract and are expected to normalize next year. This represents the largest amount of new business that we have won in a single year in our company's history. We've entered into new contracts to house ICE detainees at four facilities totaling approximately 6,000 beds, which include three company-owned facilities where we announced in the first half of 2025, the 1,000-bed Delaney Hall, New Jersey facility, the 1,800-bed North Lake Facility in Michigan, and the 1,868-bed D. Ray James Facility in Georgia. And more recently, the 1,310-bed North Florida Detention Facility, which is a state-owned facility where we are providing management services under a joint venture agreement that we announced in early October. The Florida contract arrangement demonstrates GEO's ability to provide management services through alternative solutions like the State of Florida's partnership with the federal government. Additionally, during the third quarter, we reactivated our 1,940-bed Adelanto ICE Facility in California, which was previously underutilized due to COVID-related court cases. On a combined basis, these five facilities are expected to generate more than $300 million in incremental annualized revenues at full occupancy as they normalize their financial contributions next year. These facility activations have increased our total ICE capacity to over 26,000 beds, and our current census is over 22,000, which is the highest ICE population we've ever had. In addition to these facility activations, we are reviewing the physical plant at 20 of our ICE facilities to determine our capacity to expand the office space for additional ICE staff and their expanding mission. Our Delaney Hall and D. Ray James facilities will have added ICE office space as part of our new contracts, and we have submitted similar proposal for Moshannon Valley in response to a request from the agency. This effort is representative of our long-standing partnership with ICE and our company's flexibility in adjusting to and addressing the ever-changing needs of ICE. With respect to our secure transportation, we have significantly expanded our footprint for ICE and the U.S. Marshals over the course of 2025. Earlier this year, we signed a 5 -- new 5-year contract with the U.S. Marshals for the provision of secure transportation services covering 26 federal judicial districts spanning 14 states. Throughout the year, we've executed new or amended contracts to expand secure ground transportation services at four existing ICE facilities and at our three new recently activated ICE facilities. Additionally, the services we provide under our ICE air support contract have steadily increased throughout this year. On a combined basis, this new transportation business represents approximately $60 million in expected incremental annualized revenues. We are encouraged by the growth opportunities at the state level as evidenced by the three recently managed-only contract awards from the Florida Department of Corrections, including two facilities we do not currently manage, which are expected to generate approximately $100 million in incremental annualized revenues beginning in July of 2026. Of particular importance, we are very honored to have been awarded a new 2-year contract for the ISAP 5 program at the end of September. We believe this significant contract award is a testament to the high-quality electronic monitoring and case management services, our wholly-owned subsidiary, BI has consistently delivered for over 20 years. There are presently approximately 7.6 million immigrants on the non-detained docket with approximately 182,000 enrolled in the ISAP program at this time. As part of the ICE's alternative to detention or ATD system, many immigrants are placed in the Intensive Supervision Appearance Program, ISAP, as a subprogram within ATD. It's mainly used for people ICE considers a higher flight risk or who have been pending a silent or removal cases but are still allowed to live in the community. The program relies on several forms of surveillance. Some are required to wear GPS ankle or risk monitors that track their movements in real time. Others are enrolled in SmartLINK Mobile App, which relies on facial recognition, voice ID and GPS to confirm a person's location during check-ins. Under the previous 5-year ISAP contract, the participant count started at 91,000 individuals and thereafter doubled ending at 183,000 individuals. The present ISAP 5 participant count is more than 182,000, but the new contract includes pricing for 361,000 participants in year 1 and 465,000 participants in year 2. In order to further assure our success in the rebid competition and provide lower unit cost for further ISAP growth, we've reduced our pricing as in the past on a variety of services, which has resulted in a new financial baseline, which will later be discussed by Mark. We are able to implement this strategy by identifying staffing efficiencies through the program services, along with the continued development of less costly new generation monitoring devices, which also required margin compression. We are optimistic that ISAP ramp-up could begin early next year. GEO has the capability in monitoring devices and case management services to achieve those significantly increased participation levels and far beyond if desired by ICE. But of course, we cannot provide definitive assurance of future ISAP participation levels, which are determined by ICE management. And as I said on our previous call, the focus of ICE at this time has been toward the increase in detention capacity in which we are participating. But what we have seen is a steady increase in more intensive and higher-priced monitoring devices such as ankle monitors and a steady decrease in the less intensive and lower-priced use of phones or phone apps. This new policy seems to be consistent with the objective of more aggressive supervision of the 7.6 million immigrants on the non-detained docket. As the world's largest service provider of electronic monitoring devices, we remain optimistic in the importance and growth potential of the ISAP 5 contract. Going forward, we expect to be able to capture additional growth opportunities. We believe the federal government's objective continues to be to scale up immigration detention to approximately 100,000 beds or more from the approximately 60,000 beds ICE is currently utilizing. This objective of scaling up to 100,000 detention beds is a 270% increase from the 2024 average of 37,000 beds. However, the pace of new detention contracts has been slower than anticipated, which we believe is possibly due to three factors. First, as has been reported in the media, the Department of Homeland Security has implemented a policy that requires Homeland Security Services Secretary to review and approve all contracts above $100,000, which is time and staff intensive. We have been intensely cooperating in this financial and staffing review process toward providing assurance that the government is receiving best value at GEO facilities and services. Second and more recently, the government shutdown has likely delayed the award of new contracts. During the government shutdown triggered by a lapse in appropriations, federal agencies are generally careful about making new contract awards unless the award is related to an accepted activity or is funded by a source other than the regular appropriations. Third is the need for ICE to have more staff to carry out its enforcement efforts, which is indicated by ICE's new recruitment program to double its employees from approximately 10,000 to 20,000, which is also time and staff intensive. Following the resolution of the current government shutdown, we believe ICE will have ample funding to support its priorities. Not only will ICE receive annual appropriations baseline of approximately $8.7 billion, but the agency also has access to $45 billion in incremental funding for detention services, which is available through September 30, 2029. While the exact timing of government actions, including our new contract awards is difficult to estimate, we believe that our remaining idle facilities are likely to play an important role in supporting the objective of increasing overall detention capacity. We have approximately 6,000 idle beds at six company-owned facilities, which remain available. Most of these facilities are formally contracted -- were formally contracted to the U.S. Bureau of Prisons and are of high security, which makes them ideally suited for the current needs of the federal government. On a combined basis, these 6,000 beds could generate more than $300 million in additional incremental annualized revenues. We also believe that increasing detention capacity to 100,000 beds or more will likely require ICE to seek alternative solutions in addition to traditional hard-sided facilities. Based on our best estimate, the current beds available by the private sector at traditional hard-sided facilities would likely provide ICE capacity for approximately 80,000 beds. Thus scaling up to 100,000 detention beds or more will likely require additional partnerships with states or additional temporary soft-sided facilities on a military basis or other sites. We will be exploring opportunities to participate in these new government sites, whether state-sponsored or procured by the military. Meanwhile, our focus is also on the activation on our remaining idle facilities. As evidenced by our recent joint venture agreement in Florida, we believe GEO is well positioned to pursue other state partnership opportunities that increase detention capacity for ICE. Finally, we have and will continue to evaluate the potential acquisition or leasing of third-party-owned facilities, and we have identified approximately 5,000 combined beds that could be added using several options of temporary and permanent facilities at several of our existing ICE sites. We are also pursuing additional diversified opportunities in the field of mental health services, which we exited approximately 13 years ago when we became a REIT and subsequently de-REITed. We are currently participating in a procurement in the state of Florida for the management contract at the South Florida Evaluation & Treatment Center, which we expect to be awarded in Q1 of next year. Our goal with all these efforts is to place GEO in the best competitive position to pursue available growth opportunities. In addition to the steps we have taken to capture quality growth opportunities, we have made significant progress towards strengthening our capital structure by reducing outstanding debt, deleveraging our balance sheet and enhancing shareholder value through capital returns. In 2025, we reduced our total net debt by approximately $275 million, closing the third quarter with approximately $1.4 billion in total net debt with a total net leverage of approximately 3.2x adjusted EBITDA at this time. Our debt reduction efforts were boosted by the successful sale of the Lawton, Oklahoma facility for $312 million or $130,000 per bed, which was a transformative event for our company, allowing us to significantly deleverage our balance sheet and launch a stock buyback program ahead of our prior expectations. Approximately $60 million of the Lawton Facility sale gain was used to purchase the 770-bed downtown San Diego, California facility that we've been operating for 25 years for the U.S. Marshals Service. During the third quarter, we repurchased approximately 2 million shares for approximately $42 million under our newly launched buyback program, bringing our total shares outstanding to approximately 140 million at the end of the third quarter. Given the intrinsic value of our assets and already captured, expected future growth, we believe that our current equity valuation offers a very attractive opportunity. To this end, our Board of Directors has increased our stock buyback program authorization by $200 million, increasing the total authorization to $500 million and extending expiration date to December 31, 2029. We plan to execute our stock buyback program opportunistically, balancing it with our growth, capital needs and our objective to reduce debt and deleverage our balance sheet. At this time, I will turn the call over to our CFO, Mark Suchinski, to review our financial highlights and guidance. Mark Suchinski: Thank you, George. Good morning, everyone. I am happy to report that we had a very solid third quarter. For the third quarter of 2025, we reported net income attributable to GEO of approximately $174 million or $1.24 per diluted share on quarterly revenues of approximately $682 million. This compares to net income attributable to GEO of approximately $26 million or $0.19 per diluted share in the third quarter of 2024 on revenues of approximately $603 million. During the third quarter of 2025, we completed the sale of the Lawton, Oklahoma facility for $312 million and the Hector Garza, Texas facility for $10 million. These two transactions resulted in a $232 million gain on asset sales during the third quarter. Approximately $60 million of the Lawton Facility sale was used to purchase the 770-bed Downtown San Diego, California facility that we have been operating for 25 years for the U.S. Marshals Service. Additionally, during the third quarter of 2025, we incurred a noncash contingent litigation reserve of approximately $38 million in connection with a legal case in the State of Washington involving claims of individuals who participate in the voluntary work program while in ICE detention. The Ninth Circuit Court of Appeals has ruled that the ICE volunteer detainees are entitled to state minimum wage payments, but stayed their ruling pending GEO's appeal to the U.S. Supreme Court. The Ninth Circuit of Appeals ruling is in stark conflict with other federal court rulings on individuals providing work while in confinement. No company has ever paid state minimum wages to individuals working in confinement facilities. While we are appealing the case to the U.S. Supreme Court, due to accounting rules, we recorded this noncash contingent litigation reserve during the recent -- our most recent third quarter. Excluding this noncash contingent litigation reserve, the gain on asset sales and other items, adjusted net income for the third quarter of 2025 was approximately $35 million or $0.25 per diluted share compared to $29 million or $0.21 per diluted share for the prior year's third quarter. Adjusted EBITDA for the third quarter of 2025 was approximately $120 million, up from the approximately $119 million reported for the prior year third quarter. Beginning with revenues. Quarterly revenues in our owned and leased secure service facilities increased by approximately 22% year-over-year, driven by the activation of our new ICE contracts, which drove the census across our contracted ICE processing centers to an all-time high. Revenues for our nonresidential contracts increased by approximately 10% from the prior year third quarter. Revenues for our managed-only contracts increased by approximately 8% from the prior third quarter. Revenues of our electronic monitoring and supervision services and for our reentry centers were largely unchanged from the prior year third quarter. Now let's turn to our expenses. During the third quarter of 2025, our operating expenses increased by approximately 15% due to the start-up of new contract awards and increased occupancies compared to the prior year quarter. Our G&A expense for the third quarter of 2025 increased from the prior third quarter, in part due to the reorganization of the senior management team at the end of last year, higher employee-related benefit costs and support for the revenue growth from our new contract awards. Our third quarter 2025 results reflect a year-over-year decrease in net interest expense of approximately $7 million as a result of the reduction in our net debt. Our effective tax rate for the third quarter of 2025 was approximately 25%. Now let's move to our outlook. We have updated our financial guidance for the fourth quarter and full year 2025. Our updated guidance for the fourth quarter incorporates a new reduced contract pricing for ISAP 5, which, as George mentioned, is being favorably impacted by a steady shift in technology mix as well as higher intensity of case management services and the potential for higher volumes, all of which should improve the economics of the new contract. Based on these variables, the federal government assigned an estimated value to the 2-year contract of over $1 billion. Because the exact scope and timing of the government actions are difficult to estimate and are outside of our control, we have not included any assumptions with respect to favorable mix shift or census growth in the ISAP contracts in our 2025 guidance. Additionally, we are in the process of implementing several cost mitigation measures for the ISAP contract by the end of this year, which we expect to result in cost savings of approximately $2 million to $3 million per quarter beginning in 2026. The fourth quarter was also impacted by additional start-up costs at the Adelanto, California facility, which has required the hiring of 179 additional staff due to its reopening and the increase of overtime costs due to new staff awaiting their final ICE clearance before being allowed to perform their responsibilities. We expect both issues to normalize in 2026. As a result, we expect fourth quarter 2025 GAAP net income to be in the range of $0.23 to $0.27 per diluted share on quarterly revenues of $651 million to $676 million. We expect fourth quarter '25 adjusted EBITDA to be between $117 million and $127 million. Taking into account our updated fourth quarter guidance, we expect full year 2025 GAAP net income to be in the range of $1.81 to $1.85 per diluted share, including the $232 million gain on the sale of the Lawton, Oklahoma and Hector Garza, Texas facilities. We expect full year 2025 adjusted net income to be in the range of $0.84 to $0.87 per diluted share on increased annual revenues of approximately $2.6 billion and based on an effective tax rate of approximately 25%, inclusive of known discrete items. We expect full year 2025 adjusted EBITDA to be in the range of $455 million to $465 million. We expect total capital expenditures for the full year of 2025 to be between $200 million and $205 million, which includes our previous announced $100 million investment to enhance our ICE facilities and services and the approximate $60 million for the purchase of the Western Region Detention Facility. With the already announced contracts that are expected to normalize next year and new opportunities that are in discussions, we could see a path to approximately $3 billion in annual revenues in 2026. Now let's move to our balance sheet. We closed the third quarter of 2025 with approximately $184 million in cash on hand and approximately $143 million in available capacity under our revolving credit facility. We believe we have ample liquidity to support our working capital needs during the current government shutdown. We have received verbal support from several of our banks to provide additional liquidity should the government shutdown continue for a prolonged period of time. We also believe we've made significant progress towards deleveraging our balance sheet. Year-to-date, we've reduced our net debt by approximately $275 million, closing the third quarter with total net debt of approximately $1.4 billion and total net leverage of 3.2x adjusted EBITDA. As a result, we've achieved an annualized reduction in interest expense of over $25 million. Our debt reduction efforts were bolstered by the successful sale of the Lawton, Oklahoma facility for $312 million during the third quarter. We believe this important transaction is representative of the intrinsic value of our real estate assets, totaling 50,000 owned beds, and it allowed us to significantly deleverage our balance sheet and begin to return capital to our shareholders. During the third quarter, we repurchased approximately 2 million shares for approximately $42 million under our recently launched stock buyback program, which our Board has increased by $200 million, bringing the total authorization to $500 million. We expect to continue to execute our buyback program opportunistically within the covenant requirements of our debt agreements. We remain focused on disciplined allocation of capital to enhance long-term value for our shareholders, and we believe that our strong cash flows will allow us to support all of our capital allocation priorities. At this time, I will return the call back to George for some closing comments. George Zoley: Thank you, Mark. In closing, we believe we've made significant progress towards meeting our strategic objectives. So far in 2025, we've announced new or expanded contracts that are expected to generate more than $460 million in new incremental annualized revenues, which will normalize next year and likely achieve approximately $3 billion in total company revenues for 2026. The amount of new contracted revenues is the largest in our history of our company. Going forward, we expect to be able to capture additional growth opportunities. We have approximately 6,000 idle high-security beds that remain available, which could generate in excess of $300 million in annualized revenues if fully activated. With the award of the new 2-year ISAP contract and the investments we've made to stock up on the inventory of GPS tracking devices and development of new generation devices, BI is well positioned to respond to the future demands under the ISAP 5 contract. We are also well positioned to continue to expand our delivery of secure transportation services for ICE and the U.S. Marshals. While the exact timing of government actions, including new contract awards is difficult to estimate, as a management team, we are focused on maintaining a level of readiness to successfully pursue and capture future growth and continuing to allocate capital to enhance value for our shareholders. That completes our remarks, and we would be glad to take questions. Thank you. Operator: [Operator Instructions] Our first question comes from Joe Gomes with NOBLE Capital. Joseph Gomes: I wanted to start off here. I think there's a big question hanging out there with the government shutdown, with the ICE focus on hiring the extra 10,000 people that the rate of ICE population detentions has not been as robust here as originally anticipated. Just was wondering what you guys are seeing out there. Is it flowing at what your expectations were? Or has it come in a little less than what you may have been previously expecting given the current status there with the federal government? George Zoley: No. It's obviously gone slower than we previously expected. And our existing facilities are at almost full capacity, and they're churning out deportations almost at the rate of approximately 100% of their capacity per month. So we've never seen anything like this before. So our existing facilities are on full throttle. We were expecting additional contract awards, but there is a need for additional ICE staff to support additional facilities. That's why they're trying to recruit 10,000 staff. Well, as I said in my remarks, it takes a lot of time and staff-intensive activities to recruit, hire, train and bring on board that ICE staff to support new facilities around the country. We think our idle facilities totaling 6,000 beds are ideal high-security facilities that are available. But just looking at a combination of factors of the government shutdown, the need for additional ICE staff, there have -- those factors have caused the delays that we hope will be concluded by the end of the year, if not the end of this month. Joseph Gomes: Okay. Really appreciate the color there. On the ISAP, congrats on the contract win. I understand there's going to be some puts and takes there, some changes. But historically, if you look at that contract, it's run roughly about a 50% NOI margin. Do you think even with all these puts and takes that stays at least at that level? Or do you think there'll be contraction in that NOI margin? George Zoley: Well, we really don't discuss our margins by business unit to that level of granularity. We made a pricing cut to be competitive in this last rebid as we have done, I think, in two or three times previously. So every time there's a rebid of the ICE contract, there's a lot of competition, and we've reduced our unit pricing, and there's 40 different units in that pricing. So we took a hard look and we identified cost savings opportunities at the corporate level, regarding staffing field level, cost savings on devices, the identification of new generation devices on a less costly basis. So all of that was combined to present the government with the best value in winning the contract. Now the count, as I've said, has been fairly stable which is a little disappointing, obviously. But the mix of monitoring devices is leading towards more intensive devices that cost a bit more and more intensive supervision of case management services with regarding the existing population that will be applied to the increasing population as priced in years 1 and year 2. Remember, year 1 is priced to double the existing capacity and year 2 is almost tripling. So that remains to be seen. It's up to the government as to how do they get to those levels. But right now, I think we've been fairly consistent in saying the focus has been on increasing detention capacity. And that's where the activity has been and the actual participation levels increase. Mark Suchinski: Joe, it's Mark. I would just add that our electronic monitoring business has been and will continue to be our highest margin business. We publish that quarterly. It's -- we're fully transparent about that. And we -- as George indicated, we've made some adjustments, but we're working on the cost side of things, and we expect those actions to be complete by the end of the year and reap those benefits in 2026. Joseph Gomes: Okay. And then one more, if I may. Staffing has always been challenged especially when you're opening so many idle facilities at one time. I'm just wondering how are you guys looking at or seeing the ability to staff up the facilities that you're opening? George Zoley: Great question. I think we've been targeting hiring 1,000 or 1,500 additional staff this year, which is an enormous amount comparatively speaking. And that's been a very costly feature that has impacted our earnings this year, which I don't think a lot of new shareholders are aware of the impact. When you hire people, you have to put them into -- you have to recruit them, you have to do background checks, you have to put them in training. All of that is a cost that's predominantly borne by us and not the client until the facility opens and normalizes. So almost all of that -- those staff are paid according to Department of Labor determined wages. And so I think we're having a good shot at finding the people, but it takes a long time to get them through the ICE clearance process. And that's a costly wait for us. Operator: The next question comes from Jason Weaver with JonesTrading. Matthew Erdner: This is Matthew Erdner on for Jason. So going back to the ISAP, I just kind of want two clarification questions. First, the $1 billion, that is over the 2-year term period. And then I just want to make sure I get the numbers right on the scale up. It was, I believe, $361 million you said in the first year and then $465 million for year 2? George Zoley: Yes. Matthew Erdner: Okay. And then as it relates to that, should we kind of expect that 1/3 of that revenue trickles through over '27 with the remainder kind of coming through in 2027 as that program continues to scale? Mark Suchinski: Well, as we indicated, that's -- we responded to the government's request. And the government had in the RFP, identified those counts for us to respond to. And so we -- today, the counts are at 182,000. We really -- we don't know exactly the exact timing of the change in ISAP participants over time. But I think as George has articulated, their focus right now is on detention. And once we get to 100,000 beds, the pivot will be to ATD. So I think it's hard for us to predict the exact timing of that. But what we do know is that the RFP had allocated significantly higher funding and participant counts than -- as compared to where we are today. And so I think that's what we know. George Zoley: The contract term will go into 2027, obviously. That's part of the answer to your question. The exact counts, we are beyond our control. They are identified in the pricing procurement document that everybody had to bid on. So the counts are as we've discussed, and it remains to be seen if we achieve or exceed those counts. Because as I said in my comments previously, that the count on the previous ISAP 4 awards started at 91,000 and ended at 183,000. If that's any indication of the future, then I think we're going to be on solid ground. Matthew Erdner: Got it. That's helpful. And then touching on the additional growth opportunities and alternative solutions that you guys are still on the table. It's nice to see you guys working with the state of Florida. How big is that opportunity set? And how many states are looking for these kind of management services as ICE continues to try to look for additional beds? George Zoley: There are several, which we can't name at this time. But they're generally beds that would be part of their correctional system, idle beds or refurbished beds and that number typically in the hundreds, possibly getting up to 1,000 beds per location that we're aware of. But we're not fully privy to what DHS is doing or who they're talking to, obviously. Matthew Erdner: Got it. And then looking at that from kind of a margin perspective, would that kind of fit in with the historical managed services margins? George Zoley: It's actually a bit better than that because the staffing levels for this kind of population is different than what we typically seen at our state facilities that were managed only. This is a higher security population requiring more staffing, and we make a margin on the staffing. Operator: The next question comes from Greg Gibas with Northland Securities. Gregory Gibas: I wanted to ask, I guess, regarding your commentary on the mix shift within the ISAP program. Can you confirm that, that mix shift toward more intensive uses is currently happening, but not included in your Q4 guidance? I guess what assumptions with mix are implied by guidance? Mark Suchinski: It's Mark. Let me address that. As George said, we are seeing a shift of a movement towards less usage of an app or a phone and higher participant counts using our ankle bracelets. And so what we've seen to date has been a slow and steady growth on the ankle bracelets, which are higher cost and more intensive as it relates to the case management services. And to a certain degree, we've built that in. What we're saying is we only have a couple of months left in the year. We've factored that into our overall assumptions. But over the coming next 2 years, we're expecting the continued shift towards the higher intensive supervision, which is the higher cost services from a technology device standpoint as well as a case management. So the point we're making is we think there's some opportunities as we've rebid that contract, both on the mix shift and some of the cost actions that we're taking to mitigate things. Obviously, the new pricing went into effect on October 1. It's going to take us a little while to implement the actions that we have, and that had an impact on the fourth quarter. But we're working hard to push through that and potentially take advantage of the shift towards the more intense services. And we think that would continue into 2026, and we'll know better when we provide guidance in February of next year. Gregory Gibas: Got it. That's helpful. And nice to see the increased share repurchase authorization. With where the stock is trading now, could you maybe discuss your thoughts on leaning into it more or considerations of an acceleration of repurchase activity? Mark Suchinski: Well, we're aligned. We think our share price is way undervalued, right? George talked about our business. When we look at our profitability and our cash flows and the growth that we've achieved here, we think our stock price is significantly undervalued. That's why we launched our share purchase program with George's support and the Board's. With where the stock price is, we had another dialogue with our Board at our Board meeting, and we increased the size of that. And we're confident about our cash flows over time here, and we're leaning into this. I think earlier in the year, we talked about shareholder returns. We talked about doing that once we got less than 3x levered. We're over 3x levered, but we're leaning into it, and our banks are supportive of that. So we're going to lean into it. We're going to, as George said, be opportunistic about it and balanced. But where our stock price is, we're going to continue to pursue the buybacks and take advantage of the lower stock price and our cash flows and our ability to go do that. Gregory Gibas: Got it. Makes sense. And I know timing, like you said, is difficult to predict. Just I guess, referring to your prepared remarks, you mentioned being optimistic on ISAP ramping up early next year. I guess I would just ask like what leads you to expect that or support that expectation? Is there anything new you've heard since maybe last quarter? George Zoley: Well, there's millions of people that are on the non-detained docket. And there's going to be a desire to provide more clarity as to where they are, what stage they are in with respect to their hearing process, and making sure they get to their hearing and if they're not qualified to be in the country to deport them. So I think those are all publicly identified objectives of this administration. And I think the ISAP contract will be an important tool toward that -- towards those objectives. Mark Suchinski: And as we've mentioned in the past, once the detention continues to grow, the government has talked about targeting 100,000 beds at that point in time. Once they max out that capacity, and they continue the enforcement efforts that they have, the next logical tool to use is the ISAP program. Operator: The next question comes from Raj Sharma with Texas Capital. Raj Sharma: Quite a few of my questions have been answered. But can I go back to the question on margin and the ISAP program. I guess -- and I know you're not providing that much detail, but could the margins match or exceed your existing or earlier margins at a certain volume of monitored and supervised accounts? How do we sort of model that out? George Zoley: Well, I think it will have to be over time as both Mark and I have said that we have to implement some cost savings with regard to staffing efficiencies and service efficiencies as well as cost of devices. That will -- all of that will take place over the next succeeding months. And if the numbers materialize as they're identified in the pricing that was required of all the bidders, our margins and revenues will exceed what we had previously, I believe. Raj Sharma: Got it. And then on the guide, the fiscal '25 guide, the margins of about 23%, 24%, historical had been 26%. Is this -- should we consider this to be sort of a new base of EBITDA margins? George Zoley: Are you speaking regarding ISAP or? Raj Sharma: No, I'm talking about the overall -- sorry. Yes, talking about the overall margins. This quarter was flat to last year on higher revenues. Anything that explains the EBITDA margins not picking up as much, and should we consider that as the base EBITDA margin going forward? Mark Suchinski: No, I think we tried to articulate it. We talked about the fact that as we're starting up these contracts, there's a cost investment that takes place. We talked about the Adelanto Facility and the rapid increase in the participants and us working hard to hire those folks. So both in the third quarter and the fourth quarter are going to have -- are going to be impacted to a certain degree by those costs, and we're working hard to get those normalized, those operations normalized like our existing facility. So I wouldn't necessarily say that the third quarter is the new baseline. It has been impacted by some puts and takes. And so I would just say you're just going to -- we're going to continue to work hard to satisfy our clients and work hard to manage our business and continue to do the best job that we can here, but there was some -- a few anomalies that took place in the quarter. Raj Sharma: Great. That's really helpful. And then just lastly, on the activated facilities normalizing in 2026. What revenue and EBITDA step-up should we expect for '26? George Zoley: I don't think we've given guidance for '26 as yet. Mark Suchinski: No. We'll -- we want to wrap up the quarter, and I think we'll be able to provide you further details when we see you guys or when we chat with you guys early next year. Raj Sharma: Got it. I guess the activated facilities would have normalized by Q1 or by Q2 next year? George Zoley: Well, the ones that have been activated this year, that would be correct, but we assume that will be activated the middle of next year. Operator: The next question comes from Brendan McCarthy with Sidoti. Brendan Michael McCarthy: I wanted to start off in electronic monitoring. I think you mentioned you're continuing to invest to stock up on some of the higher-intensity wearables. Can you quantify what your ultimate capacity is for some of the higher-intensity wearables? Perhaps what number of population counts could you monitor under that kind of segment of your products? George Zoley: I don't know how high is high. We are capable of monitoring, obviously, several hundreds of thousands in concurrence with our pricing model, but we can go far beyond that and have -- we're the largest monitoring company in the world, and we've streamlined our operations over the course of this year, and we are developing new generation products for every one of our products that will be rolling out sometime next year. And we have the largest capacity of any monitoring company in the world to roll out new devices each and every week. Brendan Michael McCarthy: Great. That makes sense. And then last question for me, just amid the government shutdown, are you still having active negotiations for the remaining idle beds that you have available? Or have those negotiations paused? I'm just curious if anything has really changed as it relates to your discussions with reactivations. George Zoley: I would characterize them as discussions. I don't think they fall in the formal negotiation stage. But our discussions with ICE really take place almost on a continuous basis. Operator: The next question comes from Kirk Ludtke with Imperial Capital. Kirk Ludtke: With respect to ISAP, if I remember correctly, ISAP 4 was a 5-year deal. And I'm -- this is now a 2-year inclusive of the option period. What is the -- what is it exclusive of the option periods? George Zoley: The option period, it would be a 1-year contract. Kirk Ludtke: It's a 1-year deal with a 1-year option. George Zoley: A lot of our contracts are 1 year with four 1-year extensions, and we call them 5-year contracts because they almost always take all options of the contract. Kirk Ludtke: Okay. Got it. And so it's a shorter deal. What do you -- what is the -- what's the takeaway there? George Zoley: There's been no formal policy announcement of the change that I'm aware of, but it is a technology-driven kind of service and technology changes fairly rapidly. So it may make sense to make it a 2-year contract. And that's one of the reasons that we are doing new generation devices. Kirk Ludtke: So just given the, I guess, uncertainty about how they want to proceed, they decided to pursue a shorter deal? George Zoley: It's the large population base that you're grappling with. It's almost 7 million people. And it's -- the service is in two forms, as I said, technology and case management services. And there may be a better way of doing that 2 years from now. That's possible. And we have the flexibility to respond to whatever the policy change may or may not be 2 years from now. Kirk Ludtke: Got it. Okay. And you've committed to be prepared to monitor 361,000 people next year at some point? George Zoley: For next year, and we could monitor far beyond that. Kirk Ludtke: Yes. Is there a -- will that mean significant CapEx next year? George Zoley: It will be some CapEx, yes, but we've been stocking up on our devices this year, as we've said. We've made significant investments. And I think we have more devices than any other company in the world. Kirk Ludtke: Got it. Okay. I appreciate it. And how much -- you mentioned increasing the authorization to $500 million, and you've got some limitations under the credit documents. How much stock could you buy back under your covenants today? George Zoley: I think we've said that we would be buying back approximately $100 million of stock per year. And I think we're -- at this present time, we're sticking to that. We've done $42 million so far this year. That would leave the balance for the balance of the year. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to George Zoley, Executive Chairman of The GEO Group for any closing remarks. George Zoley: Well, thank you for listening and giving us your questions, and we hope to address you at the next conference call. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Globalstar Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Rebecca Clary, CFO. Please go ahead. Rebecca Clary: Thank you, operator, and good afternoon, everyone. Before we begin, please note that today's call contains forward-looking statements intended to fall within the safe harbor provided under the securities laws. Factors that could cause the results to differ materially are described in the Risk Factors section of Globalstar's SEC filings, including its annual report on Form 10-K for the financial year ending 2024 and its other SEC filings as well as today's earnings release. Also note that management may reference EBITDA, adjusted EBITDA, free cash flow or adjusted free cash flow on this call, which are financial measures not recognized under U.S. GAAP. As required by SEC rules and regulations, these non-GAAP financial measures are reconciled to their most comparable GAAP financial measures in the earnings release, which is available on our website. Today, I will walk you through our third quarter and year-to-date financial results, discuss our liquidity position and touch briefly on outlook. We delivered solid top line performance in the third quarter with total revenue of $73.8 million. This represents growth over the prior year's third quarter, reaching a record quarterly amount. This improvement was driven by two key areas: wholesale capacity services, and continued strength in Commercial IoT. Our wholesale capacity services revenue increased primarily due to the timing of service fees associated with the reimbursement of network-related costs as we continue to expand and upgrade our global ground infrastructure. Commercial IoT also continues to be a growth driver for us. IoT service revenue increased on the back of subscriber growth with average subscribers reaching 543,000, a 6% increase from the prior year's third quarter. This growth was again propelled by a record number of gross activations over the last 12 months. We also saw particularly strong equipment sales performance. Equipment revenue from Commercial IoT device sales was up 60% compared to the prior year's third quarter. We expect this momentum to continue, particularly with the recent commercial availability of our two-way module, which we believe will drive additional demand. Income from operations was $10.2 million in the quarter, up from $9.4 million in the prior year's third quarter. This improvement came despite higher operating expenses during the quarter due to planned increased investments in our business. Net income was lower than the prior year's third quarter, driven primarily by noncash items. Specifically, we recognized higher interest expense from noncash imputed interest related to the 2024 prepayment agreement. We also recorded net foreign currency losses from the remeasurement of intercompany balances. These items were partially offset by a noncash gain on the quarterly mark-to-market adjustment of our derivative assets. Adjusted EBITDA for the third quarter reflects our strategic investment in growth opportunities, particularly XCOM. We continue to enhance and develop our XCOM RAN product and service offerings. And as we've discussed previously, we're incurring costs, primarily personnel related in advance of significant revenue contribution from this business. We believe this is a solid investment for the company, and we remain confident in the strategic value of this initiative, particularly based on recent developments towards commercialization. Importantly, we continue to maintain healthy adjusted EBITDA margins, 51% in the third quarter and 52% year-to-date, even while making substantial investments in XCOM and next-generation products. This demonstrates the profitability of our core business and gives us confidence that as these new revenue streams scale, we'll see meaningful margin expansion. For the year-to-date period, total revenue was $201 million, representing 6% growth compared to the same period last year. Service revenue was also up 6%, while equipment revenue increased 21%. The revenue and operating income story for the 9-month period largely mirrors what we saw in Q3. Now let me turn to our balance sheet and cash flow. We ended the third quarter with cash and cash equivalents of $346.3 million. During the first 9 months of 2025, we generated operating cash flow of $445.8 million, a strong result that reflects $299.6 million received in connection with the Infrastructure Prepayment and also demonstrates the cash-generating capabilities of our business. Capital expenditures were $485.9 million during the period, reflecting our commitments under our Updated Services Agreements for network expansion and upgrades, including ground infrastructure as well as satellite construction and launch costs. These investments are fundamental to our ability to deliver enhanced services and support our long-term growth. Financing activities used $6.1 million in cash, primarily for debt recoupment under the 2021 Funding Agreement and preferred stock dividend payments, offset partially by $27.1 million in proceeds under the 2023 Funding Agreement, which will be used to fund CapEx for our replacement satellites. Adjusted free cash flow for the 9-month period was $133.3 million, up significantly from $74.5 million in the prior year period. This increase reflects primarily higher customer payments, including $37.5 million in accelerated service payments received during 2025. Total debt principal outstanding was $418.7 million at September 30, 2025, largely in line with the prior year-end and reflecting the financing activities previously discussed. Our financial position remains strong with solid cash generation, ample liquidity and strategic investments that position us for long-term growth. We're making deliberate investments in XCOM and next-generation products, and we're executing on our infrastructure commitments to support our wholesale services agreement. The fundamentals of our business are sound. We're growing revenue in strategic areas, generating strong operating cash flow and managing our cost structure while investing for the future. Given our results to date and expectations for the balance of the year, we are reiterating our full year 2025 outlook and continue to expect revenue in the range of $260 million to $285 million and an adjusted EBITDA margin of approximately 50%. With that, I'd like to turn the call over to Paul. Paul Jacobs: Thanks, Rebecca, and good afternoon, everyone. I'm pleased to be with you today and to discuss what has been a robust quarter for Globalstar. Across every major part of our business, we're executing our strategy and delivering measurable progress that strengthens our position in the market. It's really never been a more exciting time to be in the connectivity industry and for Globalstar in particular. My team and I have spent our careers driving many of the hottest trends in mobile communications and computing. And well, here we are again. On the satellite side, we couldn't be more proud to have helped pioneer direct-to-device services and witnessed the life-saving impact of our network. There are now over 0.5 billion devices capable of utilizing our network, and we continue to invest and innovate to maintain our leading position. And on the mobile wireless network side, our XCOM RAN technology is proving its benefits both in performance for mission-critical applications and its cost effectiveness and ease of deployment. As I've said previously, what drew us to Globalstar is the strength and differentiation of our globally harmonized spectrum, 3 decades of LEO constellation operations and deep engineering capability to deliver secure, reliable connectivity worldwide with the quality of service demanded by some of the world's most innovative technology leaders, something few others, if anyone, can claim. Recent activity in the market underscores that value as a wide variety of players now better understand the need for dedicated mobile satellite service or MSS spectrum. Other participants in the direct-to-device solution space have spent tens of billions to acquire L- and S-band assets that, while useful, lack the global coverage, priority rights and harmonization with an established hardware ecosystem that defines our portfolio, one that has been deployed for decades by our Globalstar customers. We believe this validates the global orientation of our strategy from inception, building the company around globally harmonized and licensed spectrum assets and a global LEO platform. We see extraordinary potential for disruptive innovation around our spectrum bands and are confident we are playing a defining role now and for some time to come. For many reasons, Globalstar holds the critical jigsaw pieces that complete the broader D2D puzzle. This moment is a strategic inflection point that could shape or reshape the future of a rapidly converging communications industry. Before I turn to the other parts of our business, let me acknowledge that you may have seen recent media reports regarding a potential strategic transaction involving Globalstar. As a matter of policy, we do not comment on press articles, rumors or market speculation. And therefore, we will not be addressing this topic during today's call or the Q&A following our remarks. Now let's turn to the business, and let me start with our infrastructure expansion and satellite road map for our C-3 constellation. We continue to make significant progress in the construction of our extended MSS network. In addition to development of our third-generation C-3 satellite system, this effort includes the build-out of our global ground network with new infrastructure across multiple continents, including Europe, Asia and North America. This global ground expansion is continuing, including up to 90 new tracking antennas supporting Globalstar's C-3 satellite system, representing a significant investment in the functionality, capacity and future-proofing of our network. This significantly underscores our mission and strategy to support resilient and robust connectivity that not only serves the needs of today, but also prepares for those of tomorrow. And to that end, our HIBLEO XL-1 filing is designed to expand operational frequency, which is a foundational step towards our planned next satellite era. This system will introduce new satellites, orbital shells and frequency bands to enable greater capacity and throughput. It's an important step forward that aligns with the other network investments we are making today. And while we are not currently planning significant investment in our own mega constellation, this filing gives us the future option to work with partners supporting our constellation -- sorry, our spectrum on a mega constellation that is coordinated with our existing and planned constellations. Let's turn to the government sector. We continue to see strong traction following our wins earlier this year. We've made meaningful progress with Parsons Corporation, transitioning from proof of concept to commercial engagement that leverages our satellite network within their advanced software-defined communications architecture. This partnership highlights Globalstar's ability to deliver resilient, low latency and mission-critical connectivity for defense and public safety applications. We continue to expect government-related opportunities to represent an expanding source of revenue in 2026 and beyond. Our Commercial IoT subscriber growth is strong and accelerating with strong MSS device sales supported by growing adoption in safety, logistics and infrastructure markets. Gross activations are up 40% over the same quarter last year, and total units are up 100% on a quarterly basis compared to the prior year. That doesn't even include the new two-way module, which is now being integrated into our customers' finished products. These sales, combined with increased enterprise demand are contributing to a balanced and diversified revenue profile. Another milestone this quarter is the global availability of our two-way Commercial IoT module, the RM200M. Already receiving certifications in key regions, the RM200M is now officially available for worldwide deployment. Leveraging Globalstar's licensed L&S band spectrum and second-generation satellites, the module delivers reliable two-way connectivity, reducing friction when deploying across numerous geographic regions. On the private wireless side, momentum continues to build for XCOM RAN. During the quarter, we received an initial order from a new XCOM RAN customer, advancing their next-generation robotics application and a significant expansion of this program. XCOM RAN is positioned to play a critical part in ensuring quality of service in warehouse and factory automation, where reliable and secure connectivity is at the core of a robotic future in these environments. We believe we can demonstrate not only significantly differentiated performance of our 5G-based systems over industrial Wi-Fi, but also improved economics for large area applications. And we are addressing new applications outside of warehouse automation, which we will believe -- which we believe will grow our addressable market significantly. Stepping back, this has been a year of meaningful acceleration for Globalstar. We've expanded our infrastructure, strengthened our product lineup, deepened our government relationships and enhanced the commercial viability and visibility of our technology portfolio. These accomplishments have not gone unnoticed. Increased partner engagement and growing investor confidence reflect a renewed understanding of Globalstar's strong market position, combining spectrum ownership, global infrastructure, product lineup and operational expertise that few others can match. Overall, this has contributed to positioning the company in the market as a high-value strategic asset in the rapidly converging satellite and terrestrial communications ecosystem. While we remain focused on executing our plan, this recognition underscores the scalability and relevance of what we've built and what's still ahead. As we look to the close of the year, our focus remains on execution, including completing key infrastructure milestones, expanding enterprise and government deployments and continuing to drive adoption of our new technologies across both satellite and terrestrial domains. We're proud of what our team has accomplished and energized by the growing momentum we see across all segments of our business. Thank you for your continued support. I look forward to sharing more about our progress in the quarters to come. With that, I will turn the call back to the operator. Operator: [Operator Instructions] Our first call comes from the line of Mike Crawford at B. Riley Securities. Michael Crawford: Regarding your C-3 constellation, correct me if I'm wrong, if this is not completely synonymous with your extended MSS network. But can the ground segment improvements that you're putting in at these gateways be used by your existing constellation that's being refreshed? Paul Jacobs: Yes. So we put in antennas that are specific for the [indiscernible] system -- or sorry, the C-3 system. And yes, so we have the existing satellite antennas for the existing constellation already. Michael Crawford: Okay. And I believe it's going to be two batch launches for -- to replenish that constellation. Is there any update on when the first of those might occur? Paul Jacobs: We have not given any new indications on when the launches are going to occur. Rebecca Clary: And just to add to that, Mike, for the Extended MSS network, as you know, we haven't provided timing. For the replacement satellites, which you might be referring to that are being launched in two batches, we're working with SpaceX to confirm an updated launch window in the first half of 2026. Michael Crawford: Okay. And then maybe just stepping back, Paul, to Globalstar's global harmonized spectrum holdings. Can you just maybe define those again in terms of megahertz POPs or some related measurements or what you have in the U.S. as well as where you have landing rights internationally? Paul Jacobs: I mean it's essentially global coverage. So on the S-band, we have 16.5 megahertz. On the L-band, we have almost 9. On the C-band, we have over 300 megahertz. So let's see there are 7 billion people on earth. So... Michael Crawford: Okay. I can do that math. And then on the C-band, I believe there remains 59 megahertz slot that might not necessarily be required to operate your satellite networks given improvements in technology over the past 20 years? Paul Jacobs: No. It's -- there's actually -- so if you look at the C-band spectrum, it's a large percentage of it is covered by Wi-Fi, so unlicensed band use. And then there's a chunk at the lower end that is not covered by that. And all of the spectrum is being used as feeder link because the way the existing satellites work is that chunks of the feeder spectrum are allocated to reproducing the entire spectrum band on the L&S band side. per beam on the satellite. So it is actually all used for the satellite system. It's a question of if we look at it for terrestrial use, there's a chunk that hasn't been allocated for Wi-Fi use. Now with that said, even in Wi-Fi bands, the team that came along from XCOM Labs is the same team that built the unlicensed band cellular technologies. And so it is possible that we can look at those bands for hosting unlicensed band NR, for example, 5G. Michael Crawford: Okay. And then final question for me just goes back to XCOM RAN. So in the test applications that you've been doing for quite some time now. What is the latest data that you're seeing in terms of increased performance and reliability versus industrial Wi-Fi? Paul Jacobs: Yes. So it works much better than industrial Wi-Fi because we don't have handoff regions and Wi-Fi wasn't really built for handoffs anyways. We also have ease of deployment. We have this clustering where if the robots cluster under one of the radios, you don't just depend on the capacity of that radio, actually depend -- you actually get the capacity of the entire system. So in terms of performance benefits, it's dramatically better. It's more reliable, more mission-critical. But what we've also been finding is that in these large area deployments, we're also economically better. So the economics of rolling out our system relative to an industrial Wi-Fi is much better. And part of that comes from the fact that we have now built our own radio units and significantly cost reduce those as well as being able to provide more frequency bands on a faster basis when those are requested by our customers. Operator: Our next call comes from the line of Greg Pendy at Clear Street. Gregory R. Pendy: Just on the accelerating IoT, can you just add any color on what the acceleration is? Do you think you're gaining share in the space? Or do you think the market was just seeing outsized healthy growth? And how should we think about pricing with the two-way capabilities on a forward basis? Paul Jacobs: Okay. So we -- there are definitely new applications that we're able to address. I think that there is also the fact that when we look at some of the competitors in the area who have been in this area for a long time, there's definitely interest of our customer base to have diversity of supply or change suppliers. So that's definitely driving part of it. So some of it's taking share, some of it's new, it's growing the pie. And then the other -- on the two-way pricing, yes, I mean, it's a new set of capabilities, and there is market pricing out there for two-way systems. Of course, we expect to be aggressive and take share with the two-way system. And the growth so far, though -- if I just want to reiterate, the growth so far is not on the two-way system yet. The two-way system is still -- we brought out the module. We betted it with people. They then started building it into their products, and that takes a little bit of time for them to get up to speed and get their products rolled out. So the growth that you're seeing is actually the existing -- of the existing systems, which is really quite impressive. Gregory R. Pendy: Got it. That's very helpful. And then just wholesale looks pretty strong relative to what we were thinking. Just wondering, you mentioned there's 0.5 billion devices. So just trying to understand the underlying growth. Is it just a growing number of enabled devices? Are you seeing usage? Is it -- can you just kind of -- higher usage from those who are already enabled? Just trying to understand why that... Paul Jacobs: Right. So I can't really comment on the customers of our customer. So let me not do that. But it's -- the number of devices that are out there is just talking about the growth of the number of devices that actually have the satellite modem and radio capabilities in it. So that -- those set of devices continues to grow quite rapidly. Operator: [Operator Instructions] Our next question comes from the line of George Sutton of Craig-Hallum Capital Group. Logan W Lillehaug: This is Logan on for George. You guys have been kind of talking about the XCOM RAN investment throughout the year, and I think you've been expanding the sales force a bit. And it certainly feels like you have a lot of opportunities in front of that asset. I was wondering if you could just talk a little bit about sort of how should investors think about the return profile or even the profitability of those assets over the next few years? Paul Jacobs: Okay. So I mean, the margins are good in that business. We're right at the beginning of the sort of the commercial adoption cycle. And so we expect to see growth not just from the existing customer that we had been focused on in the past, but from a new set of customers and also into a new set of areas. And we've put up various numbers on sort of total addressable market. And so there's a significant addressable market going forward. And what we're seeing also is that companies that have been in the 5G private network space that didn't have any differentiated technology are starting to feel a lot of pressure. We've seen layoffs and things like that. And we have not just differentiated technology, we have better economics. And of course, we have the dedicated spectrum for mission-critical applications, which, by the way, that hasn't even really started to come into play yet because we were focused on CBRS. So a lot of areas of growth. We don't expect to see a lot of revenue in this fiscal year. But as we look forward into the next year, we expect to see growth there. And then like I said, the margins are good. So we should be in a good place to build both revenues and profitability off of that business. Logan W Lillehaug: Got it. And then next one for me. I was kind of hoping you could talk a little bit about early traction with the two-way module, just sort of the feedback you're getting, any use cases that you want to call out that are kind of standing out and just sort of maybe your sense on adoption here over the next few years. Paul Jacobs: Yes. I can't really give you a lot on the customers because they're all in the process of building their products and want to make their own announcements. But it is a lot of the similar industries that we've been in the past, but with new applications and new sets of customers. And there was a set of customers that weren't very interested in talking to us when we were only one way, and now we are able to -- I think we'll take share in a number of markets with the two-way system. And then as we look forward to making the system also multimode with cellular capability as well, that will also satisfy demands of a certain customer base. So yes, it's not like there is some brand-new area that I'd say, okay, this we can address now that we didn't, but we certainly have a set of customers that are talking to us that wouldn't have talked to us in the past with a one-way-only system. Operator: [Operator Instructions] Our next call comes from the line of Michael Ridgeway. Michael Ridgeway: Paul, a question first on the XCOM RAN warehouse implementation. Is this related to the early work that you have been doing and has been ongoing since you alluded to a large retail testing implementation? Paul Jacobs: Yes. So we are now in a position where I think we can address a larger customer set and also not just the original application that we were looking at of the sort of micro fulfillment concept, but larger scale operations as well. And then we're going beyond just the warehouse automation space. We're talking to companies that do things like build out high-density environments, convention centers, airports, stadiums, that kind of hotspots, that kind of stuff. And so as time has gone on and we've been able to invest in the system, it's got a more horizontal feature set as opposed to just super focused on the warehouse automation space. So all these things provide us with growth opportunities. Michael Ridgeway: So is that to say then that ultimately, there's more of a unified connectivity outside the warehouse as well using that as an example? Paul Jacobs: Yes, for sure. Yes, that's where we're... Michael Ridgeway: And then can you help us understand the revenue model behind this? Obviously, you've got an equipment side and then there's the spectrum side of this. Is there any ongoing service associated with those implementations? And how should we think about the profitability over time as clients grow, as new customers grow in that space? Paul Jacobs: Yes. So there is those things that you said, but also there is an annuity component of software license because the main computation is done on commercial off-the-shelf servers. And so we license the software into those servers as well. And then the other thing that's happened is that over time, we've been able to build out the entire stack. So we look forward to the ability to provide Network as a Service. And that obviously is very much a nice annuity kind of business. So that hasn't happened yet. That's the thing that we're sort of looking to in the medium term, but we get the idea that we don't want to just sell something and then walk away. Michael Ridgeway: All right. So from a margin perspective, we could expect a delay on margin accretion as installs happen over the last several quarters? Paul Jacobs: Margin accretion to the overall company? Michael Ridgeway: To the overall business. From that business... Paul Jacobs: Yes, yes. Well, this business right now is still in an investment phase, so for sure. But on a gross margin basis, gross margins are solid here, and we have differentiated technology, and we put the effort into driving the cost -- driving down the cost curve. So yes, so margins should be good. And then to the extent that you get an embedded base, I think this might be where you were going, embedded base of kind of annuity revenue, then obviously, that's very high margin. Michael Ridgeway: That's super helpful. Just last question, talking about this. We've come through 10 years where we haven't seen any market transactions in MSS and now we've gotten a few and another one announced this morning. Can you maybe spend a little bit more time, you did at the beginning of the call, but just differentiate what Globalstar has and the utility and the global harmonization from a relative value perspective from what we've seen in the market, if you could? Paul Jacobs: Yes. So I don't want to talk about transactions or speculation, but I will talk about our competitive positioning, which is we have spectrum, which is globally harmonized, meaning that it is not just for a small number of markets. You don't have to worry as a satellite operator, whether you're crossing boundaries, whether there are country boundaries or just inter system, interoperator boundaries. The spectrum covers the entire earth. And yes, there might be a few countries here and there, we didn't get landing rights. But for the most part, the world is covered by our spectrum and system. So that is differentiated. Some of the transactions that have been seen in the market have been focused on particular geographies. And in some cases, I would say there's questions about whether some of the spectrum that -- whether it will continue to be available post license reauthorization processes of some of the spectrum that's transacted. So that -- we're watching that. We've put our hat in the ring for some of these spectrum assets in case they are reallocated, and we certainly can put them to good use, and they are also covered by our HIBLEO XL-1 filing. Michael Ridgeway: Great. That's helpful. One last question on the C-3 ground station build-out. You've mentioned 90 new tracking antennas. Does that -- where does that put you in terms of the total build-out plan in percentage terms? Paul Jacobs: That's the build-out. I mean the 90-plus is the new set of antennas for the... Michael Ridgeway: Okay. And how many of those are actually deployed... Paul Jacobs: Some not -- I mean, we're in the process of rolling out. I don't think we've given an exact number to date. But you Rebecca, if we have said anything more precise than that, please speak up. Rebecca Clary: No, we haven't. We've talked about the sites where we're currently in construction, which is around now close to 30. So making really good progress and definitely on track with those milestone dates in the various agreements, both regulatory ground infrastructure build-out and satellite construction. Operator: At this time, I'm showing no further questions. I would like to turn the call back over to Paul Jacobs for closing remarks. Paul Jacobs: Well, I think it has been a great quarter, and we're really firing on all cylinders, and we're excited by, as I said, the fact that we focused on building a global company and a global spectrum position, global set of customers, global infrastructure from the very beginning. And that is showing to be a particularly valuable place to be in this change in the industry. And I do, as I said earlier, see this as a strategic inflection point. And so being in that part of the industry again and with the ability to play in a new inflection point, it's extremely exciting and should be -- we expect it should be good for all of us and our supporters and investors. So thank you very much for being there for us, and we look forward to updating you more into the future. Operator: Thank you very much. This concludes today's conference. You may now disconnect.
Operator: Greetings. Welcome to the Celanese Corporation Third Quarter 2025 Conference Call. [Operator Instructions] Please note, this conference is being recorded. I would now like to turn the conference over to Bill Cunningham. Thank you. You may begin. William Cunningham: Thanks, Darryl. Welcome to the Celanese Corporation Third Quarter 2025 Earnings Conference Call. My name is Bill Cunningham, Vice President of Investor Relations. With me on the call today are Scott Richardson, President and Chief Executive Officer; and Chuck Kyrish, Chief Financial Officer. Celanese distributed its third quarter earnings release via Business Wire and posted prepared comments as well as a presentation on our Investor Relations website yesterday afternoon. As a reminder, we'll discuss non-GAAP financial measures today. You can find definitions of these measures as well as reconciliations to the comparable GAAP measures on our website. Today's presentation will also include forward-looking statements. Please review the cautionary language regarding forward-looking statements, which can be found at the end of both the press release and the prepared comments. Form 8-K reports containing all of these materials have also been submitted to the SEC. With that, Darryl, let's go ahead and open it up for questions. Operator: [Operator Instructions] Our first questions come from the line of David Begleiter with Deutsche Bank. David Begleiter: Nice quarter for Q3. Scott, looking at '26, can you give us an early look at what you can -- your control for '26 and what's not in your control for '26 relative to earnings? Scott Richardson: Yes. Thank you, David. Let me just start by saying how we have focused on 2025, continues into 2026. The priorities of increasing cash flow, intensifying our cost improvements and then driving top line growth. And that third piece, I think, is going to continue to be more important as we're seeing progress from our EM pipeline. Those are going to be our priorities going into '26, and we've laid a really nice foundation here in 2025. And so that foundation, even if we're in an environment where we see flattish demand, and I kind of look at flattish demand on what we've seen, say, Q2 through Q4 here in 2025, if we're in that type of demand environment, just to make it easy, I believe we're going to be able to grow EPS by $1 to $2 next year. And that's going to come from the cost actions that we've already put in place and that yielding increments next year. And then the second big piece is going to come from EM pipeline and the success we're seeing driving that, including the high-impact program growth, which is starting to yield results. And certainly, we won't have the Micromax EBITDA, but I think that's going to be offset by the fact that we don't expect to have the significant auto destocking that we saw in Europe in Q1 of this year. So I think when you put it all together, we feel confident in about $1 to $2 even if the world around us isn't growing. David Begleiter: Very good. And just on EM pricing, the best in 8 quarters. Can you discuss how much more there is to go in EM on the pricing front? Scott Richardson: There's always more that can be done here, David. We have gotten price in some of the standard grade materials in the Western Hemisphere, not as much across the board as we want to see. So I think there's still going to be opportunities there. In addition, where we're seeing nice benefit is on the price for the new elements from the pipeline that are being launched. So this is going to continue to be a very critical area of focus for us as we go into 2026. Operator: Our next questions come from the line of Vincent Andrews with Morgan Stanley. Vincent Andrews: Could you speak a little bit about the operating rates and the acetyl chain? I know there was the comments in the prepared remarks about sort of flexing Singapore based on demand and Frankfurt is going to be, I guess, offline for the balance of the year. But what do you anticipate or maybe just back up and how -- what rates did you run at in the second half of this year? And then what do you anticipate in the first half of next year? Scott Richardson: Yes. Thanks, Vincent. Not to be flippant, but every day is different in this business. And I don't say that as hyperbole, it's true. When you look at our lowest cost assets, our lowest cost assets are running at 100%. And then the balance of the network, which is really our asset base outside of the United States is being flexed to meet demand, flexed to meet industry conditions and we're going to continue to operate that way. We've block operated Singapore as well as Frankfurt. We would expect that to continue going into next year. And part of that is our manufacturing team has done an excellent job of being able to continue to operate with high degrees of reliability as well as find ways to no capital debottleneck our assets to where we have more capacity at those lower-cost assets. So we're going to continue to flex that to meet demand, but I'd really look at lowest cost asset base running full and then the rest of the network operating as needed. Operator: Our next questions come from the line of Jeff Zekauskas with JPMorgan. Jeffrey Zekauskas: In the acetyl chain, when you look at sequential pricing through the year, it's gotten tougher. And prices had come down a lot in China earlier in the year. Where is the sequential price pressure coming from in the acetyl chain, either by product line or geography? Scott Richardson: Yes. Thanks, Jeff. I think we've seen a little bit of pressure in Europe in kind of what I would say more of the downstream. So getting into the vinyls chain, VAM and emulsions as we've worked our way through the year, and that was really demand driven. As demand has come off, we've seen a little bit of pricing pressure there. We've seen a stabilization of pricing in China now over the course of the quarter or so. And in fact, pricing went up a little bit here at the beginning of this quarter, not significantly, but we did see a price lift as we got into October really across all product lines in China in acetyl. So the U.S. has been relatively stable. So that's kind of how I would look at it. It has been more around a function of demand where demand has been weaker, and we've seen a little bit of softening of price in Europe. Jeffrey Zekauskas: Okay. And in Engineered Materials, year-over-year, your consolidated volumes were down 8%. Which product lines are, I guess, falling more than that and which product lines are falling less than that? Can you help us -- I mean, it might be that there are particular pockets of weakness? Or is it across the board? Can you talk about that? Scott Richardson: Yes. It's mainly the product lines, Jeff, that we have higher levels of volume and have just generally more market exposure in the standard grade materials. And so that tends to be more of your engineered thermoplastics. So that's your POM, your nylon and then into GUR and polyesters. Our thermoplastic elastomers have held up extremely well, and the team has actually found nice pockets of growth there. It's just -- that's not where we have as much volumetric exposure. So it tends to be more on the engineered thermoplastic side of things. Operator: Our next questions come from the line of Michael Sison with Wells Fargo. Michael Sison: Nice third quarter as well. For 2026, if I take a look at Slide 11, it looks like cost savings could represent somewhere between $0.40 to $0.50. How much -- in terms of the rest of the $1 to $2, how much comes from potentially lower interest expense? And just trying to gauge how much could come from volume growth and new products. Scott Richardson: Yes. I mean, given kind of the $1 to $2 that I talked about earlier, Mike, I would look at that's really split largely in 2 areas. One, about half of that is cost. And we didn't put all of the cost actions on that slide. We have kind of an ambiguous bucket there on that last line of that graph. And I think I would look at -- there's more to come. We had the announcement last week about the Lanaken closure. We're continuing to work the cost side of the equation extremely hard, and we'll talk more specifically about those as we complete those actions. So about half of it is cost. And the majority of the rest of it is really coming from the pipeline. And that's kind of how we're thinking about things right now. I mean there's definitely going to be some things around the edges like interest, et cetera, but those are the 2 big buckets that we're looking at currently. Chuck Kyrish: And Mike, this is Chuck. The interest expense, I would pencil in $30 million to $40 million reduction year-over-year. Michael Sison: Okay. And then a quick follow-up in EM in terms of the volume growth potential, how much is that coming from sort of the legacy, if you can think about it that way, the Celanese businesses and then how much comes from some of the DuPont? Scott Richardson: I'll be honest with you, Mike. Right now, we're looking at that portfolio as all Celanese. And we're not breaking it out. We're not operating the business or the company that way anymore. It really is about Celanese and products. What I would say is that engineered thermoplastics piece and the portfolio we have there has proven to be a really nice add for us. Part of that came from M&M, part of that came with Santoprene, and that's a really nice area of growth going into next year. It's a really important area for us to be differentiating the offerings that we have. And then the -- so that's been a really nice driver for us. And then we are seeing really as we look at this high-impact program area, I mean, there's end uses there that are extremely attractive where we're bringing both the engineered thermoplastics. So that's both historical Celanese and M&M as well as the elastomer portfolio to bear in really high-performance type applications, whether that's data centers or in high specification EV opportunities, medical opportunities. So there's -- across these spaces, we're really seeing as we've gotten extremely focused from a commercial team perspective on these areas, we think we're going to have nice pockets of growth in '26. Operator: Our next questions come from the line of Ghansham Panjabi with Baird. Ghansham Panjabi: Scott, just given the evolution of the macro throughout the course of the year end markets such as building and construction and autos and so on sequentially weakening, are you starting to see more accelerated inventory destocking at the customer level throughout the year-end? Or are inventory is already pretty low. So what you're mirroring is just basically the end markets themselves at this point? Scott Richardson: Yes. Thanks, Ghansham. As I look at where demand is, it's certainly on a lower base than what we've seen historically. But if we look at what we called out for seasonality from Q3 into Q4 on a volumetric and percentage basis, it's very similar to what we've seen in the past from Q3 to Q4. So we're not necessarily seeing accelerated destocking. There's a few pockets. For example, our channel partners here in North America came to us at the beginning of the quarter and talked very openly about wanting to bring inventories down a little bit by year-end. And so that was great that we're able to partner with them. We can take rates down at our asset base and do it really in a thoughtful way over the course of the quarter and not just get to the end and have this big slug down. So I think there is -- there's definitely, I would say, pockets, but I wouldn't say it's something we're seeing extensively across the board because we've been seeing this kind of work its way through the value chain in various areas now for about 6 months. Ghansham Panjabi: Okay. Got it. And then maybe a question for Chuck on free cash flow. What's the expectation for working capital contribution for this year in 2025? And then how would you have us think about some of the parameters for 2026 free cash flow? I think you said at the low end of your guidance for this year. Chuck Kyrish: Right, right. Yes. So working capital so far this year has been a source of cash of $250 million as we've really focused on cash generation. I really don't expect much change in working capital, either source or use of cash in fourth quarter. So I would just -- I would model in 0 at this point for working capital. As you look ahead for 2026, with that, we don't expect with similar demand levels that we would repeat that $250 million of working capital source of cash, but we are continuing our inventory actions in Engineered Materials. So there will be some level of free cash flow source there. At this point, Ghansham, our cash outlay of restructuring, which is adjusted out of EBITDA is looking to be lower in 2026 as we have some projects that have rolled off from prior footprint. So adding to that, the EBITDA improvement that Scott's talked about on the cost and commercial side, that gives us confidence next year in free cash flow, at least at the low end of that $700 million to $800 million range. And I think it's important to understand, as we look ahead in the next few years, we think this level of free cash flow is sustainable. Operator: Our next questions come from the line of Patrick Cunningham with Citi. Patrick Cunningham: The decision for the Lanaken closure, you cited evaluation of longer-term end market trends. I guess did anything change in terms of your forward view on either the demand or supply side? And then as you look to evaluate other more targeted measures in AC, should we be looking to the Frankfurt facility? Or do you expect more of a smaller collection of savings across the asset footprint? Scott Richardson: Thanks, Patrick. First of all, I think it's important. Look, we don't take any of these types of decisions lightly. We look at where things are in the near term, long term, and we study them. And we also look at our ability to continue to supply our customers. And acetate tow has faced challenges, including declining demand over a period of time. Lanaken is our highest cost asset. And so as we looked at where things are, we're able to meet all of our customer needs from our network and subsequently drive productivity savings with this move, both in the short term and long term, no matter what may materialize from a demand perspective. And so this closure will yield probably in the neighborhood of $20 million to $30 million of productivity savings in 2027. We get a little bit at the end of next year, probably on that, but certainly for the full year of '27, that's the types of savings we're looking at. And we're going to continue to look across our whole footprint in both businesses for similar types of examples. And so there's no specific asset, I would say, that we're looking at right now. It continues to be kind of crosschecking where industry demand is, where is our capacity, where do we maybe have excess capacity in the network that will allow us to drive that productivity, but still be able to meet customer demand even if we were to see a big increase down the road in a recovery period. Patrick Cunningham: Understood. Very helpful. And then maybe one for Chuck. Just in terms of progress on inventory reduction, they're still tracking well towards that goal. And then just in the context of some of your comments in the prepared remarks, what percentage of SKUs are made to order today versus made to stock? And what goal are you working towards there? Chuck Kyrish: Patrick, look, it's an ongoing effort to be more efficient with inventory. I don't have that percentage right in front of me of the number of make-to-stock SKUs, but it's one of the several levers that EM is working on to reduce inventory. It also includes logistics and warehousing and testing lead times, et cetera. Operator: Our next questions come from the line of Kevin McCarthy with Vertical Research Partners. Kevin McCarthy: I think you identified $30 million to $50 million of additional savings that you're targeting in Engineered Materials. Can you elaborate on the sources of those and the flow-through timing? And remind us if those figures are gross or net of inflation? Scott Richardson: Yes. Let me hit the last part of your question, Kevin, I would look at those as net of inflation because we will work inflation through our productivity pipeline to offset that. So look at these as definitely being net. And it is really looking across the board. There is continued SG&A and R&D savings there as we optimize that side of the business on a global basis. Footprint continues to be an area of focus that will be in there. And then the last area is really things that we kind of call complexity reduction. So streamlining of our supply chain and our logistics network and really getting that optimize. I mean, Chuck just talked about the benefits we get from that on an inventory reduction. We also get cost reduction from that. And so a good chunk of that, we're going to get for full year 2026. Some of it will phase in through the year, but we definitely are confident that we'll be able to get to those levels next year. Kevin McCarthy: Great. And then a second question for you on divestitures, if I may. Congrats, first of all, on the Micromax deal. It looks like you got a nice multiple for that relative to your own trading multiple. Can you talk about the after-tax cash proceeds from that $500 million deal? And then more broadly, if we remain in the current environment of, I'll call it, industrial malaise globally, what additional portfolio actions or at least the magnitude thereof are you thinking about over the next several years? I think you said in your prepared remarks, you are actively pursuing additional. So any color on that would be appreciated. Scott Richardson: Yes. Kevin, let me start, and then I'll turn it to Chuck to answer the tax question. Our principles really around divestitures have not changed. We have what we believe are 2 leading franchises here at Celanese. And in acetyls, it's about leveraging kind of this integrated up and downstream operating model that starts with methanol and acetic acid and goes downstream and it is really uniquely globally positioned to kind of operate to drive value on a daily basis. And in Engineered Materials, it's about driving unique customer solutions and leveraging the globe's leading portfolio around engineered thermoplastics and thermoplastic elastomers. So if we have things in the portfolio that are not part of that acetyl value chain or not a differentiated thermoplastic or thermoplastic elastomer, then we are going to look to see if it's worth more to someone else than what it's worth to us. And that has been the principle that we've been operating on now for a number of years around divestitures. And that's what led to the food ingredients transaction. That's what's led now to the Micromax transaction because they didn't fit in the Engineered Materials business in that thermoplastic or elastomer bucket. JVs is another area that -- where we don't have as much control and that value that they create to the enterprise is not what the rest of the portfolio creates. And so that's the principles that we're operating under, and that's the principles that we'll continue to look at being able to monetize different assets around. And we committed to $1 billion of divestitures by the end of 2027. And this Micromax transaction gets us around halfway there. And so we are very much in line with achieving that target, and we're going to continue to focus on that here as we finish this year and get into 2026. Chuck Kyrish: Yes. On the tax leakage, Kevin, that's expected to be 5% of the final gross sales price. Operator: Our next questions come from the line of Salvator Tiano with Bank of America. Salvator Tiano: Firstly, I want to continue on Kevin's question on divestitures, and you mentioned JVs as a specific area of focus. I'm wondering, though, how are you thinking about the methanol JV? Because on one hand, it is one where you are a partner with someone else. On the other hand, it is, I guess, your main way of being integrated into methanol in the U.S. So how strategic is that business to you? Scott Richardson: Look, I'm not going to comment on specific joint ventures. What I have said around methanol in the past is it really is about leveraging methanol and acetic acid. And so as we look at all of our joint ventures, we have a partner that is in those JVs. And so JVs can be harder to monetize across the board, and we'll continue to look at the partners. We'll continue to look at other potential counterparties who are interested in having ownerships of our joint ventures. But our focus really is around value creation. And so if value is there to be created and it is higher than what we believe is inherent in the current and potentially future stock price, then we will definitely look at it. Salvator Tiano: Great. And I also wanted to ask about your nylon chain. I know you've been deemphasizing nylon polymerization instead doing compounds. So at this point, how much of your nylon volumes and sales, perhaps profit comes from actual nylon standard grades versus the compounded value-add products? Scott Richardson: Yes, Sal, almost all of our profit in that business is really created by compounds. And so now to make a compound, you need polymer. And so whether we make that polymer or buy that polymer, the key is getting that polymer at the most optimized economics possible because we create our value really through that compounding step. Operator: Our next questions come from the line of Aleksey Yefremov with KeyBanc Capital Markets. Aleksey Yefremov: I just wanted to continue down this line of questioning. I think you just earlier said, Scott, that you don't foresee any major capacity closures. But I recall earlier, there was a discussion about maybe buy versus make in polymers and potentially some rationalization there. So should we take it that the rationalization of polymer capacity is off the table for now or that's still being considered? Scott Richardson: No. Let me be very clear, Aleksey. We are taking bold actions across the board. And we have continued to be I think through this year, every single quarter, we have had another cost reduction announcement. We are looking at all elements of our business in both acetyls as well as in Engineered Materials, and we will take action around cost, including footprint, if there's value creation opportunities there. Aleksey Yefremov: Okay. Makes sense. And then as a follow-up on your EM pricing, I realize it was relatively modest, but do you see any signs of more rational competition sort of improvement in competitive environment maybe across any of the end markets or types of polymers? Scott Richardson: Look, we can't control what others are doing. What I will say about our EM commercial team is they are energized by the opportunity that's in front of them, not just around making sure that we're getting full value for the materials that we sell, but on partnering with our customers, about being connected to our customers, being current about what's happening in the marketplace and being able to respond to customer needs and leverage and drive new solutions. And I think we believe that, that team is going to continue the trajectory that they have been on this year despite the fact that through the year, the volume side of the equation has been difficult, but to be able to drive price, drive mix improvement through the year, I think, is a great accomplishment and is a really good starting point for us going into 2026. And we think we will be able to drive volumes through the pipeline next year. Operator: Our next questions come from the line of Frank Mitsch with Fermium Research. Frank Mitsch: Congrats again on the Micromax sale. To that end, Chuck, I believe you indicated that with the $3 billion plus debt due '26, '27, you were fairly comfortable being able to pay that -- or you indicated that you -- given the free cash flow and expected divestitures that you would not need to tap a revolver and that you felt like you would -- or issue more debt, you'd be able to cover that. Do you still feel that way today? Chuck Kyrish: Yes, Frank. I mean, if you look at ahead at our 2026 maturities, we've got about $900 million due. So we look at between the Micromax proceeds, the cash -- the excess cash we have on hand, Q4 cash generation, those are spoken for. We've already been looking ahead at the '27s and we made several payments to our '27 term loan over the last few quarters. We're confident in the cash generation and ability to pay off the '27s. We do know that sometimes that cash is back-end loaded in any given calendar year. So as we've done a few times, we'll continue to be prudent and opportunistic in the debt markets, refinancing a small portion of our maturities to align the maturities 1, 2 years out with our free cash flow generation. And that's just to bridge the timing of those repayments. But we're confident that we can generate the cash to pay those off and continue to deleverage. Frank Mitsch: Helpful. And then, Chuck, if I could ask you a more esoteric question. very sizable write-down this quarter. I'm reading the press release, and it's tied to Zytel and nylon. And then in the prepared remarks, it's talking about your stock price and so forth. I'm sure others understand what's going on there, but I don't. Can you please expand on that? Chuck Kyrish: Sure, Frank. Look, the third quarter is our annual quarter to test our goodwill and certain intangibles like trade names. We did this using the same third parties that we always do, and we did record an impairment. I think what's important, Frank, is there was not a reduction in the projected cash flows of Engineered Materials since the last time we did this test. This impairment was really driven by a reduction in our market cap, created by a reduction in the stock price because part of the test is sort of a market-to-book analysis this year. So no change, no decline in the cash flow projections, but it was really driven by the market cap of Celanese. Operator: Our next questions come from the line of Hassan Ahmed with Alembic Global. Hassan Ahmed: Just wanted to get a bit more granular about the sort of near-term guidance. I know in the past, you guys have talked about trying to get to a quarterly EPS run rate of $2 per share imminently, right? So I know the guidance, obviously, for Q4, $0.85 to $1 bakes in seasonality. It's not really in an otherwise abnormal environment, it's not really sort of the right starting point. So maybe if we could start with like the $1.34 you guys reported in Q3, right, where in the near term, you see that going on a quarterly run rate basis via self-help via obviously now with Micromax almost about to close, reduced interest expense there and the like. And again, I understand that you guys are talking about an incremental $1 to $2 from self-help, which is $0.25 to $0.50, but would love some more granularity around that. Scott Richardson: Yes. Thanks for the question, Hassan. We continue to be focused around driving controllable actions that will, as a first step, get us back to that $2 a quarter run rate. That hasn't changed even with where demand is at from a seasonality perspective, and we will get there. If demand stays lower, it may take us a little bit longer to get there. But if you look at where we were performing in the middle part of the year, Q2, Q3 from an EPS perspective and you just take the actions that I've talked about that we have going to next year, it starts to really get to a point where you're approaching kind of that level as you're getting up into the $1.75 to $2 range. And that's where continuing to stack wins, as we called them in our prepared comments, additional costs continuing to drive the pipeline. And then if we get any inkling of a demand improvement and even if you were just at the demand levels we saw in the second quarter, you're effectively there. And so the multiplying effect of the actions that we're taking are significant. We look at our enterprise right now as a coiled spring that when released is going to really drive very substantial and increased earnings levels as we go forward. It's tough right now. The demand environment is not tough, but I'm extremely proud of the resilience and the actions that the team here at Celanese has taken this year to position us going into next year and beyond. Hassan Ahmed: Very helpful, Scott. And as a follow-up, I would love to hear your views about Anti-involution as it affects the acetyls chain and you guys. And more specifically, why I asked this is that it seems a bit -- just yesterday, PetroChina, it seems came out and announced that they're studying 19 sort of different refining and petrochemical assets to potentially retire. And those include methanol assets as well, right? So it seems it's moving away from the pipe dream phase and actually becoming real. So how do you see Anti-involution impacting you guys? Scott Richardson: It's hard to say exactly how it will materialize, Hassan. But look, the dialogue on the ground in China, and I was there in the quarter and was talking with the team, it's palpable, more so than I would have expected. I don't know that it's had a really direct impact thus far. I mentioned we've seen some price movement, albeit small, but some price movement in the quarter. I don't know how much of that is Anti-involution or just kind of normal market changes and some of the inventory getting absorbed after some new plants started up. But the reality of it is that people are talking about it there. And I don't know how it comes in fruition to the business, but I do expect that we're definitely going to see this be an important step going forward because I do think the profitability of assets in China need to be higher than where they are today. Operator: Our next questions come from the line of Josh Spector with UBS. Joshua Spector: I wanted to follow up just on the Acetyls utilization rates. I think my understanding prior was maybe you had rates lower in some of the Western markets, so some of your low-cost regions like the U.S. to basically react to some of the weaker demand. I guess your earlier comment was that it's your low-cost assets running full out. So specifically, can you comment on that and maybe your U.S. asset base utilization rate where that is today? And then related with that, if we think about what gets utilization rates higher, if you're running at a high rate in the U.S. today, does U.S. demand improvement help you? Or do you really need Europe or other regions to improve to get your utilization rates up? Scott Richardson: Yes. I mean, look, Josh, we've always run our U.S. assets at pretty high rates. That really hasn't changed dramatically. And I'm not saying we don't have room there. We probably have a little bit of room, but you definitely see the uplift. And when you see Western Hemisphere improvement, the netback is significantly higher than moving that product around to different regions where it's better than running other assets, but certainly, U.S. demand flows directly to the bottom line in that case. So we do think the assets are extremely well positioned. We've done debottlenecks of the U.S. asset base over the last 5 years. And so we have the ability to move those up. And when I said full rates, I was really particularly on acetic acid in the U.S., really referring to we kind of operate that at kind of the capacity that we've historically had, not necessarily operating both acetic acid plants at full rate. So we kind of look at those as still operating kind of at the levels they historically did on a combined basis with the ability to ramp up going forward. Joshua Spector: Okay. No, that makes sense. And just a quick follow-up on the cost savings side. Just I mean... Operator: Apologies. It looks like we lost Josh. Our next questions come from the line of Arun Viswanathan with RBC Capital Markets. Arun Viswanathan: So if I just go back to that $1 to $2 of uplift, maybe can you just frame that out? I think in the past, you had said maybe $0.35 from some of your cost actions. Is that accurate? And then maybe what would be kind of a restocking amount? Is that also included in there? Or maybe -- could you maybe frame it as what the destocking amount was for '25? Scott Richardson: Yes. Arun, as I said earlier on the call, we look at that $1 to $2 really as a rule of thumb if we're not seeing the market really change at all off of where we've been over the last several quarters. So there's no kind of restock element in there. And what I said earlier is make the assumption about half of that is coming from cost actions and then the balance coming from the EM pipeline and then some other things, as Chuck mentioned, maybe interest expense. Arun Viswanathan: And then could you just also provide an update on maybe some of your recent actions to maybe change the commercial strategy or extend your legacy commercial strategy within EM, maybe on the project pipeline or anything else that we would find relevant to track your progress there? Scott Richardson: The EM team has been modernizing its strategic orientation. That's the best way I can put it. We're evolving. And just where our world is, where we have the ability to really win is in the differentiated spaces where we can leverage our widespread unique portfolio. We have more engineered thermoplastics, more thermoplastics elastomers in our portfolio than anyone else has in the world, bringing that full portfolio to customers to meet unique challenges that they have around solution sets. And it is about partnering and really getting focus around where we spend our time and then leveraging innovation that we've had. We've launched publicly our grade selection tool for customers called Chemille, where it's an AI-driven tool, which is allowing grade selection around our materials for the customers as well as our commercial organization to very quickly meet the needs and streamline that commercialization cycle. And so it's investments we've made in areas like that, that are really bringing the EM team to the leading edge as it comes to creating new opportunities and partnering with our customers. William Cunningham: Darryl, we'll make the next question our last one, please. Operator: Our last questions will come from the line of John Roberts with Mizuho. John Ezekiel Roberts: Will the European acetate tow closure have any ripple effects across the rest of the acetyls network, either upstream or even downstream, maybe some of your JVs? Scott Richardson: No. I would not look at it that way, John. William Cunningham: Thank you. We'd like to thank everyone for listening in today. As always, we're available after the call for any follow-up questions. Darryl, please go ahead and close out the call. Operator: Thank you, ladies and gentlemen. This does now conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.
Operator: Hello, and welcome to the Proximus Q3 2025 Results Conference Call. My name is Sergey, and I'll be your coordinator for today's event. Please note, this conference is being recorded. [Operator Instructions] I will now hand you over to your host, Nancy Goossens, Investor Relations lead, to begin today's conference. Thank you. Nancy Goossens: Thank you, ladies and gentlemen. Welcome to the Proximus Third Quarter Results Webcast. We will begin with our presentation, and it is my pleasure to introduce our new CEO, Stijn Bijnens, who will walk you through today's highlights. Our CFO, Mark Reid, will then present the financial results. A Q&A session will follow with Jim Casteele, the consumer market lead also participating. Handing over now to Stijn for the highlights. Please go ahead. Stijn Bijnens: Also, welcome from my side. I'm honored to present my first round of Proximus results to you today. As you have seen in our published report this morning, Proximus continued its robust domestic performance despite the intense competitive environment. This is reflected in both another strong financial and operational quarter. Network leadership remains at the core of the success with 5G coverage now over 85% and fiber in the street covering more than 47% of the Belgian homes and businesses. We're pleased that the Belgian Competition Authority announced the launch of the market test and our proposed gigabit network collaboration in Flanders, while the negotiations in Wallonia are ongoing. The Proximus Global segment continues to experience challenges related to SMS CPaaS and integration issues, prompting a reassessment of ambitions, which will be addressed later in this presentation. And finally, we concluded the sale of Be-Mobile, keeping us well on track to realize the EUR 600 million asset sales program. Based on the results and current projections, we've updated our outlook, which I'll discuss shortly. Moving to our key financial results now. For the Domestic segment, we closed the third quarter with stable services revenues. Thanks to a favorable revenue mix, driving higher margins and costs turning stable year-on-year, we closed Q3 with a domestic EBITDA growing 1.8%. For the Global segment, the direct margin was down by 12.2% at constant currency, caused by the headwinds previously mentioned. This resulted in an EBITDA decline of 22.3% despite cost synergy realizations. This brings our group EBITDA to EUR 475 million for the third quarter, a decline by 1%. Our CapEx for the first 9 months was EUR 826 million. And the free cash flow, we ended the first 9 months with EUR 428 million in total. Excluding the proceeds from asset sales, our organic free cash flow was EUR 159 million, a strong improvement year-on-year. Let's have a look now at the operational results. Despite the intense competition, the operational performance was very strong with mobile postpaid adding 45,000 cards and our Internet subscriber base growing by 12,000 lines. Our convergent base continued its steady growth, adding 12,000 residential customers in the third quarter. The solid commercial performance was supported by the portfolio changes of the Proximus brands, attractive mobile joint offers and the ongoing convergence strategy. We also continued focusing on innovation and optimizing the customer journey as we launched our new features to help customers onboard via eSIM. Regarding the B2B unit, which closely aligns with my professional background, Proximus holds a robust position in the market today, and we are developing strategies to capture growth opportunities. I'm committed to shape Proximus B2B future and to drive growth, leveraging the strong network assets of Proximus while exploring new layers of innovation. Our focus is on sovereignty and next-generation AI opportunities. To make this happen, we will be collaborating with leading technology partners to validate impactful use cases. We will elaborate on this during the Capital Markets Day in February. As previously mentioned, the high-quality network is an essential contributor to the success of Proximus. Across Belgium, we have now a total of almost 2.5 million fiber homes, meaning a population coverage of over 41% and including fiber in the Street, we are at 47% coverage. The fiber network filling rate progressed to 33%, up from 30% 1 year back. At the end of September, the base of active fiber customers totaled 684,000, including 39,000 added over the third quarter. We are pleased with the announcement of the Belgium regulators on the start of a market test assessing our proposed gigabit network collaboration between wire, Telenet and Proximus in France. The market test will conclude on Friday, November 21. At the same time, fiber negotiations in the South are ongoing. As a last point on the domestic side, I would like to highlight the progress made on the disposal program of noncore assets. As was announced at closing, the sale of Be-Mobile was completed early October and leaves us very much on track for the EUR 600 million ambition that we have set for the end of '27. Turning to the full year guidance. For domestic, we reiterate our outlook given end of July with domestic EBITDA expected to grow up to 2%. This despite the impact of the Be-Mobile divestment and not having renewed the football broadcasting contract with DAZN. Taking into account the ongoing headwinds regarding the Proximus Global segment, we expect the EBITDA of Global to be lower year-on-year by around minus 10%. We have lowered this year's guidance for accrued CapEx to approximately EUR 1.250 billion. This is because the integration of Fiberklaar is leading to more effective and efficient fiber rollout some lower project-related CapEx and less investment needs for Global. This, combined with not having renewed the Belgian football contract leads to organic free cash flow expected to land to around EUR 100 million. And finally, the projected 2025 net debt-to-EBITDA ratio improved to around 2.8. We also confirm our intention to return an interim dividend of EUR 0.30 per share payable on December 5, post final approval of the Board scheduled later this month. For Global specifically, we have reassessed our growth projections for the coming year. While new growth initiatives have been launched and cost synergy delivery is progressing, high exposure to the legacy P2P voice and messaging and as well as SMS CPaaS is expected to continue having a significant impact. Therefore, the '26 Global ambition is being adjusted. The preliminary review for 2026 indicates Proximus Global EBITDA will be in the range of EUR 100 million to EUR 130 million. In collaboration with Seckin Arikan, the new global CEO, a strategic plan is being developed with the objective of resuming growth from 2027 onwards. An update on the plan for Proximus Global will be provided at the Capital Markets Day. I hand over to Mark now for the detailed financial results. Mark Reid: Thank you, Stijn. Let me start by taking you through the financial sections of the domestic business. Starting with our domestic revenue, as illustrated on the chart, services revenue grew slightly. And when including revenue from Terminals and IT hardware, the total revenue remained broadly stable year-over-year. The third quarter growth was mainly driven by continued increase in the Services revenue of the residential unit. This -- thanks to the January 2025 price indexation and ongoing convergent customer growth. Revenue from Terminals was only slightly lower year-on-year in contrast to the previous 2 quarters. The most valuable part of the residential revenue, customer services revenue is growing by 1.8% with convergent revenue up by 4.5 percentage points year-on-year. The ARPC continued to show a positive evolution, growing 1.2%, including the price indexation effect and the benefit of a continued increase in convergent customers and fiber upselling. Turning to the business unit. The B2B, the total revenue declined by negative 0.8%, essentially due to a decrease in service revenue of 1.1%, which resulted from the continued headwinds in fixed voice and moderate decline in mobile services. The decrease is partially offset by a 1.5 percentage increase in products revenue. Taking a closer look at the B2B revenue from services, the third quarter included higher revenue from IT services growing 2.8% year-over-year, driven by growth in recurring services. Fixed data revenue recorded a limited decrease of negative 0.9% year-over-year. This resulted from the decline in traditional data connectivity services, nearly offset by continued strong revenue growth from Internet services. Despite the competitive intensity, the B2B unit maintains a solid mobile base and sees the mobile revenue decline sequentially stabilizing to 2.1% negative year-over-year. Fixed voice continued its steady decline due to a lower customer base, while value managed through price increases resulted in a sustained positive ARPU trend. The wholesale business posted a revenue decline of 11.8% due to the ongoing innovation of Interconnect revenue with no margin impact and a decline in Wholesale services revenue by 4.6% from an exceptionally high comparable base from revenue in the prior year. Moving to Domestic OpEx, which, as you can see, illustrated on the graph, continued its favorable trend and for the first time since several quarters, ended the quarter stable on a year-over-year basis. For the third quarter, inflationary and other cost increases were fully offset by our cost efficiency program. With OpEx stable and direct margin growth, the domestic EBITDA rose by 1.8% in the third quarter. Turning now to Proximus Global, for which we closed the third quarter with direct margin down 12.2% on a constant currency basis. The product group communications and data was impacted by the ongoing decline in the CPaaS SMS market, especially in the onetime password domain. Moreover, the margin from P2P voice messaging was down, reflecting structural trends in the legacy market. Whereas synergy delivery for Go-to-Market is delayed, we have realized cost synergies successfully, improving the OpEx for Global by 8.4%, again on a year-over-year basis. This could only partially offset the pressure on direct margin and led to a decrease in EBITDA for the Global segment by 22.3% on a constant currency basis. Turning to Group CapEx, we closed the first 9 months of the year with EUR 826 million compared to the same period last year. CapEx was lower mainly due to reduced customer-related CapEx as a result of, among other things, higher refurbishment rates, increased self-installation rates and improvements in operational processes. Fiber-related expenditures were slightly up with the rollout in dense areas coming down, while Fiberklaar continued expansion in the mid-dense areas. This brings me to the free cash flow for the first 9 months of the year. As illustrated on the graph, the organic free cash flow for the first 9 months of 2025 was EUR 159 million, strongly improving from 1 year back, thanks to lower cash CapEx and growing EBITDA. Our reported free cash flow of EUR 428 million includes the net proceeds from the sales of our data center business and the Luxembourg Mobile Towers. I'll now turn over to Stijn for the conclusion. Stijn Bijnens: Thanks, Mark. Just five things to conclude. Being just over 2 months in the company, it's clear for me that we have a strongly performing domestic segment, especially the residential unit is in very good shape, considering the changed market structure. Proximus maintains a solid B2B position, but there's still growth potential, and we are developing strategies to capture it. Secondly, Proximus has incredibly well-performing networks and the expanding fiber network provides Proximus a strong head start. Thirdly, we've been successful in realizing CapEx efficiencies for this year, which is supportive for an improved estimated for the Group organic free cash flow. Fourth, in contrast to the successes domestically, it is clear we have challenges with the global segment and with ongoing pressures anticipated, we have reset as a result, our targets for 2026. And as a final point, we will present our new strategic cycle for the Proximus Group together with the full year results on February 27. I'm sure you understand that given this context, I'm unable to share insights regarding the strategy at this time. However, we welcome any other questions you might have and are pleased to address them now. Operator: [Operator Instructions] Our first question is from Ganesha Nagesha from Barclays. Ganesha Nagesha: A couple of questions from my side. The first one on the global division. So following the recent downward revision to the global segment EBITDA guidance, so could you share like what factors give you confidence in the stability of this outlook going forward? And could you also provide some color on what specific integration challenges that still remain, which impacting the realization of the expected margin synergies? And my second question on the CapEx guidance. So your CapEx guidance for the current year implies like EUR 50 million savings achieved in the current year. You earlier indicated that the CapEx would remain stable around EUR 1.3 billion over '25 to '27. So do you still see a potential for further savings in '26, '27 as well? Or is this just one-off CapEx savings in the 2025? Stijn Bijnens: Well, thank you for the question. I'll take the first one and give the CapEx question to Mark. About Global, as an initial outcome for a broader planning process, we have done a new estimate for 2026. That has been a bottom-up exercise on a product line basis. So there are product lines that grow, as you know, and other product lines that declined. And in absolute terms, the growing business lines are still smaller than the declining business lines. So at the moment, we think and believe in 2027, there will be an inflection point of that the current smaller business lines that are growing offset the decline. So the business lines that are declining are A2P SMS, B2B voice, and it's offset by business lines that grow like cloud, omnichannel, IoT, travel SIM and digital identity. So we've done that exercise, and that's currently the best estimate we have on the business. Mark Reid: Ganesha, thank you for your question. And on 2025, look, we're pleased with the ability to have kind of taken those CapEx savings and the effect that had on our '25 free cash flow. I think as you -- as Stijn said in the presentation, we're all in the process of co-creating our strategy, and then we'll come back at the Capital Markets Day with the future outlook on CapEx. So I think unfortunately, we have to answer that today. Stijn, do you want to add to that? Stijn Bijnens: Yes. The second part of the first question, on integration issues, it's at different levels, so we had some churn of executive leadership. We strongly believe we have a strong CEO now who comes from the CPaaS market, Seckin. He knows the business. So integration issues are on the one hand in the Go-to-Market, and we're fixing that. Also in the product portfolio, we do understand the challenges are actively improving the operations and the operating model to handle these challenges. Operator: We will now take our next question from Paul Sidney from Berenberg. Paul Sidney: I also had two, please. Just firstly, on Global, you've chosen to give the Global guidance for full year '26 today. Should we view this decision as in your intention to set a floor for Global profitability ahead of the February strategic update as you sort of think about how the business looks beyond 2026? And then secondly, on domestic and Digi appears to be having a little impact in the Belgian mobile market even at the extremely low price points that they've come in at. What are you seeing in the market in terms of Digi maybe revamping their offers or doing something different? And do you expect the other operators also to do anything different going forward? Mark Reid: Paul, thank you for the question. On Global for 2026, clearly, we've done an estimate. We were conscious of the market consensus was higher than what we disclosed today. And therefore, with Stijn and Seckin arriving, we accelerated that kind of bottom-up planning process for that period of '26 and the start of '27. And so that's our estimation, and we're confident with it. It is a fairly wide range at this point, but that's what we wanted to inform the market today. So that's how we thought about updating that specific number. Jim, do you want to take the question? Jim Casteele: Yes. So indeed, on Digi, they're in the market with quite aggressive offers. For the moment, I would say that the visibility on their market campaigns is rather limited. That said, the Belgium market since the arrival of Digi has been very competitive with the B brands of the competitors also being active with assertive promotions. So in that sense, I'm really happy to see that our multi-brand strategy with Mobile Viking, Scarlet and Proximus addressing the different price points in the market is delivering on our strategy, not only allowing us to realize again very strong commercial results, but at the same time, also keeping value in the way that we do that, as you have seen in the further growth of our service revenues. Paul Sidney: Mark, can I just have a quick follow-up. In terms of when you say growth, returning to growth within Global in 2027, just to clarify, is that revenue, EBITDA, free cash flow or all of the above? Jim Casteele: It's at the level of EBITDA. Operator: We will now move to our next question from Roshan Ranjit from Deutsche Bank. Roshan Ranjit: I've got two questions, please. Maybe just touching on the domestic point. Stijn, you mentioned the good performance that you've had and if we look at the KPIs, coupled with the fact that you announced a price increase for ’26, how should we think about kind of the future evolution of your product revamp, sorry? You've been quite successful over the last, I guess, 2 years on those campaigns. What made you kind of choose the products where you have allocated those price increases to? Is that a case of trying to migrate customers away from the legacy products? Or are you still kind of running with those multi-brand options within the Proximus bundle, so the different packs within Proximus. And as an aside, you've got the Scarlet and Mobile Vikings, as you said? And secondly, we're obviously getting to the end now of the collaboration -- finalization of collaboration in Flanders. Has that given you more confidence or any insights on how the discussions with Orange Belgium in Wallonia is going as well, please? Anything you could say there, very helpful. Jim Casteele: So thank you for the question. So I will start with the price increase. So indeed, we continue to do price increases also in January next year. The way we do that is, on the one hand, trying to understand where are the products where price sensitivity is a bit lower. Next to that, of course, we recently launched our Flex+ new convergent offer in April. And then, of course, when you launch a new offer, you put it at a price point that you think is going to last for a longer period in time. So it's obvious that those tariff plans are not part of a price increase 8 months after launch. I would say, at the same time, what we do is when we do price increases, we also try to do a more-for-more approach, not necessarily always at the same time, but definitely in a short period before or after, depending on market conditions, of course. And so that's how we've been able to manage our price increases over time while keeping our customers satisfied. Of course, also always looking at the level of inflation as a sort of reference point for those price increases. It's true that we also look at management of the back prices and trying to see if we can leverage price evolutions to move people from older products to newer products, which helps them to simplify your IT systems, but also operationally makes life easier for our salespeople. And then in terms of future portfolio evolutions, as always, we look at the market to make sure that we stay competitive. As I mentioned also in my previous answer, we do this from a very value-based perspective. So if you see, for instance, October 1, we updated the midrange of the Proximus mobile offer because by doing that, we also anticipate that we can create additional value for the company. And we always look at how the 3 brands are positioned in terms of segments and price points. So that's a bit the pricing strategy that we've been executing on over the last years. And I'm happy to hear that you think this has been successful. So thank you for that. Stijn Bijnens: About your second question about the fiber rollout in Belgium. So the North and the South. In the North, in a few weeks, we will have the outcome of the market test. We're confident in that and that once the black box gets open, we can make a detailed CapEx plan and rollout. In the South, it's kind of 3 months behind that cycle. It's the same cycle where we need to go through. We first need to finalize the agreement with Orange and then go to the market authorities to do that. But we're fully confident that all these deals are on track at the moment with the different timings that I just mentioned. Operator: We'll now move to our next question from Kris Kippers from Degroof Petercam. Kris Kippers: Firstly, just going back to Global again. I haven't heard the mentioning of the EUR 100 million improvement in synergies that initially was communicated. Is that a number that could alter now that the scale has changed? Or what should we see in that? And then secondly, classical one perhaps, but I'm quite pleased to see indeed that also on the domestic side, the workforce expenses have been declining. Is this something we should continue -- keep continuing in the quarters ahead? How -- could you guide us a bit more on the reduction in FTEs? Mark Reid: Thanks for the question on Global. So first of all, on Global, I think, again, you've seen from our disclosure today, we -- the operating costs continue to kind of deliver probably a bit ahead of plan. So in terms of our operating cost synergies and our direct COG synergies there kind of as we've said before, I think the cross-sell, upsell synergies that are Go-to-Market related are really alluded to in terms of our integration phasing and that taking a bit longer. Look, I think we'll come back in the Capital Markets Day and allude to that as Seckin kind of gets the grip with what the phasing of that looks like. So I think that's where we are today. But as I said, we're very pleased with the cost synergies there fully on track. The Go-to-Market ones will come as part of the strategy update when we get there. Stijn Bijnens: Regarding the second question on workforce. So we're very pleased about this quarter that OpEx stays flat. We have a strategic workforce planning and management is executing well on that plan. We're currently reviewing things, and I'll come back on that in -- on the Capital Markets Day once we have our strategy crystallized and then we will also give more guidance on that part of our business. Kris Kippers: Okay. And then if I just may, just a small follow-up regarding the fiber communication. When the market test would be finished on November 21, do you intend to communicate direct to the market at that day? Or what is the -- what should be the time frame for that? And regarding when, do you provide an update as well? Stijn Bijnens: So when the market test ends on November 21, it's actually the competition authority that has to assess it and analyze it, and they will come with a communication. Once that's done, we can move forward. So it's in their hands regarding communication. And it will be the same process in the South as it are the same people at the authority level. Operator: [Operator Instructions] Our next question is from Michiel Declercq from KBC Securities. Michiel Declercq: My first one would be on the Global business. So you mentioned that, of course, we have the SMS part that is declining and then I assume the OTT and Digital Identity is growing. Can you maybe remind us what the split of revenue is here or in terms of profitability, given that you mentioned an inflection point in 2027? And as a follow-up on this, of course, the non-SMS business is growing. Can you maybe elaborate a bit on how this compares to competition? Because I see that competitors are also growing. But in terms of market share, are you improving here? Or are you losing customers? And then the second one is maybe for Spain specifically. You recently joined, of course, from Cegeka, an IT group, of course. But what experience can you bring? And in the beginning, you also elaborated a bit on the opportunities that you see within the B2B. Can you maybe explain a bit what opportunities there are here for to unlock? Mark Reid: Michiel, thank you for that. So I think if you look at our disclosures, you kind of see a little bit about our kind of split of the overall direct margin revenue split between B2B is kind of our legacy voice and messaging business and then CPaaS and data, which is effectively a mixture of traditional CPaaS A2P, omnichannel where you can think of kind of RCS, WhatsApp, Viber, e-mail type products and then Digital Identity, which is more kind of our fraud prevention products. We don't disclose the mix of that. But clearly, the A2P SMS part of that business is the majority. And as we said, the element that we've been exposed to is we do a lot of international OTP traffic there. The rate of change of that business towards omnichannel was a little quicker than we expected but Proximus Global was always set up to manage that transition. But clearly, the 2 parts of the business are different scales, but we are seeing growth in the omnichannel part, the RCS, WhatsApp, Viber, e-mail part of the business. And so that is really -- as we start to look forward through the end of this year into this first part of '27, that's really where we see the inflection point of that part of the business starting to be contributed and return us to growth from an EBITDA perspective. I hope that helps. We don't disclose the exact detail. In terms of market share, again, we don't talk about the specific market shares. Clearly, at the moment, in the last couple of quarters, it's been a difficult market for us there. But again, as we effectively get these integration problems behind us and the products and Go-to-Market, we clearly believe that we will have a competitive advantage given the structure of Proximus Global, our cost base and our product portfolio to Go-to-Market and be successful in capturing that growth going forward. Stijn, do you want to take that? Stijn Bijnens: Yes, we should. Regarding the second question, Proximus today is a market leader in B2B at the connectivity level. Of course, we intend to stay that, and it's also due to our strong footprint and network superiority. But there are additional services to be offered that Proximus is currently doing, but I do think there is an opportunity to grow further in everything that has to do in cybersecurity, cloud. I strongly believe in hybrid cloud. So a combination of strong partnerships with the hyperscalers, but also having our own sovereign cloud solution, there is an increased interest. And I think Proximus is in a superior position in Belgium to capture the part -- the growth in hybrid cloud. Also, AI will go towards the edge. You see a lot of announcements, if you look at NVIDIA and Nokia. So we kind of own the edge real estate in Belgium from a telco perspective. So we see many opportunities. It will take time to capture those opportunities, of course. But I do think we have the team and we will build the organization to unlock that value that we really leverage our telco infrastructure in those new pockets of growth. Operator: There are no further questions. So I'll hand back to your host to conclude today's conference. Nancy Goossens: Thank you for joining us today, and thank you for your questions. As always, should there be any follow-ups, you can address those to the Investor Relations team. Bye. Operator: Thank you for joining today's call. You may now disconnect.
Operator: Good afternoon, and thank you for participating on today's third quarter 2025 earnings conference call and webcast for Barfresh Group. Joining us today is Barfresh Food Group's Founder and CEO, Riccardo Delle Coste; and Barfresh Food Group's CFO, Lisa Roger. Following our prepared remarks, we will open the call for your questions. The discussion today will include forward-looking statements. Except for historical information herein, matters set forth on this call are forward-looking within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements about the company's commercial progress, success of its strategic relationships and projections of future financial performance. These forward-looking statements are identified by the use of words such as grow, expand, anticipate, intend, estimate, believe, expect, plan, should, hypothetical, potential, forecast and project, continue, could, may, predict and will and variations of such words and similar expressions are intended to identify such forward-looking statements. All statements other than the statements of historical fact that address activities, events or developments that the company believes or anticipates will or may occur in the future are forward-looking statements. These statements are based on certain assumptions made based on experience, expected future developments and other factors that the company believes are appropriate under the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the company. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Accordingly, investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. The contents of this call should be considered in conjunction with the company's recent filings with the Securities and Exchange Commission, including its annual report on Form 10-K and in the quarterly reports on Form 10-Q and current reports on Form 8-K, including risk factors and cautionary statements contained therein. Furthermore, the company expressly disclaims any current intention to update publicly any forward-looking statements after this call, whether as a result of new information, future events, changes in assumptions or otherwise. In order to aid in the understanding of the company's business performance, the company is also presenting certain non-GAAP measures, including adjusted gross profit, EBITDA, adjusted EBITDA, which are reconciled in tables in the business update release to the most comparable GAAP measures and certain calculations based on its results, including gross margin and adjusted gross margin. The reconciling items are nonoperational or noncash costs, including stock compensation and other nonrecurring costs, such as those associated with the product withdrawal, the related dispute and certain manufacturing relocation costs and acquisition-related expenses. Management believes that adjusted gross profit, EBITDA and adjusted EBITDA provide useful information to the investor because they are directly reflective of the performance of the company. Now I will turn the call over to the CEO of Barfresh Food Group, Mr. Riccardo Delle Coste. Please go ahead, sir. Riccardo Delle Coste: Good afternoon, everyone, and thank you for joining us for our third quarter 2025 earnings call. I'm extremely pleased to report that the third quarter marked a transformational period for Barfresh as we delivered our highest quarterly revenue in the company history, positive adjusted EBITDA and completed a strategic acquisition that fundamentally enhances our business model and long-term growth trajectory. Before I discuss our quarterly results, I want to highlight a pivotal development that occurred immediately following the quarter. the completion of our acquisition of Arps Dairy in early October. This acquisition fundamentally changes our business model, providing us with own manufacturing capabilities that will drive top line growth. Arps Dairy brings us an operational 15,000 square foot processing facility along with a 44,000 square foot state-of-the-art manufacturing facility in Defiance, Ohio, that is nearing completion and expected to be fully operational in 2026. We have already commenced production at the existing facility, and I'm pleased to report that the integration is proceeding smoothly with immediate benefits from enhanced supply chain control and operational efficiency. Now turning to our third quarter results. Revenue for the third quarter was $4.2 million, representing 16% year-over-year growth. This record performance was driven by several factors: improved production consistency from our co-manufacturing partners, a successful start of the '25-'26 school year with expanded distribution and continued momentum with our Pop & Go 100% Juice Freeze Pops in the lunch daypart. We achieved this even though we faced additional manufacturing challenges and start-up issues for our Juice Freeze Pops at one of our co-packers. The manufacturing capacity issues that constrained our first half performance are expected to be fully resolved by the end of the fourth quarter. Our 2 smoothie bottle co-manufacturing partners are now operating with improved consistency and the inventory we built over the summer enabled us to service customer demand throughout the critical back-to-school period. We are in the process of bringing back customers who had temporarily removed our products due to spring supply constraints, with many reintroductions occurring in the fourth quarter. The 2025-2026 school year bidding process has concluded with positive results. We've seen strong uptake across our existing Twist & Go portfolio, and our Pop & Go 100% Juice Freeze Pops have gained meaningful traction with several large school districts, and we expect to add additional schools during the fourth quarter. The Pop & Go product specifically addresses the lunch daypart, a significantly larger market opportunity than breakfast and early adoption rates are encouraging. We remain at only approximately 5% market penetration in the education channel overall, which continues to represent substantial runway for growth. Most significantly, I'm pleased to report that we achieved positive adjusted EBITDA in the third quarter, a major milestone that demonstrates the operational momentum we're building and validates our path to profitability. With the operational improvements we achieved in the first half of this year, combined with the transformational Arps Dairy acquisition, we raised our fiscal year 2025 revenue guidance back in September to a range of $14.5 million to $15.5 million, representing a 36% to 46% year-over-year growth. More significantly, we issued preliminary fiscal year 2026 revenue guidance of $30 million to $35 million, representing a 126% increase compared to the high end of our fiscal year 2025 guidance. This substantial growth reflects the full year contribution from Arps Dairy, continued market penetration in the education channel and the expansion of our Pop & Go product line. I'll now turn the call over to our CFO, Lisa Roger, for a detailed financial review. Lisa Roger: Thank you, Riccardo. Let me walk you through our third quarter financial results in detail. Revenue for the third quarter of 2025 increased to $4.2 million, representing our highest quarterly revenue in company history and 16% year-over-year growth. This record performance was driven by the consistent production capabilities we established through our co-manufacturing partnerships, enabling us to meet increased customer demand during the critical back-to-school period. Our operational improvements are reflected in our margin performance. Gross margin for the third quarter of 2025 improved to 37% compared to 31% in the first half of 2025. The improvement reflects better operational efficiency as our co-manufacturers reached full capability and more favorable product mix with higher-margin products representing a larger portion of sales and reflects a return in performance to the adjusted gross margin of 38% achieved in the third quarter of 2024. Looking forward, our recent Arps Dairy acquisition will create some near-term margin dynamics. We're transitioning Barfresh production to the new facility to capture long-term operational efficiencies and scale benefits, which will involve typical start-up and implementation costs that will temporarily impact Barfresh margins. Additionally, we're continuing Arps Dairy's existing milk processing business, which operate at different margin profiles than our core business, but provides stable cash flow and diversification. These are strategic investments in our long-term growth. We expect margin recovery once the Barfresh transition is complete and we fully optimize our expanded manufacturing capabilities. Operating expenses remained well controlled as we scaled revenue. Selling, marketing and distribution expenses were $941,000 or 22% of revenue compared to $990,000 or 27% of revenue in the third quarter of 2024. G&A expenses for the third quarter of 2025 were $844,000 compared to $705,000 in the same period last year. The year-over-year increase was primarily due to $214,000 in acquisition-related expenses associated with the Arps Dairy transaction. Excluding these onetime costs, G&A would have been down 11% year-over-year. Net loss for the third quarter of 2025 improved to $290,000 compared to a net loss of $513,000 in the third quarter of 2024. The improvement was driven by increase in revenue and gross margin, partially offset by acquisition-related expenses. Adjusted EBITDA for the third quarter was a gain of approximately $153,000, representing substantial improvement from the prior year period loss of approximately $124,000 and demonstrating the operational momentum we're building. We expect to achieve positive adjusted EBITDA in fiscal year 2026 as we realize the full benefits of our integrated manufacturing model. Turning to our balance sheet. As of September 30, 2025, we had approximately $4.4 million of cash and accounts receivable and approximately $1.1 million of inventory on our balance sheet. The Arps Dairy acquisition was funded through our existing credit facility, and we continue to manage our liquidity through various measures, including receivables financing and our credit facilities. With the completion of the Arps Dairy acquisition, we have significantly enhanced our balance sheet with valuable manufacturing assets, including an operational 15,000 square foot processing facility and a 44,000 square foot state-of-the-art manufacturing facility that will be completed in 2026. Additionally, the $2.3 million government grant that has been preliminarily approved for Arps Dairy will support the construction and equipment needs for the expanded facility. Now I will turn the call back to Riccardo for closing remarks. Riccardo Delle Coste: Thank you, Lisa. The third quarter of 2025 marks an inflection point for Barfresh. We have not only delivered record financial performance and achieved positive adjusted EBITDA, but we have also positioned the company for unprecedented growth through our strategic acquisition of Arps Dairy. The Arps Dairy acquisition provides us with several strategic advantages, direct control over a significant portion of our production capacity, enhanced operational efficiency, flexibility to innovate and scale new products more rapidly and reduce dependency on third-party co-manufacturers, which has been a source of operational challenges and revenue limitations. As we look ahead, we have multiple drivers of growth, our own manufacturing capabilities through Arps Dairy, expanded capacity reaching significant scale with our new facility and continued growth in our core education channel. The integrated manufacturing model we are building through Arps Dairy will enable us to pursue opportunities with improved economics and operational control. The guidance we've reiterated today of $14.5 million to $15.5 million for fiscal year 2025 and $30 million to $35 million for fiscal year 2026 reflects the transformational nature of our strategic initiatives and our confidence in executing our growth plan. More importantly, we expect the Arps Dairy acquisition to be accretive to earnings in fiscal year 2026, positioning us to deliver top line growth and bottom line profitability as we scale. We are building a scalable, profitable business model that positions us to capitalize on significant market opportunities while delivering sustainable long-term value creation for our shareholders. The operational improvements we've achieved, combined with the successful integration now underway with Arps Dairy position Barfresh for a breakthrough period of growth and profitability. We look forward to updating you all on our progress as we close out fiscal year 2025 and enter what we expect to be an exceptional growth year in fiscal year 2026. And with that, I would like to open up the line for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Nicholas Sherwood with Maxim. Nicholas Sherwood: My first question is, what have you been doing to build trust with some of those schools that you had to pull product from or you weren't able to deliver product to last school year and that you're reintroducing your products to this fourth quarter? Riccardo Delle Coste: Yes. So we've been staying in close contact with our customers and really communicating where things are at. That's the benefit of being able to have a broad broker network and our own sales team and the ability to let them know that we've just gone into our own manufacturing facilities and just building the relationships really to make them aware that we have got product coming down the pipe. And that's really why we've been going back out to them and letting them know now that we've got manufacturing coming on board, they can start putting us back on their menus, and we've got a lot of that happening now in Q4 and more so even into Q1 of next year. Nicholas Sherwood: Okay. So when you talk about the Q4 to Q1 switchover, so is it almost like a pilot trial in this fourth quarter and then you'll probably properly kind of be reentering the school districts in the first quarter with like full steam ahead? Riccardo Delle Coste: You mean in terms of the customer sales process or in terms of the production at the new facility? Nicholas Sherwood: Yes, sales to the schools. Riccardo Delle Coste: Yes. I mean when we go back to the schools and they put us back on the menu, the sales go back immediately. We don't need to retrial the product. So it's more just about communicating when we have product available and then putting it back on the menu. There's no need for trials to start over again. The sales process doesn't start over again. It's more just about them placing the orders and it goes back on the menu and the sales basically start immediately from when they place the orders. Nicholas Sherwood: Okay. Understood. And then talking about those manufacturing facilities, can you give some detail on your CapEx expectations as you retrofit those facilities for your products? And just kind of like what that entails and how long you expect that to take? Riccardo Delle Coste: Yes. So we're working through that now. We have a -- we've already been approved for -- preliminarily approved for a $2.3 million government grant. So we expect that to go towards the remainder of the fit-out for the construction of the new facility. We also have the existing facility that is operational where we're making product. Nicholas Sherwood: Okay. So there wasn't any major -- like there wasn't any equipment that was needed to change their equipment, like any parts to change your stuff, okay? Riccardo Delle Coste: Yes, there's a complete operational facility already in place. The plan is to move into the new facility out of the old facility. So a lot of the equipment would be going over. And if we need some new pieces to be upgraded as we move into the new facility, we'll address those at the time, and we may look at how we finance those at that point in time. Operator: [Operator Instructions] There appears to be no further questions. This now concludes the question-and-answer session. 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 morning. My name is Joanna, and I will be your conference operator today. I would like to welcome you to Canopy Growth's Second Quarter Fiscal 2026 Financial Results Conference Call. [Operator Instructions] I will now turn the call over to Tyler Burns, Director, Investor Relations. Tyler, you may begin the conference call. Tyler Burns: Good morning, and thank you for joining us. On our call today, we have Canopy Growth's Chief Executive Officer, Luc Mongeau; and Chief Financial Officer, Tom Stewart. Before financial markets opened today, Canopy Growth issued a news release announcing the financial results for our second quarter fiscal 2026 ended September 30, 2025. The news release and financial statements have been filed on EDGAR and SEDAR and will be available on our website under the Investors tab. Before we begin, I would like to remind you that our discussion during the call will include forward-looking statements that are based on management's current views and assumptions and that this discussion is qualified in its entirety by the cautionary note regarding forward-looking statements included at the end of the news release issued today. Please review today's earnings release and Canopy's reports filed with the SEC and SEDAR for various factors that could cause actual results to differ materially from projections. In addition, reconciliations between any non-GAAP measures to their closest reported and GAAP measures are included in our earnings release. Please note that all financial information is provided in Canadian dollars unless otherwise stated. Following remarks by Luc and Tom, we will conduct a question-and-answer session where we will take questions from analysts. With that, I'll turn the call over to Luc. Luc Mongeau: Good morning, everyone, and thank you for joining us today. It's great to be with you again to share the continued progress we're making in building a competitive, profitable and trusted leader in the global cannabis market. The second quarter was one of our strongest to date, reflecting real measurable progress driven by our continued disciplined focus on fundamentals. Q2 highlights included continued momentum in our Canadian adult-use cannabis business, consistent growth in our Canadian medical cannabis business and a stronger and significantly healthier balance sheet. Together, these actions give me confidence in our ability to sustain progress and deliver results for quarters to come. Turning to our Canadian adult-use cannabis business. Net revenue increased 30% year-over-year in Q2, driven by demand for our Claybourne infused pre-rolls and our new All-In-One vapes from Tweed and 7ACRES. Stronger relationships with Canadian boards, large accounts and independent retailers drove continued distribution gains, including a 20% year-over-year distribution increase amongst Alberta independent retailers. We also improved our service levels with on-time, in-full rates across key accounts, reinforcing our reliability with retail partners. For the 6 months period ending September 30, 2025, revenue is up 37% compared to the same period last year. This growth reflects the renewed momentum of our adult-use cannabis business following the actions taken earlier this year to tighten our product portfolio, streamline execution with boards and retailers and refine our sales model. Looking ahead, we're building on this momentum with additional Claybourne innovation, new genetics across our core flower portfolio and PRJ brands and plans to reach a broader group of consumers later this year. We're also elevating our cultivation standards, including manual and refined post-ARBT processes to deliver superior flower, ensuring consumers experience the very best of what Canopy has to offer. In our Canadian medical cannabis business, net revenue grew 17% year-over-year, marking another consecutive quarter of growth. We're staying true to our medical strategy, offering the right products at the right price, consistently in stock and for the right patient segments. During the quarter, our BC Georgia site became an exclusive medical cultivation facility, producing craft and small batch cannabis dedicated to Spectrum patients. DOJA is also exclusively end bucking and hand trimming all product, which is a deliberate investment to drive quality and consistency in the Spectrum patient experience. We're also seeing continued growth among insured patients with registration up 20% year-over-year and almost tripling since 2021. This continued growth speaks to the reliability and care within our medical business. Looking ahead, delivering a superior patient experience remains central to how we will continue growing this business despite proposed government changes to medical reimbursement. In international markets, frankly, I'm disappointed with our performance during the quarter, where net revenues declined $3 million. Performance in Europe was primarily the result of supply constraint and internal process challenges. Flower sourced from sales in Europe did not meet required quality standards and internal process gaps limited our ability to deliver supply to Germany from our Canadian GMP facilities. I want to be clear, Canopy Growth is fully committed to the European market. We have already mobilized a dedicated effort to improve supply chain execution, which includes daily management oversight of logistics, product road maps and licensing. We expect operations to stabilize and begin improving as we exit the fiscal year with international markets remaining a key part of our path to profitability. At Storz & Bickel, the launch of the new VEAZY Vaporizer was received with great enthusiasm by consumers globally and generated early sales momentum, helping contribute to sequential quarter-over-quarter revenue growth. While the VEAZY only contributed to 3 weeks of performance during the quarter, we're seeing positive signals into Q3 and together with holiday seasonality, expect continued growth through the remainder of the year. Looking ahead, I'm encouraged by the momentum at Storz & Bickel. The team's commitment to precision engineering, medical grade quality and design excellence continues to set the brand apart, and that's what will drive performance in the long run. On operating expenses, our SG&A savings program launched earlier this fiscal has delivered over $21 million in annualized savings, surpassing our $20 million target ahead of schedule. As we build a culture of fiscal responsibility, the team continues to identify additional savings opportunities while delivering top line growth. On profitability, we made strong progress this quarter with margin expansion and disciplined cost management that's moving us closer to positive adjusted EBITDA. We're also taking further steps to meaningfully lower our cost of goods sold through streamlining processes, smart investment to deliver improved yield and quality as well as tighter supplier management. Before I close, I'd like to touch on the Canadian federal government's recent proposal to reduce reimbursement for veterans who use prescribed medical cannabis. These proposed changes have the potential to seriously impact access and quality of the care and services that veterans have come to rely on. As one of Canada's leading medical cannabis providers, we believe consistency and fairness in access to care is critical. We're continuing to assess the proposed changes and are engaging across the country to ensure the needs of patients remain front and center. In closing, Q2 demonstrated continued progress across our core businesses, including positive momentum in our Canadian medical and adult-use businesses and expanded product lineup at Storz & Bickel and a clear action plan underway to improve execution in our international markets to drive future success. As we further sharpen our focus on quality, patient and consumer experiences and disciplined execution, I'm confident we have the right strategy, focus and team to become a trusted global provider of elevated cannabis experiences. Thank you. I will now turn the call over to Tom to walk through the financial results in more detail. Thomas Stewart: Thank you, Luc, and good morning, everyone. I am proud of our disciplined execution, including stronger financial performance, rigorous cost-saving initiatives, a significantly deleveraged balance sheet and sustained cash flow improvements. Our adjusted EBITDA loss narrowed significantly year-over-year, driven by growth in the Canadian cannabis business, along with lower SG&A expenses and efficiency gains. As a result of the progress made, we have eliminated the conditions that once raised substantial doubt about the company's ability to continue as a going concern. This is a significant accomplishment for Canopy Growth. We had $298 million of cash and cash equivalents as of September 30, 2025, which exceeded debt balances by $70 million. During Q2, we prepaid USD 50 million on our senior secured term loan, capturing roughly USD 6.5 million in annualized interest savings. As a reminder, the company has no significant debt maturities prior to September 2027. Moving to our detailed segment results and starting with cannabis. Q2 cannabis net revenue was $51 million, up 12% compared to a year ago. This growth was led by the Canadian adult-use business, up 30% year-over-year, primarily driven by strong consumer demand for our Claybourne infused pre-rolls and our new Tweed All-In-One vape offerings. Canada Medical also continued to perform well, up 17% from the prior year, supported by growth in patient registrations, larger order volumes and a broader assortment of products on our Spectrum Therapeutics store. International cannabis sales underperformed during Q2, decreasing 39% from the prior year, which was driven by supply challenges. While we expect this decline in sales to improve in the back half of the year, we are proactively identifying opportunities to mitigate the near-term impact on revenue and preserve our focus on consolidated profitability. Cannabis gross margin in Q2 was 31%, down year-over-year, but up sequentially from 24% in Q1. The sequential improvement in cannabis gross margin primarily reflects the impact of price increases on select Canadian products, improved sales mix within Canada and improvements to flower and fulfillment costs. These improvements were partially offset by the previously discussed European underperformance and inventory provisions. I will now speak about the performance of our Storz & Bickel segment. Storz & Bickel net revenue in Q2 was $16 million, up 5% sequentially, driven by strong consumer demand for the new VEAZY vaporizer. Year-over-year, revenue declined 10% as the prior year period benefited from strong Venty and Mighty sales as well as strong performance on the back of favorable German regulatory reforms. Storz & Bickel gross margins increased to 38% in Q2 compared to 32% in the prior year period. Gross margins in the prior year were adversely impacted by discounts provided to clear out the remaining Mighty stock, which was retired in favor of the Mighty+ device. Moving on to operating expenses. SG&A expenses in Q2 declined 13% year-over-year, reflecting disciplined cost management and the benefits of our ongoing restructuring program. The decline in SG&A expenses year-over-year was primarily driven by reductions in headcount and professional fees, partially offset by higher investments in advertising and promotions made in support of new product launches that occurred during the quarter. Since launching our cost-saving initiatives in March, we have achieved $21 million in annualized savings, exceeding our initial $20 million target. We are continuing to identify and implement additional cost reductions to further improve our structure while ensuring no disruption to our core capabilities and ability to execute in key markets. Turning to adjusted EBITDA. Our Q2 loss was $3 million compared to a loss of $6 million a year ago. The year-over-year improvement was driven in part by the positive impact of our lower cost base and improved margins, partially offset by the negative impact of lower international cannabis revenues and inventory provisions. I'd like to now review our cash flow. Free cash flow was an outflow of $19 million in Q2 fiscal '26, down from an outflow of $56 million in the same period last year. The year-over-year decrease in free cash flow is primarily driven by a reduction in cash interest payments as a result of our debt paydowns as well as year-over-year improvements in working capital. For fiscal '26, we expect to achieve significant improvement in free cash flow, driven primarily by a reduction in cash interest costs due to lower debt balances, tighter management of working capital and improved financial performance. I'd like to now provide our outlook and priorities for the remainder of fiscal '26. In our cannabis business, we expect improved performance in our Canada adult-use channel over the remainder of fiscal '26, driven by a robust innovation pipeline of focused product formats and tight alignment with cannabis boards and retailers. We will continue to monitor developments around the Canadian federal government's proposed changes to the medical cannabis reimbursement program for veteran and RCMP patients. As more information becomes available and should the budget pass, we will assess its impact on our business and what our next steps may be. Excluding any impact of these potential changes, we would expect Canada medical cannabis top line to continue to grow in the back half of fiscal '26. In international markets cannabis, we are focused on stabilizing and realigning operations in Europe. For the remainder of fiscal '26, we expect revenue in the region to remain generally consistent with the second quarter levels with growth expected as we exit the fiscal year. In Australia, we anticipate that our recently launched flower products, along with upcoming new format introductions will support continued sequential growth in the second half of the fiscal year. For Storz & Bickel, we expect stronger performance over the remainder of fiscal '26, driven by the successful launch of the VEAZY at the end of our second quarter as well as strength coming from the holiday selling season. However, the year-over-year comparison comparisons are likely to be challenged due to the ongoing economic uncertainty that exists, particularly in the U.S. and the negative impact this is having on consumer sentiment. While U.S. tariffs have created pressure on Storz & Bickel's profitability, we remain focused on mitigating their impact through disciplined cost management and operational efficiencies. Turning to cannabis gross margins. Excluding the potential impact to Canadian medical reimbursement levels, we expect sequential improvement in cannabis gross margins over the remainder of fiscal '26, driven by top line growth and additional production efficiencies and cost savings. In our outlook for Storz & Bickel gross margins, we expect sequential improvement over the remainder of fiscal '26, driven primarily by top line growth and cost-saving initiatives. As we move into the second half of the year, our priorities remain firmly grounded in execution, efficiency and disciplined financial stewardship. The deliberate actions we have taken to improve our operations, launch exciting new products in core categories, strengthen the balance sheet and reduce costs have materially reinforced Canopy's foundation for long-term stability and growth. This concludes my prepared remarks. We will now take questions. Operator: [Operator Instructions] The first question comes from Bill Kirk at ROTH Capital Partners. William Kirk: Luc, you talked about the supply chain challenges impacting international. I know you mentioned quality standards. But what specifically do you have to change to reopen that pipeline? And is the solution going to be more costly than the prior product pass into the German market? Luc Mongeau: Thank you for the question. Let me just give you a bit more context on this. So I've been in the business with 9 months. We pretty much started the transformation on the organization on day 1. I'm thrilled overwhelmingly with everything that's happening in the business, and we see it in the results today. So we're driving growth in Canadian medical and adult-use business. Margin is improving sequentially. Cost control, we're well ahead of objective, of targets and chasing for more of supply chain, is improving. As I said, Europe, sadly, I'm disappointed, and I thought we would be ahead in the transformation. That being said, we're on it. We've moved to, as I mentioned, a daily management oversight of the situation. We're retooling the route to market end-to-end, and we're making significant progress. Let me get now to the specific of your question. So we're retooling to a place where we will be able to satisfy European demand for the foreseeable future from our Canadian GMP facilities. So Tom, please feel free to jump in while I'm done. But I do not see any increases in the cost of the flower that we will be providing to Europe. So we should be able to achieve superior margin there in the quarters to come. And as we -- I see us -- the outlook for me is a much stronger position as we exit the fiscal year. So Tom, anything to add? Thomas Stewart: No, I think the only other thing I would say, Bill, is there's not a lot of additional investment. This is about execution with the assets that we have today. So we also need to make sure we're -- we have a proper supply coming out of kickern. But overall, this is a story of execution, and Luc and I are managing this quite closely. Luc Mongeau: Absolutely. And if I may add, as you can see by the amount of time we're spending on this, this is extremely important to us, and we're extremely close to situation. We're expanding the number of strains we are growing for Europe, which allows us to broaden our portfolio of products significantly. At the same time, we are broadening our distribution retail offering in Europe, which as well will open up the market for us quite significantly. William Kirk: And then, Tom, the ATM was used pretty aggressively in 2Q. Can you talk about the decision to use it now and in that size? And then given the magnitude in the quarter, how should we think about issuance going forward? Is it done? Thomas Stewart: Yes. So I would say, Bill, we're continuously evaluating our capital requirements and funding strategies to ensure we have an optimal capital structure and that balances cost efficiency with financial flexibility. You're aware, we launched the new program at the end of August. Ultimately, for us, we want to make sure we have that optionality in the market. But I think it'd be -- it wouldn't be appropriate to speculate on how it would be used. We have the program in place to the extent we need to draw on it, but we're active prudently with those proceeds. Operator: The next question comes from Aaron Grey at Alliance Global Partners. Aaron Grey: First question for me. I just wanted to double back a bit on international. I know we've talked about it in the past. I just want to bring it up again in terms of your current supply chain. Are they still happy with some reliance on third-party products? Obviously, you guys have some of your own product, you can also export internationally. Do you feel like there's any need to increase the verticality that you have to supply the international markets because of some of the supply chain issues? Or do you feel like there's still a lot of opportunity to find quality product to sufficiently meet the potential demand in international markets? Luc Mongeau: Yes. Some of our -- thank you for the question, Aaron. Some of the challenges came from flower sourced out of Portugal. So we're out of this right now. As I said earlier, we have plenty of capacity within our own GMP -- Canadian GMP facilities. So we're confident that we will be able to supply from our own source grown flower. We're not writing off having third-party flower in the future. But right now, we're really retooling the entire route to market with our own grown flower, which we have enough capacity for the foreseeable future. Aaron Grey: Okay. Great. Second, you made some nice progress on the profitability. And you mentioned continued progress towards positive EBITDA. Any updates in terms of some of the key levers and timing of when you might expect to get to profitability? I know it's something that you guys have stopped doing in terms of specific time lines, but fair to say you'd be disappointed if you didn't achieve it in some time of calendar 2026, your fiscal year either back half or front half of '27. Thomas Stewart: I would say, Aaron, we're controlling what we can control. And right now, the cost savings measures we're taking, we know will empower us to get to an improved adjusted EBITDA performance. I think it's too early to speculate at this point in terms of when that would be. But I think as you can see from the results, this has been our strongest quarter, while albeit a loss, it's our narrowest loss that we've had to date in my recent memory. So I think your -- the changes we're making in the organization is going to fully support that. And we'll keep pushing as much as we can here. Luc Mongeau: Yes. If I may add on top of this, positive adjusted EBITDA is our main and remains our main priority. That's why we're over-indexing and really retooling Europe to make sure we fire on all cylinders. Operator: [Operator Instructions] The next question comes from Frederico Gomes at ATB Capital Markets. Frederico Yokota Gomes: First question, just given the growth that you're seeing in your cannabis platform, the outlook for an adult-use, Canadian medical, international medical as well, how are you looking at your capacity right now? Do you foresee any need to invest an additional capacity, I guess, in the near future, like meaningful investments if the business keeps growing? Luc Mongeau: Thank you for the question. As I mentioned, we're doing smart investment to really unlock yield and quality of the flower that we're growing in our own facilities. We've looked at this large and wide. We're confident with limited investment that we can meet the demand and meet the growth targets that we have. Tom? Thomas Stewart: Yes. Thanks for the question, Fred. Yes, we believe our footprint, primarily with our cultivation in Kickern is sufficient to meet our needs. A lot of the focus and investment that we're making is really to improve our yield and the quality of our flower coming out of that facility, but we wouldn't expect a significant amount of additional capital investment needed to meet the demand. So I think it's -- again, it's executing with the assets that we have and improving utilization across the board. Frederico Yokota Gomes: And then just a second question, just on the -- I guess, related to that, balance sheet now in a net cash position. You obviously have access to capital and you're a good position here. But I guess if you could talk about the capital allocation priorities that you have now that you have no significantly reduced debt. Thomas Stewart: Yes. So from my view, Fred, the $300 million of cash with no near-term debt obligations, it really provides further optionality for us when it comes to evaluating our capital structure and evaluating potential investment opportunities to grow and strengthen our business. The cash also provides us with flexibility to capitalize on these potential opportunities, but also mitigate risks as market conditions fluctuate. As we all know, cannabis is a highly volatile space. So I think for right now, we're evaluating potential accretive options that are out there. But ultimately, we want to make sure we remain resilient and stabilize this company and focus on the business that we have today. Operator: The next question comes from Pablo Zuanic at Zuanic & Associates. Pablo Zuanic: Luc, I will ask my two questions upfront. One, on the vape launch. I mean, obviously, the Claybourne launching pre-rolls has been very successful. Can you give more color in terms of the vape launch? Is it just in All-In-One? Or are you also planning in 510 cartridges -- are we talking All-In-Ones just in distillates or also live resin or live rosin, liquid diamonds? If you can just give more color on how you think about the category, especially in terms of room for innovation and also the price competition there. There's been a bit of a race to the bottom, it seems on All-In-Ones. That's in terms of vape. In terms of -- my second question is more in terms of the U.S. business. I know that you've said, look, the U.S. is more of a long-term opportunity, and I understand that. But it would help if you can give an update in terms of where things stand with Canopy USA, especially in terms of any help you had to give to Acreage in terms of balance sheet or guarantees. I think in the past, the company bought debt from AFC Gamma. I don't know what happened recently in the June quarter or September quarter in terms of help Acreage operate, especially from a balance sheet and cash flow perspective. Luc Mongeau: Hope you are doing well. Let's start with the vapes and Tom will jump in for the U.S. So we're thrilled with the early results we're getting with our All-In-One. So as I mentioned, we launched Tweed, 7acres. We did really well. We actually ran out of stock. So we had to accelerate replenishment of first wave. As I mentioned, we're launching -- we're about to launch Claybourne in all-in-one vapes as a first entry. We're very encouraged by the gross margins that we're able to achieve with these products. So we're putting out there product of superior quality. So we're pricing them appropriately. And they've been margin accretive for us. As it comes to the full spectrum of live resin and so on distillate and liquid diamonds and everything. There's more developments to -- that will come there. We're committed to being a leader in All-In-One vapes. It is a key market, key growing market. So more news to come there and make sure to try the new Claybourne All-In-Ones as they come out. I was able to sample them this week. And it's what we stand for, superior elevated experiences with quality products, and those deliver on all of that. Tom, do you want to give some insights about the U.S.? Thomas Stewart: Yes, sure. So Pablo, a couple of points in your U.S. question there. So there are no guarantees between Canopy Growth and Canopy USA. So Canopy USA is an independently run and managed enterprise. They did have new financing over the summer from their lender, and the team has been working diligently to deploy that capital in the areas where they see the highest return. Overall, their focus now is on execution and really bringing the 3 companies together and executing well in the U.S. space. But to be clear, there's no funding new or otherwise with Canopy USA and Canopy Growth. Operator: This concludes Canopy Growth's Second Quarter Fiscal 2026 Financial Results Conference Call. A replay of this conference call will be available until February 5, 2026, and can be accessed following the instructions provided in the company's press release issued earlier today. Canopy Growth's Investor Relations team will be available to answer additional questions. Thank you for attending today's call.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Third Quarter 2025 Results Conference Call and Webcast for Canadian Utilities Limited. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Mr. Colin Jackson, Senior Vice President, Financial Operations. Please go ahead, Mr. Jackson. Colin Jackson: Thank you, and good morning, everyone. We are pleased you could join us for Canadian Utilities Third Quarter 2025 Conference Call. On the line today, we have Bob Myles, Chief Executive Officer of Canadian Utilities Limited; and Katie Patrick, Executive Vice President, Chief Financial and Investment Officer. . Before we move into today's remarks, I would like to take a moment to acknowledge the numerous traditional territories and home lands on which our global facilities are located. Today, I am speaking to you from our ATCO Park head office in Calgary which is located in the Treaty 7 region. This is the ancestral territory of the Blackfoot Confederacy comprised of the Siksika, the Kainai and the Piikani Nations, the Tsuut'ina Nation and the Stoney Nakoda Nations, which includes the Chiniki, Bearspaw and Goodstoney First Nations. I also want to recognize that the city of Calgary is home to the Metis Nation of Alberta, Districts 5 and 6. During the quarter, employees across Canada recognized the National Day for truth and reconciliation by walking together to honor indigenous communities and their experiences. May we continue to reflect, learn and respect the diverse history, languages, ceremonies and cultures of indigenous peoples as we move forward towards understanding healing and reconciliation. Today's remarks will include forward-looking statements that are subject to important risks and uncertainties. For more information on these risks and uncertainties, please refer to our filings with the Canadian securities regulators. During today's presentation, we may refer to certain non-GAAP and other financial measures, including adjusted earnings, adjusted earnings per share and capital investment. These measures do not have any standardized meaning under IFRS, and as a result, they may not be comparable to similar measures presented by other entities. Please refer to our filings with the Canadian security regulators for further information. And now I'll turn the call over to Bob Myles for his opening remarks. Robert Myles: Thanks, Colin. Good morning, everyone. I want to begin by highlighting 3 key pillars of our long-term strategy. growth and prosperity. This includes our robust project pipeline and our policy and regulatory partnerships. Operational excellence, which includes modernizing our operating model with safety and reliability at the forefront and financial leadership, which touches on our funding strategy and financial performance. . Moving to our first pillar, growth and prosperity. Foundational to our growth at Canadian Utilities are the economic drivers we are seeing in the province of Alberta. Alberta continues to lead population growth in Canada and in Q3 2025, Alberta's population reached 5 million people, up 2.5% year-over-year. Canadian Utilities plays an essential role in enabling this population growth. In 2025, we are on track to connect over 19,000 customers in ATCO Energy Systems, particularly in our Alberta gas business, in line with the strong growth we delivered in 2024, which saw our highest number of customer connections in almost a decade. When we look at the projects driving our growth and prosperity pillar, I want to begin with our Central East Transfer-Out project or CETO. At a high level, this $280 million project assigned by the Alberta Electric System Operator upgrades and strengthens the transmission system in Central East Alberta. Alberta's electric transmission system has experienced ongoing congestion challenges affecting the reliability of the grid, the market efficiency and the integration of new energy sources. In response, CETO was developed to directly address these constraints. CETO is a critical energy infrastructure investment, representing meaningful progress for Alberta's electric system by enhancing the efficiency of how power flows across the electric grid, CETO makes it easier to deliver energy to where it is needed most, like major demand centers in Calgary, Edmonton and Northern regions. CETO is deep into construction and remains on track to be completed in the first year -- first half of next year. The project will have a significant benefit to our customers across the province modernizing and enhancing the reliability of the transmission system. Beyond CETO, we believe further opportunities exist to improve congestion. An example is the McNeill converter station, currently the only intertie point between Alberta and Saskatchewan, as shown on this slide. The McNeill station recently underwent repairs and is being evaluated for a capacity upgrade. Once complete, this upgrade will enable more generation to flow between Alberta and Saskatchewan, representing the next step in addressing regional congestion. Moving to natural gas. Our assets are strategically positioned in areas that allow us to capitalize on the spectrum of energy opportunities being delivered. On the map, you can see our 3 gas storage assets are well positioned near natural gas production zones, major project infrastructure as well as locations associated with the planned data center developments and links to LNG development. Our Yellowhead pipeline project that I have discussed previously is a required addition to the natural gas network in Alberta and it will be a key conduit to connecting supply to demand growth. Yellowhead creates a new direct corridor from the Northwest Alberta supply region to the Greater Edmonton area, debottlenecking constrained segments and reducing reliance on longer, more complex flow paths. This relieves pressure on the entire Alberta integrated system improves delivery reliability for all types of customers across the province and frees up capacity for not only residential demand, but industrial, power generation and commercial growth making it a foundational investment in Alberta's energy future. Overall, it is evident that natural gas is needed more than ever in Alberta, and we remain in a very strong position to capitalize on the growth opportunities within the province. There have been positive developments on our Yellowhead pipeline project during this past quarter. We are pleased to announce the approval of the needs application from the Alberta Utilities Commission, or AUC, I'm also excited to announce that we filed the facilities application with the AUC earlier this week, which will provide detailed technical, environmental and consultation data required for construction approval. The filing of the facilities application is a key milestone in the regulatory process and demonstrates that we have completed sufficient consultation with communities, environmental studies and engineering to permit the construction of the project. The Yellowhead pipeline project remains 90% contracted and will deliver long-term economic benefits while strengthening the provinces natural gas network. In the third quarter, 2 additional service offerings to the market were undertaken. We expect that some or all of the remaining capacity provided by Yellowhead will be contracted through these offerings. While we waited on final regulatory approvals, we have successfully awarded major equipment contracts for the compressor facility. In the fourth quarter, we will place major contracts for the supply of steel pipe. Ordering these long-lead materials is prudent to preserve our in-service date and avoid cost escalations and supply chain delays. As you can see on this slide, the Yellowhead pipeline runs through Treaty 6 territory in Alberta, which is why we continue to pursue partnership arrangements with indigenous partners, First Nations and Metis. Early meaningful and continuous economic indigenous participation in infrastructure projects on traditional land is essential for development, reconciliation and long-term project success including the Yellowhead Pipeline project. An integral part of our nonregulated growth at Canadian Utilities is from our natural gas storage operations. We've had a strong year in natural gas storage with increases in seasonal spreads, driving strong customer demand for our facilities. We have successfully optimized our storage facilities by contracting through staggered contract maturities over the coming years. The plans I have previously discussed to expand our existing storage capacity from 117 petajoules to date to 130 peta joules in late 2026 positions us for continued growth and financial performance in the years to come. As we look at the future of storage and the broader market trends, a number of fundamentals are driving the demand for gas storage. Storage capacity growth across North America has slowed to less than 1% annually since 2016. While gas demand across North America continues to increase driven by industrial demand, LNG demand and new power generation accelerated by the build-out of data centers. As a leader in natural gas storage, we have the technology, the infrastructure, customer base and experience to execute and build out additional storage capacity. Beyond the brownfield expansion that we have already identified, we continue to explore strategic opportunities for additional growth in storage capacity, both within Alberta and the broader North American market. Similar to the opportunities ahead of us in Alberta, our ATCO Australia businesses, which is a provider of regulated natural gas distribution services in Western Australia and a developer and owner of gas-fired generation is also well positioned given Australia's evolving energy landscape. The developing regulations, government emissions reduction targets and associated investment incentives present ATCO Australia with opportunities which the business is well positioned to pursue. Our gas utility business in Australia has developed a strong -- delivered a strong 2025, and we expect this growth to continue into the years ahead. as the Australian government remains focused on enabling the development of new infrastructure to meet increasing population growth. In response to this, we continue to focus our new customer connections. Under our new access arrangement, AA6, our 5-year plan sees us growing by approximately 80,000 new connections as customer sentiment towards gas continues to be positive in Western Australia. This amounts to a 27% increase in expected customers compared to our previous access arrangement. For the 5-year AA6 period, we're operating under a higher return on equity of 8.23% driving consistent earnings for Canadian Utilities. Our second pillar, operational excellence, is anchored on safety, reliability and operational outperformance. Safety is a key element linked to our long-term growth by continuing to foster a strong safety culture. We ensure that operational efficiency and reliability are achieved without compromise. Safety across Canadian Utilities requires collaboration and a continued focus on our commitments. We must learn from incidents, promote safety initiatives and champion workplace safety across the business. From an outperformance perspective, our utilities are known for their ability to drive operational efficiencies. In 2024, our Australia utility delivered over 550 basis points of outperformance above the regulated ROE, while our utilities in Canada drove almost 100 basis points of outperformance above the regulated ROE. As we move ahead, we will share our learnings across all businesses like Canadian Utilities with a focus on driving further efficiencies across IT, supply chain and administrative costs. I look forward to sharing further updates on this over the upcoming year. Our third pillar is financial leadership. And with that, I'll pass the call to Katie to discuss this in further detail. Katie Patrick: Thanks, Bob, and good morning, everyone. And can I say what a great quarter we had, but I'll start with our external funding. I want to provide an update on our successful financing we executed in the third quarter. On September 8, Canadian Utilities Limited announced a $750 million transaction of hybrid notes at a fixed rate of 5.45%. And on September 11, CU Inc. announced a $370 million transaction of debentures at a rate of 4.787%. I am proud to say that these offerings had significant interest from the investment community at approximately we're 3x oversubscribed across a strong pool of buyers. This confirms that there is sufficient investor demand to satisfy the funding requirements for the total investment in Yellowhead, which will be funded according to the regulated capital structure of 63% regulated debt and 37% regulated equity. We continue to pursue partnership arrangements with indigenous partners that may contribute up to 30%. The remaining investment of approximately $750 million will be funded through Canadian utilities with gross -- with proceeds coming from diverse capital sources, including the $500 million from the September 2025 fixed to fixed rate subordinated notes, cash from operations and other future potential issuances of hybrids or preferred shares. I look forward to updating you very shortly on this. As with all our capital decisions, we will review all options and choose what is in the best interest of shareowner value creation. Looking at our third quarter performance for Canadian Utilities as a whole, we delivered positive earnings growth year-over-year. We achieved adjusted earnings of $108 million or $0.40 per share up from $102 million for the same period in 2024. This was despite headwinds, including a reduction in their approved ROE for our Alberta utilities and the conclusion of the efficiency carryover mechanism or ECM. Our strong performance was driven by growth across all of our core businesses. ATCO Energy Systems delivered adjusted earnings of $98 million in the quarter, $4 million higher year-over-year. Despite $6 million of headwinds from the reset in our approved ROE and the conclusion of the ECM for our distribution utilities. We still deliver growth within Energy Systems. While ATCO Energy Systems has seen an increased earnings year-over-year. We expect to face headwinds in the upcoming quarter as we will not have the same tax efficiencies that we achieved in Q4 of 2024. ATCO EnPower delivered adjusted earnings of $16 million, up $2 million year-over-year. In the Storage and Industrial Water segment, we continue to deliver growing earnings. As Bob mentioned earlier on the call, we plan to grow the storage business and capitalize on brownfield expansion opportunities. In electricity generation, adjusted earnings were up for the quarter driven by higher compensation related to turbine availability guarantees at our Forty Mile wind facility and higher generation at the Veracruz Hydro facility in Mexico. ATCO Australia delivered adjusted earnings of $27 million during the quarter. This is $12 million or 80% higher than the same period last year. As Bob noted earlier, we continue to see momentum within our ATCO Gas Australia business with earnings growth driven by higher rates and outperformance. This accounted for the majority of the improvement. At ATCO Power Australia, higher earnings were primarily due to the settlement of the South Australian Hydrogen jobs plan project. From a cash flow perspective, our cash from operating activities increased 12% compared to the same period last year. The cash we generate will be used in combination with the external funding I previously discussed to fund our enhanced capital program that will generate future earnings growth. Overall, we remain in a strong financial position as we round out the last quarter of 2025 and head into 2026. We continue to remain focused on finding efficiencies across the organization, including supply chain improvements, repatriating some IT operations internally and consolidating senior levels of leadership, all while executing on our strategy to generate long-term value for all stakeholders, including our shareowners. I will now turn the call back to Bob for closing remarks. Robert Myles: Thanks, Katie. It's evident from this quarter that we've seen strong momentum across our businesses when we work together as one organization. To reiterate, our 3 pillars guiding our future include growth and prosperity, operational excellence and financial leadership. It's an exciting time at Canadian Utilities. The environment in which we operate continue to have positive tailwinds, including Alberta, where we are positioned to benefit from the province's focus on natural resources and economic growth. Our unique position as an operator of utilities, storage and generation assets positions us to capitalize on the opportunities ahead of us and to be a key provider for all of our current and future customers. . I look forward to leading us through this period of growth, and we'll share our progress on our initiatives throughout 2026. That concludes our prepared remarks. I'll turn the call back to Colin for our question period. Colin Jackson: [Operator Instructions] I will now turn it back to the conference coordinator for questions. Operator: [Operator Instructions] The first question comes from Rob Hope with Scotiabank. Robert Hope: Hoping we can dive a little bit deeper into ATCO Gas Australia or even the Australian business in aggregate. Year-to-date, you're up 42% and the ATCO Gas under AA6 has been quite strong. So can you maybe help us understand kind of the key drivers of the strong growth with the outlook for Q4 and whether or not you would get back to a more normal kind of growth rate in '26 and '27? Katie Patrick: Sure. Rob, it's Katie. We're really happy with the AA6 parameters that were set out. And you can see a lot of our strong earnings growth there. That being said, there were some onetime items that we had this year that we would not repeat next year, including the settlement on the South Australia hydrogen jobs plan as well as some cleanup of a previous project that we are working on Central West Pumped Hydro. But all that said, we do expect the continued strong growth that we had in the outperformance that you can see specific to ATCO Gas Australia. Those 2 onetime items that I'm talking about mostly show up in the ATCO Power part of the segment. So I think we continue to have headwinds behind us there. We also do benefit from the inflation indexing, and we're watching that closely, but I think that could help in the future a little bit as well going forward on some of our earnings there in Australia. Robert Myles: Rob, if I could just add, I also think there's some great opportunities to look for efficiencies across our operations in Australia as we align across Canadian utilities. So I do think there's some great potential for Australia. Robert Hope: All right. I appreciate that. And then maybe more broadly, looking at the electric transmission opportunities in Alberta. You have a potential for a significant increase in load in the province. However, the system operator is trying to minimize transmission investment. How does that kind of balance for the growth outlook for that business? Robert Myles: Yes, Rob, I really enjoy talking about that topic because we do think there's some great opportunities for electric transmission build in the province. We do have to consider that as we look at affordability across this province as it impacts the consumer. But in the capital forecast that we've been giving, we don't have capital in there for things like interties, and we do think there's some great opportunity with interties. But the projects that are in our service territory, we think we're well positioned to capitalize on those. And much of the growth is actually in our service territory. So we do see there's some great potential there. . Operator: The next question comes from Maurice Choy with RBC Capital Markets. Maurice Choy: I just want to come back to Slide 17 about the funding of the Yellowhead pipeline. Can I just ask how advanced you are in terms of securing the 30% investment with indigenous partners. And if you could help break down that $261 million of remaining funding a little bit more, what drivers are there to determine how much from cash from operations and how much from, I suppose, equity raises? Robert Myles: Maurice, thanks. I'll comment on the indigenous kind of status and then let Katie comment on the rest of your question. I personally have had a lot of conversations with the indigenous communities. I'm very optimistic that we will have that in place. It takes a little bit of time, but we've had really good conversations. And we, as an organization, are very committed to making that happen. And I know the conversations I've had with those indigenous communities, we're also getting a lot of support from their side as well. So I'm pretty confident in that. . Katie Patrick: And Maurice, to your second question related to the $261 million. I would just say stay tuned, but we don't -- just to be quite clear, we don't anticipate having to access the public equity markets for that amount of money. And I think there's a depth in other capital areas, in some of the hybrid preferreds in some of those markets to be able to fulfill that need shortly. Maurice Choy: Understood. That's great color. And if I could just look into your discussion about, I guess, hydrogen. Not a whole lot of mention here, but I suppose if we look at the Canadian budget and you look at the major projects office, how do you feel about your projects? Were there any takeaways from the budget or even from the initial list of comments from MPO that you think would be positive takeaways to facilitate your H3 ambition? Robert Myles: Maurice, we've spent a lot of time, as you know, working with the federal government on our project that we are pursuing, ammonia by rail based on hydrogen development. And there are some encouraging things that are in the budget, but we do not have a lot of capital put in our plan for the hydrogen project, because we just don't have the full confidence that that's going to develop. We're continuing to do some work on it, but we need to see more definitive signs from the federal government that they'll support the project. And specifically, we need to see more certainty across Canada for the project. So -- we're still having conversations, but it's not -- it's definitely not one of our key opportunities right now. . Operator: Next question comes from John Mould with TD Cowen. John Mould: Thanks for that Yellowhead financing slide that really helps lay things out. I guess -- on the nonregulated side, beyond the storage opportunity that you discussed earlier, where do you feel like you've got the best line of sight or best potential on possible regulated investments over the midterm -- excuse me, possible investments over the midterm outside of the regulated platform. Robert Myles: John, again, Bob here. We do -- first of all, I don't want to dismiss the gas storage because I think there's such great opportunities in gas storage. But in addition to that, we do see some opportunities in generation, but primarily in gas-fired generation, not in really going out and building a lot more renewables. We do think there's pockets of electric storage. In other words, batteries that we can pursue. And then And when I say gas-fired generation, I'm saying both in Alberta and in Australia, we think there's opportunities there in the near term. John Mould: Okay. And then just speaking about generation more broadly in the province of Alberta, can you maybe speak a little bit to your engagement on -- and I know it's an ongoing process, but your engagement on the market design reforms there. And also on the transmission side, what you're hoping to see -- sorry, I should say the transmission regulation side as it applies to generation. And what you're hoping to see as an owner of generation in the province and as a potential investor in incremental generation in the province, be that gas-fired or renewables down the road. Robert Myles: And John, you're correct. They are 2 different things. The impact on generation versus the impact on electric transmission as we said earlier, we think there's some great opportunities in the province for electric transmission. On the generation side, it is being impacted and will be impacted by the long-term plan with the restructured energy market, as we've discussed previously. We're also having a lot of conversations with the government as we speak around the 0 congestion policy that was tied to the transmission regulation changes over the last couple of years. The conversation to the government are encouraging that they recognize the impacts that changing the 0 congestion policy has on generation. So we're continuing to work that. I am optimistic that we'll actually get something from the government to give us more confidence on where we're going with generation. But as a province and as an investor, we do need to get more confidence in the province as to what's going to happen with the rules uncertainty before much more generation is built in this province. Operator: Our next question comes from Ben Pham with BMO. Benjamin Pham: I had a couple of questions on the gas storage commentary you had. Maybe just to start in Alberta. Isn't it better to leave an open book into a rising contract price in Alberta, given what LNG export thematic is playing out? Robert Myles: Are you saying, Ben, just keep it all merchant. I'm trying to -- sorry, I'm trying to understand your question. Benjamin Pham: Yes. I was wondering your philosophy around you've locked in contracts is what you said and extensions in a rate that's probably about $1 or so. And why not just wait a while, a year or 2 and capitalize on potentially a rise in movement in the storage rates. So I'm not saying keep it all merchant, but just thinking about you philosophy between weighing those 2 differences. Robert Myles: Yes. Ben, I'm a huge believer in a balanced approach. So if you look at our gas storage, we have a balance of contracting out part of our storage to customers. So they have access to that storage based upon what they want to do. We also do a lot of seasonal deals with our customers, which is a different type of service. And then the third service is doing a lot of day-to-day service, which is probably more what you're talking about is looking at more of that merchant market. So we actually do some of that. But we do like to lock in our deals, and I think we've been very successful on that. So I do feel like we need to have a balanced approach, not all of just one scenario or the other. Benjamin Pham: Okay. Got it. And then you also mentioned looking at other regions, maybe acquisitions or development. Is there a particular region that looks very interesting to see you at this point of time, we've seen some announcements in the Gulf Coast today from another company. Robert Myles: I'm assuming you're still talking about gas storage, Ben? Benjamin Pham: Yes, that's right. Robert Myles: Yes. And I actually believe across North America, there's opportunities for gas storage. And so we are evaluating opportunities, again, across the North America gas storage environment. So I would agree with you on that. Benjamin Pham: Okay. So it's pretty broad to look out right now? . Robert Myles: Yes, yes. Benjamin Pham: Okay. And maybe lastly, I just wanted to check on Yellowhead with the CapEx. You had a couple of details there. A couple of years ago, you had an initial figure, you updated on scope. What stage are you at right now? I don't know if you use an engineering hat on it in terms of really your confidence in that CapEx numbers, just looking at past projects where they've hit the needs and then you go into the next phase. Robert Myles: Yes. We keep updating our capital forecast on that, and we're down to a Class 3 kind of plus or minus 20% estimate currently. As of today, we're looking at $2.9 billion is kind of what we're -- we've informed the Alberta Utilities Commission as to the cost of that. As we progress with long lead materials, we can lock in more of the supply chain side of it. And then in 2026, we'll be going to the market for contracting pricing. So we'll get better confidence as time moves on. Obviously, the risk with building that pipeline in addition to supply chain and contractors is always weather. And that's something that we have to do the best we can to manage that. . Operator: Since there are no more questions, this concludes the question-and-answer session. I would like to turn the conference back over to Mr. Colin Jackson for any closing remarks. Please go ahead. Colin Jackson: Thank you, and thank you all for participating today. We appreciate your interest in Canadian Utilities and we look forward to speaking with you again soon. Operator: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Good day, ladies and gentlemen, and welcome to the RioCan Real Estate Investment Trust Third Quarter 2025 Conference Call and Webcast. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Ms. Jennifer Suess, Senior Vice President, General Counsel, ESG and Corporate Secretary. Ms. Suess, you may begin. Jennifer Suess: Thank you, and good morning, everyone. I am Jennifer Suess, Senior Vice President, General Counsel, ESG and Corporate Secretary of RioCan. Before we begin, I am required to read the following cautionary statement. In talking about our financial and operating performance and in responding to your questions, we may make forward-looking statements, including statements concerning RioCan's objectives, its strategies to achieve those objectives as well as statements with respect to management's beliefs, plans, estimates and intentions and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts. These statements are based on our current estimates and assumptions and are subject to risks and uncertainties that could cause our actual results to differ materially from the conclusions in these forward-looking statements. In discussing our financial and operating performance, and in responding to your questions, we will also be referencing certain financial measures that are not generally accepted accounting principle measures, GAAP under IFRS. These measures do not have any standardized definition prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other reporting issuers. Non-GAAP measures should not be considered as alternatives to net earnings or comparable metrics determined in accordance with IFRS as indicators of RioCan's performance, liquidity, cash flows and profitability. RioCan's management uses these measures to aid in assessing the trust's underlying core performance and provides these additional measures so that investors may do the same. Additional information on the material risks that could impact our actual results and the estimates and assumptions we apply in making these forward-looking statements, together with details on our use of non-GAAP financial measures, can be found in the financial statements filed yesterday and management's discussion and analysis related thereto as applicable, together with RioCan's most recent annual information form that are all available on our website and at www.sedarplus.com. I will now turn the call over to RioCan's President and CEO, Jonathan Gitlin. Jonathan Gitlin: Thank you, Jennifer, and good morning to everyone joining us today. We're pleased to share our Q3 2025 results. RioCan's operating momentum accelerated this quarter. Our trio of high retention rates, strong leasing spreads and quality tenants represent the sustainable long-term outcome we've strategically built toward. Key performance indicators reflect consistent sustainable growth, underscoring the strength and resilience of our platform. Committed occupancy of 97.8%, retail occupancy of 98.4% and our Q3 retention ratio of 92.7% highlights the value tenants place on space in RioCan assets. This demand translated into strong performance with commercial same-property NOI, up 4.6%. RioCan is operating from a position of strength. Our performance is driven by a number of factors, but relies heavily on our focus on tenant quality and disciplined asset management. Premium retail space remains scarce and exceptionally high barriers to entry make meaningful new supply unlikely. At the same time, demand continues to be strong from top-tier necessity-based retailers. These retailers are not just getting by. They're focusing on growth. They're proving out their strength and ability to thrive in any economic backdrop. These tenants exemplify the caliber of retailers that comprise RioCan's portfolio. This supply-demand imbalance is most acute where RioCan's assets are concentrated. Our properties are in Canada's major markets with an average of 277,000 people and a $155,000 household income within 5 kilometers. Our strategy is straightforward. We optimize our portfolio by selling assets that don't align with our strategic vision. On the flip side, we invest in those that do. Over the past decade, we've diligently executed this approach and it's yielding measurable success. We are keeping our centers full and generating strong leasing spreads, and we're doing so with high-quality tenants. We're in a third quarter of operating under the current tariff environment, and we're pleased though not at all surprised to see our portfolio and tenants performing exceptionally well. This is the benefit of a tenant mix that features necessity-based retailers with strong balance sheets that provide everyday needs. Canada remains an attractive market for our tenants and our centers are ideally located to support their growth. RioCan's leasing spreads remain at record highs. We captured market rent growth across the portfolio, achieving blended leasing spreads of 20.8% this quarter, including 44.1% on new leases. Year-to-date, the average net rent for new leases was $29.58 per square foot, nearly 30% above the average for occupied space. Renewal spreads were also strong at 15.2%. This is especially noteworthy given that an outsized proportion, 48% were fixed at lower growth rates this quarter. Same-property NOI will continue to benefit from this mark-to-market gap. Specifically, there are 10.7 million square feet of leases coming up for renewal at a relatively consistent pace over the next 3 years. Combined with our success in embedding annual growth in new leases and unlocking fixed options in existing leases, this trajectory is sustainable. We are striking an extremely healthy balance between replacement and retention. We're enhancing tenant quality and rental rates by replacing certain transitional tenants. At the same time, we are retaining strong established tenants to reduce downtime and capital requirements. When opportunities emerge, we secure high-quality tenants for our properties. Alternatively, we also like to help our reliable established tenants expand their existing footprints within our assets. We put our platform to work and we help those tenants by seeking out opportunities in adjacent and surrounding space and help them execute on the enhancement and expansion of existing space. We're excited to share a number of examples to demonstrate this strategy at work later this month at our Investor Day. Our strong quarterly performance goes beyond the numbers. It reflects the quality of our portfolio and the discipline behind our strategy. We previously indicated our plan to repatriate $1.3 billion to $1.4 billion of capital which will be infused back into the business over 2025 and 2026, and we remain firmly on track. Progress continues on monetizing our residential rental portfolio. We've sold our interest in 6 RioCan Living properties, 5 of which closed in 2025. These 5 transactions have contributed to the almost $500 million of capital repatriated since the start of this year. Based on the quality and desirability of our RioCan Living assets, we're highly confident in our ability to continue to monetize these assets and to put the capital to work accretively in the numerous capital allocation opportunities we have at our disposal. Our business is rooted in a strong portfolio, a favorable retail environment and strong operators. This lends itself to the simplification of our business around our retail core, leveraging our decades of experience to deliver reliable, durable income and growth, focusing our resources, human and capital on this core is a logical conclusion that will serve our unitholders well into the future. I'll wrap up in a moment, but before I do, I'd be remiss if I didn't mention that our commitment to excellence was further validated by our impressive performance in the 2025 GRESB assessment. Among other recognitions, we maintain regional sector leader status in the Americas under the retail sector and the first rank among North American retail peers in the standing investment assessment. So as we look ahead, our outlook remains aligned with the guidance we provided in the first quarter. FFO per unit of $1.85 to $1.88. FFO payout ratio of approximately 62%, and commercial same-property NOI growth of approximately 3.5%. We continue to see strong demand for high-quality, necessity-based retail space in Canada's major markets. Our leasing strategies are fueling organic growth and our disciplined capital management is amplifying that growth now and for the future. We are excited to share more at our Investor Day on November 18. Our team is energized, our strategy is clear and our portfolio is positioned for continued success. Thank you for your time today. I look forward to your questions and to sharing more about our progress in the coming weeks. Dennis Blasutti: Thank you, Jonathan, and good morning to everyone on the call. Our core real estate portfolio continues to deliver strong results, and we continue to simplify our business to focus on this core. FFO excluding condo gains and excluding HPC-related income, was $0.39 per unit, compared with $0.38 in the prior year. This increase was driven by a 4.6% growth in same-property income in our core commercial portfolio and the benefit of unit buybacks, partially offset by higher interest expense. Total FFO was also impacted by the following items that are noncore to our business. FFO for the quarter contained $17.5 million of gains related to residential inventory, an increase of $4.8 million or approximately $0.02 per unit compared with Q3 2024. Lower fee and interest income due to residential inventory completions had an impact of $0.01, reduced NOI and fee income related to the former HPC locations had a combined FFO impact of $0.02 per unit when compared with Q3 2024. Net income for the quarter was impacted by valuation losses of $242.8 million, driven by factors that are not reflective of our core retail portfolio. This amount includes $148 million of net fair value losses on investment properties comprised predominantly of 3 categories. The largest component was $95 million related to excess density driven by properties that have been reprioritized. We have a significant amount of long-term density potential in our portfolio. However, given the stagnant land and development market, it is important to ensure that we are maximizing income from the existing retail on our properties. As such, we determined that the redevelopment of properties such as Colossus, Scarborough Center and RioCan Hall will not proceed for a number of years. This determination and commitment to focus on the core retail aspect of these properties removes any ambiguity related to these sites freeing up our leasing team to maximize retail rents by offering longer lease terms to our tenants. The second category totaling $25 million relates to assets that are high quality but with lower growth potential attributable to a significant proportion of fixed renewals associated with anchor tenants such as Walmart. These are similar to assets that we have sold over the last couple of years and represent a minimal proportion of our portfolio. The final category totaling $28 million relates to 3 large Toronto-based residential rental buildings. We have seen weakness in rent growth and occupancy in submarkets where there is high competition from condo delivery. So we have reduced the stabilized NOI assumption for these buildings. As noted, the valuation losses relate to 3 categories that are not reflective of our core commercial real estate portfolio. Our NAV per unit at the end of the quarter was $24.9 which is approximately 29% above the current unit price. Going forward, we will focus on compounding NAV by growing income from our core portfolio, along with the accretive allocation of the substantial capital we expect to repatriate over the next couple of years. We are rapidly advancing toward a conclusion for the forward HBC locations with asset plans for 12 of the 13 locations. As previously stated, we will only participate in assets where we would expect strong return on capital, and we will not participate in mixed-use redevelopments. The impairment in the quarter writes off our remaining equity in the HBC-JV. We have also taken provisions related to our loan and guarantee exposures. We have taken a conservative approach to the accounting of these assets while continuing to pursue all avenues to recover value. With the asset plans in place and the financial provisions recorded, this chapter is substantially behind us. As we focus on our core business, we are winding down our mixed-use construction. Year-to-date, the spending on mixed-use IPP construction was $40 million with 186,000 square feet delivered. With approximately $70 million remaining to be spent for the balance of the year and our committed capital for development construction in 2026 of only $15 million we will have significant flexibility going forward to invest capital where it's most accretive. In addition, we have delivered 61,000 square feet of retail infill development. This is an area where we invest in our core portfolio to drive attractive returns through growth in NOI and NAV growth and will be a continued area of focus. We are repatriating a significant amount of capital to our balance sheet. We expect approximately $1.3 billion to $1.4 billion of capital from the sales of residential rental buildings and pre-sold condos over the course of 2025 and 2026. So far this year, we have brought in nearly $500 million of capital. $314 million in total asset sales, of which $250 million has been from the sale of 5 residential assets sold so far this year, bringing the total sold to 6 buildings with the sale of a number of others in process. $163 million is from condo closings, resulting in a repayment of $128 million of construction loans and the removal of $323 million of guarantees. We expect the remaining condo units at the end of the year to be valued at approximately $130 million, which is an insignificant amount in the context of RioCan's balance sheet, putting this program materially behind us. As a result of this and other initiatives, our credit metrics have continued to improve. Our adjusted spot debt to adjusted EBITDA improved to 8.8x solidly within our target range of 8x to 9x. Our unencumbered asset pool grew to $9.3 billion. Our ratio of unsecured debt to total debt was 64%, and our liquidity was $1.1 billion. Our balance sheet provides us with financial flexibility to take advantage of opportunities as they arise. As I conclude my remarks, it is important to mention that our results are driven by our best-in-class platform. This includes our team of very talented and hard-working people. Our team has always utilized data that we collect from our vast portfolio to make decisions. Over the past few years, we have been upgrading our ability to leverage this data through the implementation of a new ERP system, migrating our systems to the cloud and employing analytical reporting and tools. This ensures that our teams have the best information and analysis available as they execute our strategy, whether it be negotiating a lease, investing in a retail infill project, or buying and selling assets, we ensure that the relevant data is available and the collective knowledge of our organization is brought to bear. We apply a continuous improvement mindset to ensure that we optimize the tools available to our people driving efficient processes and effective decision-making. With that, I will turn the call over to the moderator for questions. Operator: [Operator Instructions] Our first question comes from the line of Sam Damiani with TD Securities. Sam Damiani: Lots going on here at RioCan, and it's exciting to see in the next couple of years. I just wanted to start off. I think Jonathan or Dennis, one of you mentioned sort of numerous capital allocation opportunities in front of you right now. I wonder if you could be a little bit more specific in terms of what you're seeing and I guess, how much capital could be allocated? Jonathan Gitlin: Thanks, Sam. Good morning to you and thanks for joining the call. We are going to elaborate quite a bit more on that at our Investor Day. So I don't want to put too much emphasis on it today, just leaving something to talk about when we see you next -- in 2 weeks from now. But I'll give you the most obvious ones. Right now, the opportunities that are highly accretive and also beneficial, our infill development in our retail scope. So really looking at properties that we own where there is existing retail and we can make it better through the creation of additional retail pads and strips, and we're now in a position where the rents justify the expense of building out those additional square footage. And then the other is obviously NCIB, which we participated in the past. Given where our stock or where our units are trading relative to NAV and what we feel is an immediate FFO, return on FFO, we feel it's a pretty obvious place to place money. In addition, of course, there's paying down debt. Those are the 3 pillars, I'd say that we're focused on most, but there are many ancillary ones that we're also focused on, and we're going to elaborate on at the Investor Day. Dennis, do you have anything to add to that? Dennis Blasutti: No, I think that's right. And I think what's also important is to just note what Jonathan didn't mention, which is we're winding up our mixed-use development program. That's just not a priority for us right now in terms of any large construction at scale. So yes, I would agree, putting money back into our own portfolio, retail portfolio is a great use of capital right now, and it's hard to ignore the stock price. Sam Damiani: Okay. Great. And I look forward to November 18. Next -- my second question is on, I guess, the fair valuing -- the fair value changes you detailed on the quarter. I just want to be clear, the $90-odd million taken on the density assets, like what does that leave on the balance sheet for sort of excess density value recognized in your fair value? Dennis Blasutti: Yes. So I'm just trying to look at the number here. There is still value on a -- for some of the zoned square footage. I'm just kind of go into it here. We have -- our value in [indiscernible] is about $700 million, about $180 million of that is under construction site. So if I kind of do the math quick here, it's just, call it, a little over $500 million of total density value still on the balance sheet. When you kind of put that against almost 20 million square feet of zone density, it's a pretty low value on a per square foot basis. Operator: Our next question comes from the line of Brad Sturges with Raymond James. Bradley Sturges: Just focused on the core commercial portfolio, obviously, pretty strong results you continue to see there. Just curious, the renewal rent spreads continue to improve even with a higher proportion of fixed rate options. Do you think you've kind of hit a peak at that point? Or how do you expect your rent spreads to trend over the next few quarters? Jonathan Gitlin: We preached in the prepared remarks about the sustainability of the conditions. I can't predict precisely where our renewal spreads will be, but we do think it's going to be a strong market for landlords like RioCan, given the strength of our portfolio going forward. I don't see a catalyst to change these conditions in the near or medium term simply because there is no new supply, and we recognize that the tenancies that we're dealing with are typically very much in growth mode. So we really do see the ability to continue achieving solid rent spreads. We're not providing specific guidance at this point, but we have said in the past mid-teens, and that's, again, a pretty comfortable spot. And so I think it's -- if you look at also the opportunity set, as I mentioned in my prepared remarks, we've got over 10 million square feet that will be up for renewal over the next 3 years on a pretty consistent basis. And there's a significant mark-to-market. I mean if you look at the rents that we wrote in Q3, they were over $29 and that compares favorably to the average rents we have across our portfolio, which is in the $22.50 range. So that's about a 30% range that we feel very capable of bringing in through a strong renewal process. Bradley Sturges: Sounds good. And just a follow-up to that. Just with respect to next year's expiries, is there anything that stands out in terms of anomalous or would be unique or would be pretty similar to what you experienced in 2025 and you kind of see that consistent results going forward for next year? Jonathan Gitlin: Yes. I mean the beauty of scale, Brad, is that we really -- we have so many properties with so many tenancies. And even if there is 1 or 2 larger renewals coming up that might be like a Walmart renewal with a flat provision, it's offset by so many other renewals that don't have flat provisions or they go to market. So there might be 1 or 2 larger or 3 or 4 larger tenants that will come up for renewal that might be a little bit flat. But again, in the scheme of things, they won't change our guidance or outlook. I'll look to John Ballantyne just to see if I've missed anything there. John Ballantyne: No, you haven't, Jonathan. And I would also add, again, we're going to sound like a broken record, but we are going to unpack this a little more in our Investor Day in 2 weeks, namely where we think the market -- what the actual mark-to-market spread is in our existing leases and how that's going to unfold in the same-property revenue over the next 3 years. Operator: Our next question comes from the line of Mario Saric with Scotiabank. Mario Saric: Just a really quick one on HBC and specifically the Ottawa location. It seems like it's the one asset where plans are still forthcoming. Do you have a sense of the timing of clarity on that asset? Jonathan Gitlin: Thanks, Mario. There is no defined time line at this point. We've got a few different options that we are exploring, and we endeavor to keep everyone apprised of how those unfold. But again, as we've always committed, we're not going to put any significant capital into these assets unless there is a logical return that competes with our other capital allocation opportunities. Mario Saric: Okay. And then shifting gears just again, real quickly to RioCan Living. Any notable quarter-over-quarter change in terms of asset buyer sentiment? We've heard from some peers in terms of the beginning of some institutional interest coming into the multifamily space. So as it pertains to RioCan Living, are you sensing any incremental demand? And how does that change the time line in terms of selling off the asset? Jonathan Gitlin: Time line is still intact. I would say that the demand for our new builds, no rent control, limited CapEx residential portfolio has been consistent throughout. I don't think there's been significant ebbs and flows in the demand for them. In terms of the profile of buyers, again, we haven't really seen much of a change. We've had a pretty wide spectrum of buyers or interested parties thus far, and that hasn't changed. So the time line hasn't changed nor has the outlook, which is favorable and positive for the disposition of the remaining assets. Andrew, anything to add there? Andrew Duncan: No, John, I think you captured it. As you said, we've got bid depth in both institutional and private and we remain confident in our goal. Mario Saric: And just last question. As it pertains to the Investor Day, I'm not asking what you may disclose, but is the retail environment today and your confidence level in the portfolio today such that you feel comfortable disclosing 1-year, 3-year targets on some of the key metrics such as FFO, same-store NOI, et cetera? Jonathan Gitlin: Yes. We're going to give some pretty thorough outlooks. I think it would be a letdown at Investor Day if we didn't. So we will certainly leave you with a good outlook on the next few years. Operator: Our next question comes from the line of Michael Markidis with BMO. Michael Markidis: Congrats on the strong core portfolio results. Just wondering if you'd help us think about property management and other service fees and interest income have been a fairly significant contributor to your business on the earnings side over the last couple of years, and it is starting to moderate. How should we think about the trajectory of those 2 line items going forward? Will it continue to moderate as development winds down, the interest income, I imagine there's a bit of a rate component there, probably a little bit less capital invested. Just anything you can do to help us with those line items would be helpful. Jonathan Gitlin: Sure. I'll start, and I'll turn it over to maybe Dennis. . I think they will continue to moderate just in the sense that we have slowed down development and a large component of those fees came from development and management on behalf of others. In terms of property management fees, we have a set of properties that are co-owned and we are always the manager for those. Whether the number of co-owned properties increases or decreases, I think it will be a marginal component of those fees going up or down. So I don't think there will be much to add there. But we are an entrepreneurial organization. We are always looking at ways to continue to use the strength that we have one of those strengths is a very strong platform at RioCan. And so we look to -- at opportunities to utilize that to create fee income. But it's hard to predict at this point what exactly those will be and how much they will be for. So I think you would be appropriately suited just to keep things sort of on a level trajectory going forward. Dennis, I don't know if you have any further comments on that? Dennis Blasutti: Yes. No, I would agree with that. I think -- and I mentioned, I think, in my prepared remarks, there was a decline related to development management fees and interest income associated with some VTBs on condo properties. So I think that is going to moderate and sort of level out. The property management fee should be pretty level on that one. Michael Markidis: Okay. And one of the other fee components, I guess, has been a strong contributor over the past couple of years has been the financing arrangement fees. Like how do we think about that going forward? Is that similar to the development pipeline? Or is that related to other activities? Dennis Blasutti: I would say it would level off a little bit as well because it was related somewhat to development. We do occasionally do mortgages on behalf of properties that are co-owned, which will add a bit of fees here and there, but not -- I don't see that as a meaningful contributor going forward. Operator: Our next question comes from the line of Matt Kornack with National Bank of Canada. Matt Kornack: I was wondering if you could just help a little bit on bridging kind of the current quarter to future quarters in terms of HBC more in line with kind of any incremental capital deployment related to the, I guess, 3 assets that you own and the NOI generation. What would maybe be in this quarter versus what will be in future quarters considering more of those income-producing assets? Jonathan Gitlin: Dennis? Dennis Blasutti: Yes, sure. So on the 3 assets that we're backfilling, we had given a guidance range of about $100 to $125 per square foot, equates to approximately $25 million in total for capital outlay on those. So that's the number there. We had messaged that we would see -- we had about $0.08 of FFO coming in from HBC -- in total, that was going to go away. We'll claw back some of that with the acquisition of Georgian and Oakville and the backfills, probably about $0.01 in 2026 and then about $0.02 in 2027 as the tenancies ramp up. Matt Kornack: Okay. That's helpful. And then just on the nonrecoverable operating costs, they've been a little elevated this year starting in, I guess, Q4 of '24. Is that onetime in nature? Or is that a change in kind of the portfolio composition? Just trying to understand where those should head over the next year. Jonathan Gitlin: John, do you have a thought on that? John Ballantyne: Yes, I actually don't, Matt. We'll take a better look at that and get back to you with an answer. Operator: There are no questions registered at this time. [Operator Instructions] All right, I am showing no further questions at this time. I would now like to pass the conference back to President and CEO, Jonathan Gitlin. Jonathan Gitlin: Thank you, everyone, for dialing in. We will look forward to seeing you at our Investor Day coming up in 2 weeks. Operator: Thank you for your participation. You may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the Brookfield Asset Management Third Quarter 2025 Conference Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jason Fooks, Managing Director, Investor Relations. Please go ahead. Jason Fooks: Thank you for joining us today for Brookfield Asset Management's earnings call for the third quarter of 2025. On the call today, we have Bruce Flatt, our Chief Executive Officer; Connor Teskey, our President; and Hadley Peer Marshall, our Chief Financial Officer. Before we begin, I'd like to remind you that in today's comments, including in responding to questions and in discussing new initiatives and our financial and operating performance, we may make forward-looking statements, including forward-looking statements within the meaning of applicable U.S. and Canadian securities laws. These statements reflect predictions of future events and trends, and do not relate to historic events. They're subject to known and unknown risks and future events and results may differ materially from these statements. For further information on these risks and their potential impact on our company, please see our filings with the securities regulators in the U.S. and Canada, and the information available on our website. Let me quickly run through the agenda for today's call. Bruce will begin with an overview of the quarter and the market environment. Connor will walk through key growth initiatives across each of our businesses. And finally, Hadley will discuss our financial results, operating results and balance sheet. After our formal remarks, we'll open the line for questions. [Operator Instructions] One last item to mention is that the shareholder letter, which this quarter will be a single letter covering the biggest themes across Brookfield will be published Thursday morning alongside Brookfield Corporation's earnings. And with that, I'll turn the call over to Bruce. Bruce Flatt: Thank you, Jason, and welcome everyone. We are pleased to report another strong quarter for our business, marked by record fundraising, earnings deployment and monetization. Quarterly fee-related earnings grew 17% over the past year to $754 million. Distributable earnings grew 7% to $661 million, and fee-bearing capital reached $581 billion, an 8% increase year-over-year, all driven by our strongest fundraising period ever. These results reflect the strength of our franchise and the benefits of our global scale diversification and long-term client partnerships. Our business continues to benefit from the major themes shaping the global economy. The acceleration of AI and data digital infrastructure, the accelerating demand for electricity and the improving strength in the real estate markets, each of these themes plays directly to our strength as an owner, operator and investor in real assets and together, they are fueling multiyear growth across the business. In the third quarter, we raised $30 billion, bringing total inflows over the past 12 months to more than $100 billion. This was our highest pace of organic fundraising ever. Our fundraising in the quarter came from strong closes for two of our flagship funds, and increasing capital from our comp to entry funds and partner manager strategies. Our flagship global transition fund, our venture-focused Pinegrove strategy and our music royalties-focused Primary Wave business, all had closed just recently and each exceeded its target. Turning to the broader market environment. Transaction conditions have improved steadily throughout the year. The global economy remains resilient despite trade and tariff uncertainty. Corporate earnings are healthy. Capital markets are liquid, and the Federal Reserve has begun lowering rates. This is giving the market more confidence and leading to transaction activity significantly increasing. Global M&A volumes are up nearly 25% year-over-year. The third quarter alone saw $1 trillion of announced deals, the highest level since 2021. This resurgence in large cap M&A and a record backlog of sponsor-owned assets are therefore fueling activity. This is creating a good environment for both deployment and also asset sales. We remained active in this environment, deploying large-scale capital at attractive entry points where operating expertise provides us a competitive edge, while also crystallizing value from our mature investments at attractive returns. Our ability to recycle capital efficiently, returning proceeds to clients while raising new funds for the next generation of opportunities is fundamental to how we compound value over time and continue to consistently grow our business. Another important milestone was our recently announced agreement to acquire the remaining 26% in Oaktree Capital Management. As you know, one of the most respected names in global credit investing. When we partnered with Oaktree 6 years ago, the goal was to combine our global scale and real asset expertise with Oaktree's deep credit experience and value-oriented culture. That partnership exceeded expectations, enabling the rapid expansion of our credit platform, supporting the launch of Brookfield Wealth Solutions, and driving a 75% increase in Oaktree's asset base. Bringing Oaktree fully into Brookfield is the next natural step. It combines the scale and reach of our nearly $350 billion credit platform, enables deeper collaboration across our businesses from origination and underwriting to distribution and analytics. Most importantly, it enhances our ability to deliver the full breadth of Brookfield's credit capabilities to clients. Turning briefly to overall credit markets. Liquidity remains ample, and spreads in both public and private markets are near historically tight levels. Certain pockets of private credit such as middle market, direct lending and sponsor-backed leverage have become more commoditized as large amounts of capital is raised for a small pool of attractive deals. We've been disciplined in avoiding these segments of the market and instead of focused on attractive risk-adjusted return opportunities where we have strong competitive advantage, such as infrastructure, renewable power, asset-based finance strategies and opportunistic credit. Across our business, our ability to raise large-scale capital deployed strategically across the megatrends and deliver risk-adjusted returns to trusted clients continues to drive record results. Our balance sheet is extremely solid. Our margins are expanding and double-digit growth trajectory is sustainable. With record fundraising momentum, deep deployment pipelines and healthy monetization activity across our platforms, the foundations we've built over the past years have set the stage for an even stronger 2026. With that, I'll turn the call over to Connor, and thank you for the results. Connor Teskey: Thank you, and good morning, everyone. As Bruce mentioned, this past year was the most active period in our history across fundraising, deployment and monetizations. Our infrastructure and renewable power franchise is one example of this momentum, as over the past 12 months, we've raised $30 billion, deployed $30 billion and monetized over $10 billion at approximately 20% returns, demonstrating strength, scale, and consistency of our platform. Our franchise is the largest and most established globally, serving as a cornerstone of our business and a key driver of long-term growth. Deployment is centered around sizable investments across all sectors, geographies and positions in the capital structure, including by utilities, from a controlling equity investment for an industrial gas business in South Korea, and a minority equity investment in the United States for Duke Energy Florida, across transportation, via structured equity investment in a Danish port, across data with a mezzanine financing for a European stabilized data center portfolio, and across renewables, by an equity investment in a South American hydro platform, and to take private of a global renewable developer concentrated in France and Australia. And finally, across our first AI infrastructure deal with Bloom Energy, which we committed to this past quarter. AI promises unprecedented improvements in productivity but it is simultaneously driving an unprecedented demand for infrastructure, from data centers and power generation to compute capacity and cooling technologies. We estimate that AI-related infrastructure investments will exceed $7 trillion over the next decade. Brookfield's unique position, owning and operating across the full energy and digital infrastructure value chain gives us a tremendous advantage in capturing this opportunity. On the back of this generational investment opportunity, we are launching our AI infrastructure fund. A first-of-its-kind strategy that pulls together our global relationships with hyperscalers, our expertise in real estate, and our leading position in infrastructure and energy into one strategy. With the goal of being the partner of choice to leading corporates, governments and other stakeholders looking for integrated solutions that combine development capability, operating expertise and large-scale capital. We are also preparing to launch our flagship infrastructure fund, which is our largest strategy at Brookfield early next year. Looking ahead, we expect to have all of our infrastructure strategies in the market in 2026, including our flagship infrastructure fund, our AI infrastructure fund, our mezzanine debt strategy, our open-ended super core and private wealth strategies. And in the back half of the year, we expect to launch the second vintage of our Infrastructure Structured Solutions Fund. As a result, despite raising $30 billion over the last 12 months, we expect next year will be even bigger. Within renewable power, this quarter, we also held the final close of the second vintage of our global transition flagship at $20 billion, making it $5 billion larger than its predecessor and the largest private fund ever dedicated to the global energy transition. The success of this fund raise also reinforces the scale, credibility and momentum of our energy franchise. Since launching our first ever transition strategy less than 5 years ago, our platform now produces over $400 million of annual fee revenues. More important, we are investing into an environment that is highly attractive and increasingly constructive for us. Global demand for electricity is increasing at an unprecedented rate. This is the result of the ongoing trend of electrification as large sectors like industrials and transportation are increasingly electrifying. And this growth has now been supercharged in recent years by the surge in electricity demand from data centers to support cloud and AI growth around the world. Data centers are becoming some of the largest single consumers of electricity and the scale of new generation required to support them is immense. Each of these forces is contributing to a structural shortage of generation capacity. To put it plainly, the world needs more power, and it needs it faster than ever before. Our business is uniquely designed to meet this challenge. We are positioned to provide that any and all power solutions that will be necessary to meet this need. Our leading renewable power business can provide the low-cost wind and solar solutions needed to meet this increasing demand. Renewables continued to see significant growth due to their low-cost position, but also their ability to win on speed of deployment and energy security, as they do not rely on imported fuels. And in a world where baseload power and grid stability are increasingly important, in addition to renewables, we have leading platforms in hydro, nuclear and energy storage, all of which play a critical and growing role for electricity grids, both independently and as complement alongside natural gas and renewables in the energy mix. In this regard, we are very pleased to announce, last week, a landmark partnership with the U.S. government to construct $80 billion of new nuclear power reactors using Westinghouse technology. The agreement reestablishes the United States as a global leader in nuclear energy and positions Brookfield at the center of a historic build-out of clean baseload power, creating one of the most compelling growth opportunities across our transition platform, and potentially one of the most successful investments in Brookfield's history. Within our private equity business, we recently launched the seventh vintage of our flagship private equity strategy, which focuses on essential service businesses that form the backbone of the global economy. These include industrial, business services and infrastructure adjacent companies where we can apply our operational expertise to drive efficiency, productivity and scale. Early investor feedback for this strategy reflects a growing recognition that value creation in the current environment is driven less by multiple expansion or financial engineering, and more by hands-on operational improvement, an approach that has long defined Brookfield's success. While many traditional buyout strategies are navigating slower fundraising cycles, we continue to be differentiated. We have consistently returned capital at strong returns from preceding vintages, and are seeing strong demand for our differentiated, operationally focused model. We expect this next vintage to be our largest private equity fund ever. We are also bringing our private equity strategy to the private wealth channel with the recent launch of a new fund structured for individuals. Similar to how we structured our successful private wealth infrastructure fund, this new private equities fund will be able to invest alongside all of our private equity strategies. This means that targeting individual investors in the retirement market does not require us to invest differently, but rather simply package our current investment activity in a different way to meet the growing demand from a new set of clients. Within real estate, we continue to see strong momentum across our property business. Market conditions have improved meaningfully. Transaction volumes are rising, capital markets are robust and valuations for high-quality assets are firming. We are actively monetizing stabilized assets, selling approximately $23 billion of properties, representing $10 billion of equity value over the past 12 months. At the same time, it is an excellent point in the cycle to be deploying capital into certain segments of the market, and we have significant dry powder to put to work following the successful close of our latest flagship real estate fund, our largest real estate strategy ever. The combination of limited new supply, recapitalization needs and improving sentiment is creating one of the most attractive investment environments we've seen in years. We are also taking advantage of the constructive financing backdrop to strengthen our long-term holdings, including the $1.3 billion refinancing of 660 Fifth Avenue in Manhattan, part of the over $35 billion of real estate financings we've closed year-to-date. And finally, on our credit business, we will make a few additional points. We continue to see a large opportunity set to invest in the areas that fit our core competencies. The themes driving our equity businesses will require significant debt capital investment and Brookfield is well suited with its expertise and capital to meet that need, whether it be in real asset, opportunistic or asset-backed finance. As we look ahead to the rest of the year and into 2026, we see the market continuing to be strong for our business. Capital markets remain healthy. Liquidity is abundant, and the opportunity set across our businesses continues to expand. The flagship strategies we are launching will continue to anchor our growth while our complementary products, including our AI infrastructure fund, and our rapidly scaling fundraising channels such as wealth and insurance, are diversifying our platform and driving our consistent high-teens growth rates. The secular forces shaping the global economy, digitalization, decarbonization and deglobalization are the same themes that have guided our strategy for many years. Today, they are accelerating. As these trends converge, Brookfield's global reach, operating depth and access to long-term capital position us well to continue leading the industry. With that, we'll turn the call over to Hadley to discuss our financial results, record quarterly fundraising and balance sheet positioning. Hadley Peer Marshall: Thank you, Connor. Today, I'll provide an overview of our third quarter financial results, including additional color around $30 billion of fundraising, our recent M&A activities, and the strategic positioning of our balance sheet. As previously mentioned, we delivered another record quarter of earnings, driven by strong fundraising, deployment and monetization. Fee-bearing capital increased to $581 billion, up 8% year-over-year. Over the last 12 months, fee-bearing capital inflows totaled $92 billion, of which $73 billion came from fundraising and $19 billion came from deployment of previously uncalled commitments. In the third quarter, fee-bearing capital grew $18 billion, driven in large part by the final close of the second vintage of our global transition flagship fund and continued strong capital raising and deployment across our complementary strategies. Fee-related earnings were up 17% to $754 million, or $0.46 per share, and distributable earnings were up 7% to $661 million, or $0.41 per share. Distributable earnings growth reflected higher fee-related earnings, partially offset by increased interest expense from the bonds we issued over the past year and lower interest and investment income. Overall, growth was driven by a record $106 billion raise over the last 12 months and record deployments of nearly $70 billion. This activity has been a major catalyst for our business and we will continue to be active on the deployment front given strong investment opportunities in front of us. The simplicity and consistency of our earnings anchored almost entirely in reoccurring fees, gives us a strong foundation to continue to build from, especially as we continue to further our capital base and launch new strategies. Lastly, our margin in the quarter was 58%, in line with the prior year quarter and 57% over the last 12 months, up 1% from the prior year period. This margin increase was driven by three offsetting dynamics. First, we continue to acquire a greater portion of our partner managers. These businesses have lower margins, and therefore, while these acquisitions are highly accretive acquisitions, they do weigh a bit on our consolidated margin. Second, Oaktree margins are temporarily lower than usual. At this point in the cycle, Oaktree is returning significant capital, but has not yet called capital for some of its deployment, leading to a natural reduction in fee-related earnings and margins. That trend will reverse as it has in the past given the strong growth in the business. Finally, our margins on our core business continued to increase as expected, more than offsetting these dynamics. Turning to fundraising. In total, we raised $30 billion of capital in the quarter, bringing our 12-month total to $106 billion. Over 75% of that capital came from complementary strategies, reflecting the breadth, strength and diversification of our offerings, which allows for sustained fundraising momentum in addition to our flagship cycle. As for our flagships, we also raised $4 billion for the final close of our second global transition flagship, bringing the strategy size to $20 billion. We continue to raise capital for the fifth vintage of our flagship real estate strategy, bringing in $1 billion from SMAs, regional sleeves and private wealth for the quarter with $17 billion being raised to date for the entire strategy. Within our Infrastructure business, we raised $3.5 billion, including $800 million for our private wealth infrastructure vehicle, bringing our year-to-date total for the fund to $2.2 billion. In our private equity business, we raised $2.1 billion, including a total of $1.4 billion for 2 inaugural complementary funds, our Middle East private equity fund and our financial infrastructure fund. Subsequent to quarter end, we held a final close for the inaugural Pinegrove opportunistic strategy for $2.5 billion, exceeding its initial target and ranking among the largest first-time venture growth, or secondary fund ever raised. And finally, on credit, we brought in $16 billion of capital across our funds, insurance and partner manager strategies. This included over $6 billion across our long-term private credit funds, including $800 million for the fourth vintage of our infrastructure mezz credit strategy, which has raised more than $4 billion for its first close. We also raised $5 billion from Brookfield Wealth Solutions, including an SMA agreement with a leading Japanese insurance company, marking its first entry into the Japanese insurance market, which should be the first of more to come. As we head towards the end of the year, we're confident this will be our best fundraising year ever, and we see that trend continuing with strong momentum for 2026. Broadening the scope to the next 5 years, we recently laid out our plan to double the business by 2030 at our Annual Investor Day hosted in New York. We outlined our plan to continue expanding our product offerings by scaling existing offerings and launching new ones, diversifying our investor base, including across Europe, Asia, middle market and family offices, and on the retail side by launching new private wealth related products. These drivers should enable us to double our business over the next 5 years with fee-related earnings reaching $5.8 billion, distributable earnings reaching $5.9 billion, and fee-bearing capital reaching $1.2 trillion. However, our business plan does not include certain additional growth opportunities such as product development, M&A associated with our partner managers, and opening up of the 401(k) market opportunity, which gives us multiple paths to outperform and to deliver over 20% annualized earnings growth. Turning now to our balance sheet. In September, we issued $750 million of new 30-year senior secured notes at a coupon of 6.08%, extending our maturity profile and diversifying our funding sources. We also increased the capacity of our revolver by $300 million to provide additional flexibility as our business continues to grow. At quarter end, we had $2.6 billion in liquidity, a strong liquidity position. We use our balance sheet selectively to seed new products and support strategic partnerships, such as closing the acquisition of a majority stake in Angel Oak and signing the acquisition of remaining 26% of Oaktree that we currently do not own, both of which occurred after the quarter. On Oaktree, we will invest approximately $1.6 billion to acquire their fee-related earnings, carried interest in certain funds and related partner manager interest. Upon close, it will create a fully integrated leading global credit platform with significant scale and capability. The transaction is expected to close in the first half of 2026 and is subject to customary closing conditions, including regulatory approval. Lastly, we declared a quarterly dividend of $0.4375 per share payable December 31 to shareholders of record as of November 28. In closing, we are confident in our trajectory towards achieving our long-term growth goals. The breadth of our platform, our operational expertise and our global scale continue to give us a clear advantage. Our strategy is aligned with the strong tailwinds of digitalization, decarbonization and deglobalization and we're expanding in areas where these trends intersect AI infrastructure, energy transition and essential real assets. Thank you for your continued support, and we're ready to take questions. Operator: [Operator Instructions] Our first question comes from the line of Alex Blostein with Goldman Sachs. Alexander Blostein: I was hoping we could start maybe with the commentary around fundraising momentum in the business you're seeing into 2026. A number of pretty robust verticals. But at the same time, it sounds like monetization outlook is also picking up. So maybe help us frame what that could mean for management fee growth as you look out into 2026? So maybe we could start there. Bruce Flatt: Thanks, Alex. We're very excited about 2026. Maybe if we can start with fundraising. For 2025, I think we guided that fundraising would exceed 2024's levels ex AEL of $85 billion to $90 billion. Through 3 quarters, we're at $77 billion and expect to meaningfully exceed that target. As we look forward to 2026 with our infrastructure and flagship -- infrastructure and private equity flagships in the market with a bumper year expected in infrastructure fundraising with the closing of Just Group, and the continued growth in our partner managers and complementary strategies, we very much expect 2026 to exceed the levels we'll achieve in 2025. And then when you turn that towards FRE growth, we expect to maintain our momentum and either reach or exceed what has been laid out in our 5-year plan. And this is really driven by two things. One, with the addition of Oaktree, Just Group, Angel Oak, those transactions will add almost $200 million to our FRE on a run rate basis going forward. And then when you add the run rating of the growth in 2025 rolling through our numbers in 2026, and the expected growth just laid out from new fundraising in 2026, we expect next year to be a very strong year. Operator: Our next question comes from the line of Sohrab Movahedi with BMO Capital Markets. Sohrab Movahedi: I just wanted to focus just a little bit on the credit business, if we can. Obviously, an important source of fee-bearing capital growth as part of the 5-year plan. This quarter, the fee rate, the blended fee rate, if I look at the fee revenues relative to the private credit, or the total credit I should say, funds was a bit higher than what we're used to seeing. Can you just talk a little bit about what was the driver of that, if that is a new rate we're looking at, if the fee rate is a little bit higher? Is that consistent? Or is that a one-off? And then there's just private credit has been a little bit more in the headlines. Just curious to kind of get a sense of how you think about it relative to your business and the growth aspirations that you have especially coming from credit? Bruce Flatt: Perhaps I'll start, and then I'll hand to Hadley. In terms of the slightly elevated fee rate this quarter in terms of private credit, it's really driven by two things. Our private credit business continues to evolve as the mix shift within our business adjusts through the transactions and the increasing ownership of our partner managers. And what we would say is on a blended basis, our fee rate is going up marginally. We will acknowledge that particularly within our Castlelake business that is performing very well, there was an outsized quarter with some one-off transaction fee revenue that is creating a little bit of upside in this quarter's numbers, but that shouldn't detract for a broader positive trend that we're seeing across our credit business. Hadley Peer Marshall: Yes. And I'll just talk a little bit about how we're seeing credit more holistically. I mean, there have been a few high-profile credit events in the market. And what we're seeing across our portfolio, and the broader credit trend, is that these events are very isolated and not a sign of a broader credit cycle. And if you actually look at our portfolio, we don't have any relevant exposure to these issues. But when we think about our portfolio, our area of focus has really been heavily around real assets, asset-backed finance, opportunistic. And these are where we have expertise around the structuring, the underwriting of the sectors, the sourcing capabilities and then, of course, our scale. And we've been less focused around the more commoditized part of the private credit market related, especially around direct lending. The one point I would probably also add though, is that if there was a broader credit cycle, that plays to our strength with our opportunistic credit strategies. So overall, we feel really good about our positioning. We have a large, diversified and differentiated platform around our credit business, and that's built for growth and resiliency across the market cycles. And we'll only benefit with the integration of Oaktree. Sohrab Movahedi: Hadley, if I can just ask one quick follow-up on that. Given the pleasant surprise, for example, this quarter, as minor as it was, came out of one of the partner managers that you own. Like is there a potential for negative surprises, I suppose, to come from the partner managers as well? And can you dimension what sort of risk management, I suppose, is in place to color that? Hadley Peer Marshall: No, we don't see that. And it goes back to the area of focus. If you think about our expertise around real assets and the areas within asset-backed finance that we focus on, that's critical because we're doing the due diligence. We've got collateral. We've got strong structures in place, and look, low default rates and high recovery rates. And so that puts us in a really good position. That's why we like that part of credit. Operator: Our next question comes from the line of Cherilyn Radbourne with TD Cowen. Cherilyn Radbourne: With regard to the pending buy-in of the Oaktree minority stake, can you talk about some of the things that you'll be able to do together as a combined company that you can't do today as a majority owner? Bruce Flatt: Thanks, Cherilyn. We're thrilled about the transaction that we've announced with Oaktree. And really what it allows us to do is accelerate the combination of the businesses and unlock the benefits of integrating two leading institutions. And maybe to simplify it, we would say the low-hanging fruit near-term upsides are really in three places. One will be almost instantaneously on closing. Oaktree had its own subsidiary balance sheet. We can immediately collapse that. That's much more efficient for us from a financing perspective. Even further within that balance sheet, there are a number of securities and investment positions, that under Brookfield Asset Management's asset-light model. We will actually monetize those positions and use them to fund a very large portion of our purchase price, making that transaction highly, highly accretive. The second opportunity is really just around operating leverage. When it comes to fund operations, administration and back office, there's tremendous synergies in operating leverage as both our businesses continue to grow from combining our combined capabilities, and that really is a scale business and putting the 2 institutions together will unlock a lot of value. And then the last one is absolutely the most important. And it's the ability to see upsides in our marketing, our client service and our product development. Our ability to combine the power of the 2 organizations in terms of the products and solutions and partnerships that we can offer to our clients, we think, is going to be unmatched. And this is particularly valuable for serving the growing portions of the market, whether it be insurance companies and individual investors going forward. Maybe just on a closing note, the team at Oaktree has been our partners for the last 6 years, and this just takes that partnership to a whole another level. Howard Marks is on the Board of BN. Bruce Karsh is going to go on the Board of Brookfield Asset Management. And it's early days, but our interactions with Armen, Bob, Todd and the fantastic team at Oaktree, we already expect this integration to be far better than we initially hoped. Operator: Our next question comes from the line of Bart Dziarski with RBC Capital Markets. Bart Dziarski: I wanted to touch on the retail theme. So you talked about the infrastructure wealth product and the momentum there and then the PE evergreen strategy, I think that's in the market now. So one theme, but two parter. Just can you give us a sense of the early indication that you're seeing these products and the momentum into next year? And then just a reminder of the distribution strategy as you build these products out into next year? Bruce Flatt: Thank you. I think it goes without saying that the momentum we're seeing in the individual market is very robust. And again, that we will highlight, we view this as a market, the broader individual market, that's your high net worth and your retail investor, that's your annuity and insurance policyholder, that's your 401(k) and your retiree market. We view this as a very significant market opportunity that will continue to grow incrementally for the years and candidly decades to come. In terms of where we're seeing growth opportunities in the near term, we are launching new products into this market. We just recently launched our private equity product for the retail channel. That launched just recently and started with an incredibly successful launch in Canada and is now launching in the U.S. And our expectation is that's really the equivalent to our infrastructure product for the retail market. We expect the private equity product to scale even faster than our infrastructure product has. And therefore, we continue to expect this to be an increasing portion of our growth in earnings going forward. Bart Dziarski: And sorry, just on the distribution strategy? Bruce Flatt: Certainly. So I think there's two key components there. In terms of distribution into the individual market more broadly, the winners in this market are largely going to be driven by who has the track record, the scale and the credibility. And as a result of that, we are seeing the significant opportunity to get our products placed onto the leading bank distribution platforms around the world for that near-term market opportunity in retail. As we think ahead more broadly to other components of the individual market, in particular, the 401(k) and the retiree market. At this point, we are preparing our business for that very significant opportunity, making sure we have the right relationships and the right partners with all the stakeholders in that space. That's the advisers, that's the plan administrators, that's the consultants, that's the record keepers. And there's a significant effort within Brookfield. And we feel, given our focus on real assets that lends itself well to that growing market, we feel we're very well positioned. Operator: Our next question comes from the line of Craig Siegenthaler with Bank of America. Craig Siegenthaler: So our question is on corporate direct lending, both IG and non-IG. From your prepared commentary, it sounds like you're less constructive on the investment opportunity today versus some of what your peers are saying due to intensifying competition. However, when you take a step back, it looks like aggregate LTVs are still pretty low and the spread to publics are still pretty rich. And with the cash yields declining now with Fed rate cuts, the relative attractiveness to retail insurers and institutions should still be there. So my question is, what am I missing here besides the gaining share of private credit versus BSL and high yield? Connor Teskey: So Craig, great question. And maybe just to put some context around this, let's come at it from a few different ways. On a more general basis, we believe private credit for various reasons has become, and will continue to be a very important component of global finance, and it's going to continue to grow beside bank credit and other liquid sources. And that growth is very robust, and it's not short term in nature. It's going to be enduring for the long term. In terms of today within the market, where are we seeing the most attractive returns on a risk-adjusted basis? Obviously, every investment is specific. But broad-based, we're seeing tremendous -- we're seeing a very strong premium in particular, in credit related to real assets, infrastructure and real estate credit and certain components of the asset-backed finance market. I think the comments that you are referring to is there have been a significant amount of capital poured into the direct and corporate lending market. And in some places, we are seeing spreads very compressed. And in other places, we're seeing a little bit of covenant degradation due to the competition to secure some of those lending mandates. Obviously, that is specific on a case-by-case basis. But in general, what we are trying to do is avoid the most commoditized components of the market and really focus to where we're getting that attractive spread premium, and where we can preserve our covenant positions the way we have in the past. But I appreciate the question because what we would not want you to interpret is that we think private credit is slowing down. It is a very large and growing and enduring part of the financial system going forward. Craig Siegenthaler: Thanks, Connor. I have a follow-up on the credit business, and I think you covered a little bit earlier, but I was bouncing around between two calls. But management fees in the credit business went up a lot faster than average fee-bearing AUM. And I know Castlelake went in there. So maybe that had some lumpiness in there. But we still have the fee rate up 10% on the average fee-bearing AUM base. So were there any lumpy items in the revenue side that we should back out? And also, I don't think you hit this part, but were there any lumpy items in the expense side of the credit business? Because sometimes a lumpy revenue item might correlate with an expense item. So we just want to make sure we get the P&L run rate correct as we walk into 4Q here. Connor Teskey: Sure. And it's pretty simple. Thank you again for the question. The outsized growth that we had in credit this quarter, I think the way to think about it is I think that business was up almost 15%. About half of that is just run rate organic growth, the continued momentum we're seeing in that business. And half of that was the full quarter of an acquisition that was made within our Castlelake business. So some of it was M&A related, and some of it was organic growth. Maybe you can think about that as roughly half and half. And then on the fee rate component, within Castlelake, which is a business -- a partner manager of ours that's performing very well. They did have some outsized transaction fees in this quarter. The blended broader fee rate is trending up, but it was somewhat enhanced this quarter by onetime transaction fees. Operator: Our next question comes from the line of Kenneth Worthington with JPMorgan. Kenneth Worthington: Great. Maybe for Hadley. You're operating at 58% operating margins right now. You highlighted on the call that Oaktree margins are depressed, but getting better. Core margins are rising, but that acquisitions are operating at lower margins. How do we put these pieces together, particularly since we've got some of the transactions just closed, or closing? And you mentioned sort of the transaction fees sort of helps in the current quarter. So how do we think about the right level, and then the trajectory once everything gets closed? Hadley Peer Marshall: Thanks for the question. First, I'd say that we are very disciplined when it comes to our cost. And we expect our margins to continue to improve over time as we presented at Investor Day. And that's on the backs of our growth initiatives that will play out and the operating levers that's built into our business, as well as we execute on ways to drive additional efficiencies, including the integration of Oaktree. And in this regard, we are on track and actually ahead of our margin improvement plan that we've laid out. It's also worth pointing out that the consolidated margin increase that we're seeing today is a blend of a few offsetting dynamics. The first being, we acquired a greater share of our partner managers and these businesses, while highly accretive to our earnings do have lower margins, and do mildly dilute our overall margin level. Second is Oaktree's margins are temporarily lower as we point out. As they've been returning more capital and haven't yet called capital for some of its deployment. That's a typical cycle for that business, and it will naturally reverse given the countercyclicality to the overall business. And the last point I'd make is that the margins across our core businesses continue to expand, which is more than offsetting the first two items I just mentioned. So while we focus on continuously improving our margins and are delivering in that regard, we run our business with a focus to grow FRE over the long term, and we don't manage the business to a specific absolute margin level, which obviously can be impacted by the mix. Operator: Our next question comes from the line of Dan Fannon with Jefferies. Daniel Fannon: So lots of momentum in fundraising, but I wanted to talk about private equity, in particular, it sounds like your outlook is quite optimistic around raising a larger fund. That seems different than what we've heard for that asset class from others. So just curious about what informs that optimism given the market backdrop? Bruce Flatt: Thanks, Dan. Our private equity business is a little bit unique, and it has been for 25 years. In that, it focuses on essential assets and services, and it -- and as a result, it produces very consistent results across the market cycle. And why that really plays out well today is, as mentioned, we've just launched BCP, the next vintage of BCP in the quarter, and we do expect it to be our largest private equity fund ever. We do feel that we are differentiated in the market because our focus on, one, high-quality assets that generate cash across the cycle has allowed us to return significant amounts of capital out of this strategy in recent years. So we're not facing the DPI issue that has driven a lot of headline noise in the sector. And then secondly, we, I think, all recognize that the next generation of growth and value creation in private equity, given the more normalized interest rate environment is not going to come from financial leverage and financial engineering. It's going to come from operational improvement. And given that over the 20-year history of our flagship private equity fund, we've delivered over 25% IRRs for 2 decades with over half that value creation coming from operational improvement. We are seeing tremendous market demand for our approach to private equity that we think is -- it works across the cycle, but it's perfectly suited for where we're at in the current economic environment. So it's early days. We've just launched the fund, but we do expect it to be our largest fund to date. Operator: [Operator Instructions] Our next question comes from the line of Jaeme Gloyn with National Bank. Jaeme Gloyn: Good job on the fundraising this quarter this year. One thing that was mentioned at the Investor Day was broadening, or deepening the client base, the institutional client base. So I'm just curious on what the source of fundraising looked like from a breadth of client standpoint? Bruce Flatt: In terms of broadening the fundraising base, I think we can answer this question quite specifically. The growth in our business over the last several years has really been driven by the scaling and increased penetration of large-scale institutions. And while we focus on other additional pockets of fundraising, it's important to remember that component, and that core foundation of our business continues to grow. But what we have done internally within Brookfield and what we've been investing in for the last 12 to 24 months is dedicated fundraising teams that can target a much broader base of investors. This is small or medium-sized institutions. This is a dedicated team focused on insurance institutions. This is a dedicated team focused on family offices. All of those initiatives, we would say, are still in the relatively early innings, and we're seeing tremendous growth across 3 verticals. One, a greater number of clients within each of those groups. Two, a greater number of products amongst those clients that we're bringing on board. And three, simply larger checks from those clients that we have. So we would expect this momentum to continue, but it's really driven by having dedicated teams focusing on all the different subcomponents of the institutional market going forward. Operator: And I'm currently showing no further questions at this time. I'd now like to turn the call back over to Jason Fooks for closing remarks. Jason Fooks: Okay. Great. If you should have any additional questions on today's release, please feel free to contact me directly, and thank you, everyone, for joining us. Operator: This concludes today's conference. Thank you for your participation. You may now disconnect.
Vincent Clerc: Welcome, everyone, and thank you for joining us on this earnings call today as we present our third quarter results for 2025. My name is Vincent Clerc. I'm the CEO of A.P. Møller - Maersk. And with me in the room today is our CFO, Patrick Jany. As usual, we start with the highlights of the quarter just passed. We are pleased with the strong execution shown during the quarter in all businesses. We improved our performance across the board and delivered on an EBITDA of $2.7 billion and an EBIT of $1.3 billion, up from the previous quarter. All segments showed strong sequential volume progression, while costs were kept under tight control. These efforts paved the way for the strong results, notwithstanding the external environment. Specifically, in Logistics & Services, we are staying the course, focusing on operational margin improvements on both prior year and quarter to maintain the streak of good progress in 2025. We also registered good underlying and seasonal volume growth, which more than offset the softening observed in North America. For Ocean, this third quarter was the first full and clean quarter of the Gemini cooperation. While we kept delivering reliability at 90-plus percent, we also generated cost benefits well above the target we had communicated. This excellent performance was supported by strong volumes and high asset utilization as well as asset turns. As expected, rates softened during the period as new capacity continued to be inflated ahead of demand. Finally, our Terminal business delivered again record high revenues and profitability, driven by strong volumes, not least the ones delivered as a consequence of the Gemini implementation and the highest ever utilization across our portfolio of gateway terminals. With another quarter of sustained high demand, especially out of China, we expect a market growth around 4% for the full year. This strong demand, combined with the successful implementation of Gemini and progress across all segments allows us to narrow the full year 2025 guidance to an underlying EBIT of between $3 billion and $3.5 billion. As usual, more details will follow on this later in the call. Now taking a closer look at each of our business segments. First, Logistics & Services continued to track positively. We achieved an EBIT margin of 5.5%, up from 5.1% last year and 4.8% last quarter. The key levers of progress remain asset utilization, productivity improvement and stringent cost management. Aside from these efforts, the top line also grew 2% year-on-year and 9% sequentially, the latter reflecting both seasonal strength and new win implementation, which offset the softening of demand in North America. In Ocean, as mentioned, we had our first full and clean quarter of Gemini -- after the Gemini implementation. From already the first month since the implementation in February, we have seen the network deliver reliability above 90% and show resilience against disruptions such as weather, which we have seen recently in the Far East with the worst typhoon season in 10 years. Meanwhile, we continue to deliver 90-plus percent reliability in the third quarter, and we also achieved significant cost savings even compared to the ambitious target we had communicated to you earlier this year. I will go into more details on this very shortly. What Gemini has allowed us to do with these savings is to use our fleet more efficiently and capture more volumes. Our volumes are up 7% year-on-year and 5% sequentially for this quarter, while the average loaded freight rate was more or less in line with the prior quarter. Good volume development has also driven high utilization of 94% for the quarter, up 0.5 percentage points sequentially. All of this happened against the backdrop of decreasing rates as expected. In Terminals, we delivered another excellent quarter, driven by record on volumes, revenue, EBITDA and EBIT. What we have not talked about so much until recently is the volume uplift in our gateway terminals from Gemini, which has been a key contributor to our performance this quarter. Return on invested capital has delivered a further uptick to 17.2%. Here, we note that with utilization close to 90%, we are approaching the full potential at which operations in some of our locations become less efficient and volume growth opportunities become more limited in the short term. We continue to invest to debottleneck our existing terminals as well as grow with new locations as exemplified by the inauguration of Rijeka Terminal in Croatia less than 2 weeks ago and several other projects in the pipeline. Turning to our midterm target. As you can see, we have shown almost full delivery on our 2021 commitment. As mentioned, we continue to stay the course of regular progress in Logistics & Services, which is tracking positively with EBIT margin up both year-on-year and sequentially, although more needs to be done on that field. We continue to make good operational progress with our challenged products of Air, Middle Mile and Last Mile, while seeing good revenue growth in our other products, more in line with our organic revenue growth targets. Our priority is to continue to improve in the fourth quarter as we round off the relevant period of these targets. Taking a step back from this quarter, I want to just take a couple of minutes to get into more detail as to what has been driving such a robust demand growth in Ocean and some of the consequences of this phenomenon, which we do not think are sufficiently well understood. Despite talks of deglobalization, nearshoring, trade wars, container demand has shown a remarkable resilience over the past few years that has confounded many observers and models. During this period, China's export growth into all regions of the world, except for North America, has not only been resilient, it had gathered pace. China's share of global export has increased significantly and never as fast as it has over the past 2 years. Specifically, its global export share has increased steadily from 33% only 2 years ago to about 37% this year. This growth is part of a longer trend as reflected from the chart to the left, but has accelerated recently. It affects all regions with the Far East, excluding China being the biggest market and growing at 12% per annum, and Europe the second biggest market and growing at 10% per annum. North America, which, in this case, is including Mexico, which is the third biggest market, has been weaker, but still has seen growth at 5% per annum despite the known trade tensions in 2025. Given the widely available production capacity in China and the very competitive products that are being exported, we do not expect this trend of accelerated export growth from China to stop. The momentum is strong. The consequence for us are not only the resilience of demand growth, which will contribute to absorbing some of the new capacity coming online, but also the increased trade imbalance that it is causing, which over time will lead to higher production cost and lower asset intensity for the industry. On both fronts, Gemini offered us a much needed flexibility so that we can capitalize on the growth opportunity while minimizing the cost impact. Moving back to Q3 and to Gemini specifically, this is the first quarter where we can see the full effect of the new network, and we are pleased that the savings are higher than our original guidance. To give you a sense of the benefits, we separate the Ocean cost savings, which were the ones we had communicated into 2 buckets, namely Bunker Savings and Asset Turn increase. Aside from these, we can also present an upside that we have seen in Terminal as a direct result of this new cooperation. Now taking each of this in turn and starting with Bunker. We can see that the advantages of Gemini stemming from a more efficient use of our vessels, for instance, through lower speed, shorter sailing distances and shorter dwell time are allowing us to reduce the bunker consumption. This quarter, we saw a 6% higher capacity, but about -- but about 3% lower total bunker consumption. And this translates in an approximately 8% bunker consumption reduction corrected for the changes in capacity. Then on our Asset Turn side. From the most efficient use of our vessels, Gemini allows us to transport more volumes at the same capacity. This quarter, we saw the capacity growth of about 6% against the volume growth of 7%. The delta of about 1% point represent the improvement in asset turns. Both these buckets are driven by improvements we have been able to do under Gemini. First, we have been able to deploy our largest vessels in most effective routes and on shorter loops. Secondly, the shorter loops have had fewer port calls and more efficient ones. Thirdly, locations outside the shorter main liner loops have been serviced by fit-for-purpose shuttles rather than underutilized mainliners. We can quantify the bunker consumptions improvement to about 8% at fixed bunker into cost benefits of about $135 million for the quarter, which annualized is about $450 million to $550 million based on the full year implementation and normal seasonality. Likewise, we can quantify the asset turn improvement of about 1 percentage point, which against our total network cost translates into about $50 million of cost benefit in the quarter, which annualized is about another $150 million to $200 million benefit. The cost benefits on the Ocean side alone, therefore, sum up to around $600 million to $750 million on an annualized basis. Another advantage of Gemini has been to increase volumes in some of our gateway terminals, allowing us to significantly increase the throughput. These additional moves have improved port moves per hour and expanded operating terminal capacity. The additional uplift has generated about $40 million in benefits, which annualized is about $120 million to $200 million based on full year implementation and seasonality. Overall, across Ocean and Terminal, therefore, we have generated about $225 million in cost benefits in the third quarter or $720 million to $950 million in annual savings compared to our previously announced targets of about $500 million. As mentioned earlier, we now expect container volume growth to be around 4% for 2025, given the strong demand that we continue to see outside of North America. There is no change to our assumptions on the Red Sea disruptions, which we still expect will not reopen in the near term, absorbing net supply in the industry as long as it remains closed. Against the backdrop of these factors as well as a strong year-to-date performance, we refine our financial guidance to the full year 2025 to an underlying EBITDA of $9 billion to $9.5 billion from previously $8 billion to $9.5 billion, and an EBIT of $3 billion to $3.5 billion, previously $2 billion to $3.5 billion. And finally, free cash flow of positive $1 billion or higher, previously negative $1 billion or higher. Our CapEx guidance for '24 and '25 combined is revised down to about $10 billion, down from $10 billion to $11 billion, while the guidance for '25 and '26 remains unchanged. And I will now hand out to Patrick, who will walk you through the detailed financials at segment level for our performance. Patrick Jany: Thank you, Vincent, and welcome to everyone on the call. Q3 '25 was a quarter with strong financial performance across the group, significantly up sequentially. Overall, we generated an EBITDA of $2.7 billion and an EBIT of $1.3 billion, implying a margin of 18.9% and 9%, respectively. As expected, the delta to the previous year is driven largely by the shift in rates we have seen in Ocean since the peak levels in mid-'24, which was at the height of the Red Sea disruption, while the progress on the previous quarter is driven by higher volumes and operational improvements across all 3 businesses. Net profit after tax was $1.1 billion, generating a solid return on invested capital of 9.6%, still at a good level, but decreasing as strong 2024 quarters progressively fall out of the yearly calculation. Solid free cash flow supported a strong balance sheet with cash and deposits standing at $20.9 billion at quarter's end. Our net cash position is down from $5.6 billion last year to $2.6 billion, driven mostly by the strong returns to shareholders, which totaled $4 billion in the first 9 months. Let's take a closer look at cash flow on Slide 12, where we see that cash flow from operations increased sequentially to $2.6 billion in the third quarter, driven by higher EBITDA of $2.7 billion, while the movements in net working capital was largely flat. Overall, we had a strong cash conversion of 97% up from 89% last year and 81% last quarter. Further, across the chart, gross CapEx for the quarter was $1.2 billion, in line with our multiyear CapEx guidance, driven by our Ocean fleet renewal program. Meanwhile, capitalized losses -- capitalized leases stood at $868 million, also in line with expectations and down from the previous quarter, which was impacted by the Port Elizabeth concession extension and free cash flow was therefore at $771 million. Capital return via share buyback was $578 million this quarter. And finally, most of the $850 million you see in movements in borrowings relates to our 9-year EUR 500 million green bond issuance in September, extending our maturity profile early in light of extending bonds maturing in March next year. Taking all together, cash generation was strong in the third quarter and supported an already strong balance sheet alongside the continuation of our share buyback. Turning to our Ocean segment on Slide 13. Ocean delivered a strong operational performance in the third quarter, which marked the first full quarter of Gemini implementation. From a financial standpoint, Ocean generated an EBIT of $567 million, implying a margin of 6.2%. This is down on last year, driven by the expected rate decline, but significantly up sequentially, driven by the strong volume growth of 7% in Gemini. Specifically on Gemini, as Vincent mentioned earlier, the new network generated cost benefits in the form of bunker savings and higher asset turns, without which we would have expected our third quarter Ocean costs and therefore, EBIT to be impacted negatively by about $185 million. Meanwhile, freight rates were significantly down year-on-year, driven by the ongoing market pressure on rates since 2024, but broadly in line sequentially. CapEx was in line with guidance and comprised mainly installments on vessel orders announced last year as well as a broader equipment renewal and vessel deliveries that are part of our Ocean fleet renewal program. As usual, the chart on Slide 14 illustrates the main elements of the year-on-year EBITDA development in our Ocean business. On the left, you can see the large impact on profitability from the 31% lower freight rates, cushioned by the tailwind of the 7% increase in volumes year-on-year. Ocean also saw a positive impact of $211 million from lower bunker prices compared to last year, while container handling and network costs increased driven by higher empty repositioning and terminal costs. Also note that EBITDA was further supported by higher detention and demurrage revenue and a positive delta in revenue recognition, the latter of which accounts for the vast majority of the net $551 million in the final bucket. All in all, these offsetting factors allowed EBITDA in the third quarter to settle at $1.8 billion, down from the previous year, but up on the previous quarter. Let's now have a look on the Ocean KPIs on Slide 15. Ocean's operational performance in the third quarter is highlighted in these metrics with strong volume performance and Gemini helping to offset headwinds in cost and rates. Loaded volumes increased by 7% year-on-year, reaching 3.4 million FFEs as demand was strong on key trade lanes. Sequentially, volumes grew by 5.2%. As mentioned earlier, our average loaded freight rates declined by 31% year-on-year, reflecting market fundamentals that we have seen since 2024 from growing excess capacity. Nevertheless, as reflected in the flat sequential development, the lower levels in the third quarter at quarter end were actually offset by the high levels at the start of the quarter, therefore, providing a fairly benign rate environment in the quarter. On the cost side, unit cost at fixed bunker decreased both year-on-year and sequentially by 0.8% and 2.2%, respectively, as strong volume performance, high utilization as well as cost benefits from Gemini offset the general cost pressure. Bunker costs were down 14% year-on-year due to both lower fuel prices by 13% and increased efficiency from Gemini, leading to lower bunker consumption of 3.2%. This is despite us carrying more volumes and managing a larger fleet. Specifically on the fleet, the average operating fleet grew 5.5% year-on-year, reaching 4.6 million TEUs, all while capacity utilisation remained high at 94%. Let's now turn to our Logistics & Services business on Slide 16. In the third quarter, Logistics & Services delivered revenue of $4 billion, up 2.3% year-on-year and 8.6% sequentially, the latter reflecting seasonal strength. The year-on-year growth was driven by growth across most products. On the bottom line, EBIT showed a significant increase to $218 million, which also implied a continued EBIT margin improvement of 0.4 percentage points year-on-year and 0.7 percentage points sequentially to 5.5%. The margin improvement is primarily driven by the continued operational progress that the team has made in fulfilled by Maersk, all while continuing to exercise stringent cost control across all service models. CapEx is down on last year, but remains at a stable level sequentially to support growth with particular focus on Depot and Warehousing this quarter. Now let's have a look at the breakdown by service model within Logistics & Services on Slide 17. Starting with our supply chain management offering. Revenue here decreased by 4.8% year-on-year to $594 million, with the EBITDA margin decreasing to 22.6%, down from 24.2% last year. This decline was driven by weakness in Lead Logistics, our 4PL business, volumes primarily from China to the U.S. on the back of the stop-and-go volatility we have seen in the external environment. In Fulfillment Services, operational progress in Middle Mile North America and Warehousing led to significant improvements in profitability with an EBIT margin of negative 0.9%, up from minus 4.5%. Revenue increased by 2.9%, reaching $1.5 billion. Finally, revenue increased in Transported Services to $1.9 billion, equal to a 4.3% increase year-on-year. This was supported by higher volumes in Landside Transportation in the peak season. However, the EBITDA margin was impacted by weakness in Air, landing lower on the previous quarter at 7.3%. We round off with our Terminals business on Slide 18. Terminals delivered another excellent quarter, continuing the positive trend. Revenue grew by 22% year-on-year to $1.4 billion, driven by 8.7% higher volumes supported by Gemini and improved rates. Specifically on the Gemini impact, volumes from Maersk Ocean increased 26% year-on-year. The higher volumes brought a further uptick in utilization, which stands at 89%. As mentioned earlier, while this is supportive of higher margins, it also highlights the necessity to invest in capacity extension in the coming years to cater for the long-term growth of our port operations. Revenue per move increased by 7.8%, reflecting improved rates and mix. Meanwhile, cost per move increased by 6.7%, largely due to labor inflation and higher SG&A costs, but mitigated by higher utilization. Overall, EBIT increased by 69% year-on-year to $571 million with a margin of 39.4%, up 11 percentage points from last year and 4.1% higher sequentially. This underlying good margin was supported by a net $139 million positive impact from one-offs, including the reversal of impairments due to the successful extension of a concession. ROIC rose to a record 17.2%, underlining the intrinsic strong return profile of this business, although levels will taper down progressively with increased renewals and investments. CapEx for the quarter came in at $154 million, more or less in line with previous year and reflect the continued investment in our gateways portfolio. Turning to the breakdown of Terminals EBITDA on Slide 19. Terminals delivered an increased EBITDA from $424 million last year to $501 million. The increase in cost per move of $56 million was more than offset by higher revenue per move and volume impact. Currency exits and other movements brought a further positive impact of $29 million, bringing the EBITDA to a record level for the quarter. And with that, we finished the review of our business segments and are ready for the Q&A. Operator, please go ahead. Operator: [Operator Instructions] Our first question comes from Patrick Creuset from Goldman Sachs. Patrick Creuset: Just 2 questions. First on the outlook. If we look at your Q4 EBITDA, you're implicitly guiding based on the full year range of somewhere between $1.3 billion and $1.8 billion. Can you provide a little bit of color on what sort of volume and rate assumptions are embedded or would be embedded at the top and the bottom? And also based on what you see so far going to Q4, do you see a skew more likely at the top or low end? And then just on the buyback, you've got a cash position of around $15 billion or so. In the past, you've sometimes given the market a sense on how comfortable you felt on buybacks in the year ahead. Can you again give us a bit of sense today, assuming, for instance, stable trading environment at these levels, would you see a reason to discontinue the buyback next year or keep it? Patrick Jany: Thanks very much, Patrick. So indeed, when you look at the guidance for Q4, it implies a continuity of the pace that we have currently. We have seen rates stabilize by September and early October. And that is, I would say, the pace that we have continued to forecast for the Q4. And the volume development actually seems still to be pretty strong as we can see it. So I would rather mentally see, let's say, the revision of the guidance towards indicating the higher end of the guidance, which is what we are doing by narrowing the range, and that's what we intend to signify here, which at group level is more or less a breakeven. It will depend on the last few weeks for the Q4. When you look at the cash position and balance sheet, it is strong. And as we have indicated as well when we restarted the share buyback back in February this year, the intent is to certainly see this as another 1-year event. And in your assumption of a stability of externalities, I think there's nothing that speaks against the continuation of the share buyback indeed. Operator: Our next question comes from Muneeba Kayani, Bank of America. Muneeba Kayani: Firstly, just on the logistics EBIT improving at the margin to 5.5%, can you remind us what seasonality in this business? And if there was any benefit on that and kind of how much of this is kind of the improvement which can continue? And then secondly, we've seen in container shipping, the order book-to-fleet ratio for the industry is around 32% now, which I believe is the highest since the global financial crisis. So what do you think is driving that? And how do you see it playing out? Vincent Clerc: Muneeba, so if I start with your first question on Logistics, I think most of the improvement that we're seeing are due to the cost containment and productivity improvement that we are putting in place. In general, the business will have a seasonality a bit tilted towards the second half year versus the first half year. But -- and mostly, I would say, towards the very end of the year, depending on your product exposure. But I think when we look at it, and you can see that in the volumes and the top line, we see some seasonal improvements that are helping. We also see some of the wins that we have taken in that are helping, but I think most of it is actually coming from the work that we're doing on margin. From the order book, I think you're correct that at 32%, the order book is quite high. I want you to -- I just need you to remember 2 things. I think the first one is that the time to order, so the number of years over which this is going to phase in is more than it was during the -- before the financial crisis. So if you -- we're going to -- there's a longer installment, if you will, that is being ordered. So that's one thing. And the second thing is the story that we had about China. The market is growing at about 4%. But on the head haul, it's growing at about 7% and what we're seeing is as long as it grows at 7% on the head haul, you need 7% more capacity to be able to carry this. So I think there is -- this dichotomy that there is between head haul growth and average growth is absorbing a lot more capacity. The longer order books is -- it means that it's not phasing as brutally as one would expect. And then the last point that there is, is not a single ship has been scrapped for the last 6 years, but the ships all got 6 years older in that period. So there is pent-up demand for that. And so I think over time, we will see that some of the levers that so far have come at us, whether it was higher demand from China or selling around the Cape of Good Hope or COVID, this will fade away, and we'll be back to having to use the tools that we normally use in the industry, which is scrapping, idling, slow steaming and so on. And there, there are still significant levers that we can lift to actually balance the outlook. Operator: The next question comes from Ulrik Bak, Danske Bank. Ulrik Bak: So on the volume side, Ocean volumes, you obviously have very strong growth, 7% in the quarter. I'm just curious to hear what if there is a split between the feeder legs and the main haul legs? And if there is any issue with double counting, anything because it just looks so extraordinary, your volume growth. And then if I can sneak in a second one. So this overperformance versus the market, how long do you expect this to be sustained? Vincent Clerc: All right. So I can guarantee you that there is no double counting of volume like we count the containers and the bills of ladings only once. It's much better. You would see it in the revenue development very different if we were double counting. So I think that we're pretty -- we can be quite categorical around. I think when I look at what we're able to do right now as a result of Gemini from a cost perspective, I think it's a pretty significant lever that we have unlocked here. And this has, I think, legs to continue into the coming quarters. I cannot give you how many quarters this advantage will last. I think it's going to last quite a while, but it depends also on what we do next and what competition does next. And I'm not in control of all of that. But I think that what we have shown on the slide with Gemini is there are a few levers where we have broken some efficiency frontier that we had under the previous deployment and that we have moved them now to being higher. And this is what allows us to actually lift the cost impact of Gemini quite significantly. Operator: The next question comes from Omar Nokta, Jefferies. Omar Nokta: Just wanted to follow up on the share buyback discussion. You mentioned last quarter, you continue to view that as a focal point of the capital allocation strategy. It sounds like that's going to continue for '26 as well. But just in terms of how you're thinking about the size, $2 billion this year, how can we think about how that looks for '26 as you set the budget? Does it become a portion or a function of how much free cash flow was generated this year? Or what's it based on? Is it based off of earnings next year? Any color you can give would be helpful. Patrick Jany: Yes. Thanks very much for your question, Omar. No, as we said, clearly, share buyback is a fundamental piece of our capital allocation and will continue to be as well for next year. I think when you look at the dimensioning, you know that we actually maxed out this year, right, just from the free float and the rules on the daily volumes. So I would expect this to be, say, a maximum amount. But then the exact dimensioning will be done, obviously, in February and when we come out with our guidance for full year. I think it will be premature now to guide. But I think certainly, the willingness to continue a sizable share buyback is certainly there. Operator: Our next question comes from Cedar Ekblom from Morgan Stanley. Cedar Ekblom: I have a question on the Gemini cost savings. I'm looking at that slide that you put together, and it looks like the bulk of the benefits come on the bunker side of things, which I think makes sense. What I am surprised about is why the asset turn benefit is not higher? Maybe you could just talk through like what I'm missing there. Maybe I've just thought that the asset turn would be better. You could optimize the network more, long voyage, big vessels, feeder vessels, et cetera. I'm just trying to understand that split that the bunker number and the asset turn number are not sort of closer to each other? Vincent Clerc: Yes. Thank you, Cedar. I think let me try to explain that I think the asset turn, it depends also on what is your base. We had an extremely high utilization last year. So we've been able to lift this with 0.5%. We're continuing to look at whether we can actually increase that number in the coming quarter. The bunker, we can very much control because that -- as soon as you're into the deployment, since we measure it against the capacity, we get the full saving calculated there. And we've tried to disaggregate that because we could have just done this in terms of total unit cost per container, and I would have mixed the bunker and the efficiency on the fleet or on the utilization. So I think the bunker, we see 100% of the saving right away. As long as we deliver on the reliability, this will be pretty steady. I think on the asset turns, this is where I think we have some opportunity to continue to fine-tune and improve the network. So this one, I would look at as still having a bit of leg that we need to exploit in the coming quarters. Cedar Ekblom: Okay. And then, yes, just a follow-up there. So obviously, container handling unit cost at a fixed banker hasn't really come down year-over-year. It obviously has come down sequentially, which is helpful. Could you give any sort of guide around how to think about that sort of container handling cost on a unit basis or maybe network costs on a unit basis? Like are we talking about a 5% decline from here unit-wise? Or I don't know if you could help us quantify how to think about that run rate into '26? Vincent Clerc: Yes. So the issue with container handling is the fact that, as I mentioned, with an average market growth at 4% and a head haul growth at 7%, trades become more imbalanced. And then under container handling, the amount of empty containers we're moving around increases because there is just more containers going one way and fewer containers going the other way. And that means more empty repositioning. And that's what I mentioned in the slide for China. I think as we see this imbalance continue to grow, it's important that we understand that we're going to need more and more capacity to cater for growth because it's more and more asymmetrical because between the head haul and the backhaul, but it will also increase our cost per FFE above that because of the increasing balance and more empty containers being moved around. Operator: Our next question comes from Kristian Godiksen, SEB. Kristian Godiksen: Yes. Also a couple of questions on the Gemini part. So just a house of question to start out with the improvement in Terminals, is that in the -- is that for the hubs and hence, included in the Ocean part of the business? Or is that for the Terminals business? And then if you could maybe comment a bit on the unit cost advantage you see compared to the peers that are not using the hub and spoke model? And then maybe just finally sneak in a question on whether you've had any preliminary discussions with the clients on a potential price premium for your higher schedule reliability? Vincent Clerc: Yes. Thank you, Kristian. So I think the -- what is important with Gemini from the gateway perspective is the fact that before when we were in 2M, we were paired with probably the other line that has the most comprehensive terminal portfolio. And it means that in a lot of locations, we have to split volumes between the different parties. Here, we are with a partner that has less -- much less of a terminal portfolio. And it means that net, we're getting more locations where 100% of the throughput is not split between 2 different facilities, but it's all going to our facilities. So for the gateways, this is very, very positive because they get the full 100% of the support from Gemini. And that is something that is an uplift for this, and it will last for as long as Gemini lasts. So it's quite positive. On the unit cost, I think we're going to need 1 or 2 quarters more of data from also the competition to know because we can see how much we have saved sequentially and how much we have saved year-on-year. Obviously, the world doesn't stand completely still. They will also do certain things. What we can see with the numbers that have been released so far is that we're making more progress on unit cost than what they're making, and we attribute this to Gemini, which is the big thing that we did to lower our unit costs. So we're quite positive on the fact that we are opening up a gap now with Gemini that is going to be -- that is going quite handy, especially in the current rate environment, and we will continue to work at making it as big as possible. Then finally, on customer discussion, I want to say that the customers' reaction is really very, very positive. Obviously, for the premium, this is a conversation that we have started, but it's a bit too early to talk because we need to be certain also that we have a long enough track record that it unlocks value for them that we -- where we can then capture some of that value for us. So for instance, concretely, today, every customer has a buffer stock and that reliability needs to unlock a reduction of that buffer stock. They need to trust that this has weathered sufficient ups and downs and be steady that they can take out some of that buffer stock. And if they do, they pocket that saving and then we can capture some of it in form of a premium. I think that process is starting. It's a long-haul process to take place, but certainly something that where we see some potential at least to capture some value, but we need to -- it's just a few months. It's the first quarter we're going with it today, where we have the full Gemini. Some of them have been in transition with -- not everything is yet fully in a place where value has been unlocked yet, but we're very positive with the discussion so far. Operator: Our next question comes from Jacob Lacks, Wolfe Research. Jacob Lacks: So you've discussed in the past maybe a bit of a shift in how quickly contracts get repriced when the market is tightening up. Have you seen customers actively work to reprice contracts again with rates moving lower now? And to that end, do you think the current rate environment will largely be reflected in Q4? Or could there be some incremental pressure in '26 when new contracts are signed? Vincent Clerc: So we've not -- thank you, Jacob. We've not seen any big movements on contract being open now, which since the contracts have been trending down during Q3, and it was not very timely for people to do it until they -- when they know they have the negotiation coming soon and as long as things are moving their way. So I think that from that perspective, that's one of the things that also holds the contract good. So those have not moved. You will have noticed that over the past few weeks, the rates have actually come up again a little bit. It's too early to call anything on the contracting season. I think we'll have certainly a discussion around this in February when we come with the full year guidance for 2026, and we have some of the early negotiations under wrap. But I think for now, what we have seen in terms of behavior from customers is that whatever the price did during Q3 did not lead to customers actually reopening contracts or wanting to have commercial discussions on price. And contract adherence has been quite strong as well. So it's not like the volumes just disappeared. I mean they were living up to their commitment. Operator: The next question comes from James Hollins, BNP Paribas. James Hollins: Obviously, you discussed buybacks a lot pretty important to the market. I was just wondering, I mean, clearly, another way you might not do buybacks is aggressively pursuing M&A. I was wondering how you're looking at M&A if we are indeed looking quite extensively and globally at potential deals? And secondly, a bit of a sort of generic question, but as I look at consensus for 2026 Ocean, Bloomberg consensus has a loss of $2.8 billion. I mean that would be a business scenario like 2009, you'll come to deposit [ $1.7 billion ], apart from showing how on that forecasting. Maybe just get sort of your view on how you would see, I guess, particularly that Bloomberg consensus against the reality of what you might see in this industry based on someone that's been in it a long time, your work on cost, your work on the alliance and basically whether that's way too pessimistic. Vincent Clerc: James, I think let me start with the 2026 and give you the standard answer that I look really forward to talking about it in February. But before that, I think we'll have to pause on giving any type of views. With respect to the M&A I think what we need to remember is that all 3 segments that we operate in are actually over time, segments with -- that are quite competitive and very low margin. So when I hear something like aggressive pursuit of M&A, I hear a premiums that will be difficult to justify through synergies afterwards and a lot of risk to destroy shareholder value. So whereas we've said it and we continue to say that M&A will be a part of the continued repositioning of Maersk. And whenever we see opportunities, we have both the wherewithal and the interest to pursue them, but maybe an aggressive thing right now, given some of the outlook is not necessarily something we will pursue. Operator: Our next question comes from Parash Jain, HSBC. Parash Jain: I mean just first with respect to Red Sea, I know nobody has a crystal ball, but given the recent developments, is it first half of next year looks more likely than ever before? And my second question is, we heard a lot about front-loading by the U.S. retailers, in particular, now that we are well into the peak season, are there any signs of front-loading, which has been reflected into the fourth quarter's volume run rate? Vincent Clerc: Yes. So for the Red Sea, let me start by saying that, obviously, the ceasefire in Gaza is a significant -- first, it's a great thing for people in Gaza and for the world in general. But it is also a significant step towards being able to reopen the Suez Canal since the -- the situation in Bab al-Mandab and in Gaza have been linked since the beginning. I think the way we think about this is that we need now to make sure that this moves into a process where it becomes clear that the ceasefire is entrenched and doesn't risk going backward at some point and then we fall back into a new phase of a conflict. And that's the situation we're monitoring quite closely. And we're also figuring out what is the posture of the Houthis specifically to see if we can start to have a safe passage. So I would whether it's more likely now to be early at some point or whatever, I think if the ceasefire holds, then I think we've crossed a gate and made a big step towards returning through the Red Sea. But I think we need to see that get entrenched, and we need to see the process move ahead. And once that happens, then we'll have a better view of what that means for a return to the Red Sea. Then in respect of front-loading, I think there was a lot of discussion on front loading, especially end of '24, beginning of '25 before the tariffs in April. We certainly saw following the implementation of tariff that things softened in North America. And we certainly still have seen this still into the third quarter and even, I would say, during the month of October, I will say that what we're seeing now is there is somewhat of a push also into the U.S. for some of the seasonal goods to get there. So I think from a demand perspective, very resilient demand across all geographies and the U.S. that is picking up a bit of pace following this month between April and October that have been a bit more soft. Operator: Our next question comes from Alexia Dogani, JPMorgan. Alexia Dogani: Just firstly, could you explain a little bit the unit revenue development because we're struggling to reconcile with the trade lane numbers you report on the group level. If you can just explain how it normally developed as per the 6-week lag, the spot versus the contract, has it performed versus expectations, whether it's underperformed or overperformed because, yes, struggling to reconcile a little bit the outcome. And secondly, on the unit cost, again on Ocean, I mean, clearly, you talked positively about the Gemini contributions. But overall, your unit cost at constant bunker is only down 1% despite you growing 7% capacity and 5.5% volumes -- sorry, the other way, 5.5% capacity, 7% volume. So when we look at into next year, what further cost savings can you deliver if there is less volume growth because I imagine the capacity benefits annualized. And then finally, obviously, the IMO has now delayed its kind of net zero initiatives. How should we think about the implications for industry capacity discipline? And I guess, more importantly, for yourselves that have invested in green CapEx, which comes at a higher cost. And so it kind of takes you in a relative disadvantage? Vincent Clerc: Yes. There's quite a few questions. So let me try to cover that to the best possible. I think, first of all, when you look at the cost, there is one element that we're missing. And it is that the net position that we have on our different VSAs, whether it's a plus or a minus is reported under other revenue. And the fact is that our position in 2M was balanced and our position in Gemini is that of a net seller of capacity. And that means that out of the 11% that you see in growth in the network cost, half of that is due to that net position. And once you take that out, then the growth of our network cost is actually 5.5% for 7% volume increase. So I think that's just important to position this. We see the unit cost being decreased. The biggest efficiency is because we've chose to slow steam and be reliable is going to be seen on bunker. So that was always -- it doesn't matter so much which line item it shows, but we've made choices. We could have gone a bit faster and save a few ships and also generate some cost savings that you would have seen more on the network cost. We've chosen to really focus on bunker. So I think for the unit cost, there is this -- when we look forward, I think we have 3 levers for cost savings, for further cost savings. One is the expansion of Gemini. Two is actually some of our other costs here under organizational cost that we're looking into. And then finally, I think as the rates soften, we will see also a softening in the time charter market, and that will generate further savings in the unit cost that we have by basically being able to lease ships at a cheaper price. So those are, I think, the 3 key things. I will say that we anticipate -- you mentioned like less volume growth. We don't expect necessarily less volume growth, but we'll talk about this in February. But I think that's not an assumption we should have. So that's both for the unit cost and the growth. The IMO, I would say, from a CapEx perspective, it's -- what happened at the IMO is a nonevent. Seen from that, that today, every single ship that is on order more or less is a -- has a dual fuel engine. It's either dual fuel LNG bunker or it's dual fuel methanol bunker. And I think everybody understands that it makes sense when you take a bet on the next 30 years by ordering a ship that you cannot just base yourself on what the IMO is doing now, but you need to understand what optionality you have for the next 30 years. And I don't expect that people will start to order only bunker ships because they will think that for the next 30 years, this is not -- green transition is not going to be an issue at all. So I think from that perspective, I don't think operationally, IMO is a problem. I don't think CapEx-wise, IMO is a problem. It's a problem to execute the energy transition because definitely, it's a loss of momentum. But from an operational perspective, we are not at disadvantage, and I don't think it's going to change order behaviors or supply and demand. Patrick Jany: And let me come back on your rate on your first part of your question. So what you have to consider is that we have increased the share of short-term rates in our mix, as you can see as well in our disclosure to 53% compared to 47% long term in the quarter, and which was positive during Q2, Q3. As short-term rates decreased during Q3, you see that our full year estimate for '25 sees an increase of the long term. So we are pushing the contract fulfillment and the long-term rates, which are more resilient to the erosion of the rates in the short term. So you have a progressive change of mix constantly to optimize the revenue there. Another factor when you try to reconcile is also the very different geographical evolution of the rates. So the North -- the East-West rates are the ones which we always follow very publicly and those ones came down. However, you do have much more resilient rates development in North-South and then the interregional rates as well. So that's a bit of a mix that you see always in our total figure. I hope that helps. Operator: Our next question comes from Marco Limite, Barclays. Marco Limite: So my first question is on demand because you are talking about a fairly strong demand, while some of your competitors in other subsectors are talking about soft demand. You have also mentioned that you expect U.S. demand being sort of strong over the next 6 months. And then also, you have mentioned that China outbound has grown 7% and expect a similar rate going forward. Do you -- what kind of visibility have you got on basically these assumptions? And especially the fact that China has been very strong this year is not that a risk for growth next year on a very high comps, is the first question? And the second on capital allocation. We have been discussing about potential for M&A and share buyback and so on. But when we think about terminal expansion, I mean, this week, you announced a $2 billion investment in the terminals. But first question is that on your balance sheet or off balance sheet as you have got a minority stake. But more in general, is it a problem for you to have, let's say, the terminal business in the overall Maersk umbrella, where, of course, you cannot take a lot of leverage, but terminal business needs big CapEx investments and also a larger balance sheet buffer? Vincent Clerc: Yes. So on -- let me start with the demand. First of all, the strength of the demand, if I look at year-to-date, both last year and year-to-date, I mean, this is -- I hope this is undisputed by anybody, at least when it comes to container traffic because you can verify it in the CTS statistics, [ GOC ] statistics and any other widely available port statistics that you can find. So is the fact that China makes up a large part of this and that this shows no signs of abating. So personally, I don't see any reasonable argument or data source that would go against the fact that demand has been above 5% last year and will be around 4% this year, which is actually quite significant. The demand from China and the growth from China, at least so far shows no sign of abating. And unless at some point, somebody can point to a reason for why this would abate, then I think it's a reasonable assumption to say that if there is no reason for it to slow down or stop, then why would it? And then you can discuss whether given -- as you mentioned, given the comps, whether it's going to continue to be 11% or that the base becomes so big that it becomes 10% or 9%. But the fact is that it's still quite significant. And at least so far, as we show in the graph, the last 2 years has been accelerating, not decelerating. So I think from a demand perspective, we feel quite confident that demand growth is very strong. There's a lot of cargo out there to move, and that has a lot to do with China. And I think that there is ample data to back that up. You want to? Patrick Jany: Yes. On your question on the capital allocation and terminals. I think -- so first of all, on the capital allocation, I think our first priority is organic growth, and we have always said that we would dedicate the sufficient funds to grow in Logistics, grow in Terminals and renew our fleet for Ocean. That is part of our guidance of the $10 billion to $11 billion CapEx over 2 years. So that's factored in. I think what you have to see is actually Terminals is a brilliant business that complements Ocean. We capture a lot of the value as we actually just showed on Gemini of the value of the Ocean leg into the port, right? And the margins there are actually higher than in Ocean. So it is good to have. It comes with, I would say, a high CapEx profile when you have new terminals, but a lot of the CapEx is actually expansion of existing, right? Of existing capacity where you can grow. And then you have a few new ones which are planned. We just announced the -- we just opened one recently and there are others in the pipeline, which, again, are absolutely included in our guidance and do make absolute good sense. Overall, I would say it is still an asset-lighter business than Ocean is. So it's absolutely fine with our balance sheet, and we have the balance sheet structure and financing to fund that development as well. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Vincent Clerc for any closing remarks. Vincent Clerc: Thank you again for joining us today. And to summarize the discussions, we have demonstrated strong execution in this quarter in which uncertainties did persist in the external environment, but where we carried to deliver strong results across the whole business portfolio. We've made good progress across the portfolio and continue to see supportive demand, and this has allowed us to narrow the full year guidance. We look forward to seeing many of you on our upcoming roadshows and investor conference. Thank you for your attention again, and see you soon. Bye-bye.
Operator: Good afternoon, everyone, and thank you for joining OptimizeRx's Third Quarter Fiscal Year 2025 Earnings Conference Call. With us today is Chief Executive Officer, Steve Silvestro. He is joined by Chief Financial and Strategic Officer, Ed Stelmakh; Chief Legal and Administrative Officer, Marion Odence-Ford; and Chief Business Officer, Andrew D'Silva. At the conclusion of today's call, I will provide some important cautions regarding the forward-looking statements made by management during today's call. The company will also be discussing certain non-GAAP financial measures, which it believes are useful in evaluating the company's operating results. A reconciliation of such non-GAAP financial measures is included in the company -- in the earnings release the company issued this afternoon as well as in the Investor Relations section of the company's website. I would like to remind everyone that today's call is being recorded and will be made available for replay on audio recording of the conference call on the Investor Relations section of the company's website. Now I'd like to turn the call over to OptimizeRx's CEO, Steve Silvestro. Mr. Silvestro, please go ahead. Stephen Silvestro: Thank you, operator, and good afternoon to everyone joining our third quarter 2025 earnings call. We had a strong third quarter with results ahead of both consensus estimates and our internal expectations. Our Q3 revenues increased 22% year-over-year to $26.1 million, and our adjusted EBITDA was $5.1 million, an improvement of over $2 million from the same period last year. Our contracted revenue remains well ahead of last year's pace, underscoring the success of our focus on operational excellence, our dedication to delighting customers and deepening relationships with trusted partners. Before we move on, I want to take a moment to thank the OptimizeRx team. We deeply appreciate their dedication and hard work as we navigate an increasingly complex and rapidly evolving digital pharma marketing landscape. The industry is in the midst of a major transformation and the company's products and services are positioned to fundamentally redefine how pharmaceutical companies, patients and prescribers connect. Our mission-driven culture fuels this progress and enables us to attract, retain and strengthen the relationships that make us a trusted and enduring technology partner. With that said, I'm happy to report we are increasing our guidance for the year and are looking for revenue to come in between $105 million and $109 million, with adjusted EBITDA to be between $16 million and $19 million. Moreover, while it is still very early, we are seeing favorable RFP trends for 2026. As a result, we are introducing initial fiscal year guidance 2026 with revenue expected to be between $118 million and $124 million and adjusted EBITDA expected to be between $19 million and $22 million. In addition, subsequent to the end of our third quarter, we paid down an additional $2 million of our term loan principal on top of the debt payment schedule. At this time, given the cash flow we are seeing, we intend to continue to pay down our debt at an accelerated rate and do not believe we will need to access the equity capital markets for the foreseeable future. As evidenced by our strong results, we are firmly hitting our stride. Disciplined cost management and targeted cross-selling strategies grounded in enabling customers to optimize budget allocation and maximize script lift are driving sustained momentum into Q4 2025 and beyond. Our strong third quarter performance makes it clear that our goal of becoming a sustained Rule of 40 company is within our sights. Perhaps most notably, average revenue for our 5 largest customers over the last 12 months continues to grow and now stands at over $11 million. We believe OptimizeRx is uniquely positioned to drive meaningful long-term growth and sustainable shareholder value. With one of the nation's largest point-of-care networks, we provide pharmaceutical manufacturers the ability to reach health care providers directly at the moments that matter most. Building on this foundation, we've developed a purpose-built omnichannel technology platform that integrates advanced patient finding tools like DAAP and micro neighborhood targeting. These capabilities are redefining how pharmaceutical companies, physicians and patients connect, communicate and act, helping to improve patient outcomes while transforming engagement across the health care ecosystem. Our reach across both the point-of-care and direct-to-consumer channels provides a durable and defensible competitive advantage. OptimizeRx is the only player with the scale, technology and data integration to engage providers and patients seamlessly, enabling us to deliver the industry's most comprehensive commercialization platform. This allows us to support customers across the full product life cycle, deepen client relationships and capture greater share of long-term value. As we've discussed on previous calls, a key focus moving forward is to further showcase our reach, scalability and our role as a trusted strategic partner, helping pharma manufacturers address some of their most pressing commercialization challenges. These include enhancing brand visibility, reducing script abandonment, improving interoperability and supporting the growing shift toward complex specialty medications. I believe our success in helping our customers address these challenges is best evidenced by our strong ability to build on the relationships and increase our engagements with our largest customers. I'm confident that continued execution in these areas, combined with our ability to deliver strong ROI and drive impact and script lift for our customers will translate into meaningful long-term shareholder value. We believe our momentum positions us to capture greater market share and expand our participation in the pharma industry's multibillion-dollar digital ecosystem. Our customers remain deeply connected with our integrated HCP and DTC offerings, and our goal is to keep them engaged across the full patient care journey. And with that, I'd like to turn the call over to our CFSO, Ed Stelmakh, who will walk us through our financial results. Ed? Edward Stelmakh: Thanks, Steve, and good afternoon, everyone. A press release was issued with the financial results of our third quarter ended September 30, 2025. A copy is available for viewing and may be downloaded from the Investor Relations section of our website, and additional information can be obtained through our forthcoming 10-Q. Third quarter revenue was $26.1 million, an increase of 22% from $21.3 million during the same period in 2024. Gross margin for the quarter increased from 63.1% in the quarter ended September 30, 2024, to 67.2% in the quarter ended September 30, 2025. Year-on-year gross margin expansion is tied to a favorable product mix, economies of scale as well as a favorable channel partner mix. Our operating expenses for the quarter ended September 30, 2025, decreased by $6.5 million year-over-year to $15.5 million as the third quarter of last year was impacted by a $7.5 million impairment charge. Meanwhile, our cash OpEx increased to $12.4 million from $10.8 million, largely due to higher bonus and commission payouts, which is directly tied to the company's strong year-to-date performance. As a result, we had a GAAP net income of $0.8 million or $0.04 per basic and fully diluted share for the 3 months ended September 30, 2025, as compared to a GAAP net loss of $9.1 million or $0.50 per basic and fully diluted share for the same 3-month period in 2024. On a non-GAAP basis, our net income for the third quarter of 2025 was $3.9 million or $0.20 per fully diluted share outstanding as compared to a non-GAAP net income of $2.3 million or $0.12 per fully diluted share outstanding in the same year ago period. Our adjusted EBITDA came in at $5.1 million for the third quarter of 2025 compared to $2.7 million during the third quarter of 2024. Operating cash flow was $11.6 million for the first 9 months of 2025, and we ended the quarter with $19.5 million cash balance as compared to $13.4 million on December 31, 2024. The remaining principal on our term loan debt financing at the end of the third quarter was $28.8 million. And subsequent to the quarter's end, we paid down an additional $2 million in principal with our total principal paydown for the year standing at $7.5 million. At this time, we intend to pay down the principal on our term loan faster than originally expected as we look to continuously lower our cost of capital. With that said, we continue to believe that our healthy balance sheet will help us execute against our operational goals. Now let's turn to our KPIs for the third quarter of 2025. Average revenue per top 20 pharmaceutical manufacturer now stands at $3.1 million as compared to $2.9 million for the third quarter of 2024. Net revenue retention rate remained strong at 120% Meanwhile, revenue per FTE came in at $820,000, topping the $732,000 we posted in the third quarter of 2024. We're encouraged by the improvements of our KPIs as we continue to execute against our strategy of driving profitable growth as a leader in our space. Now with that, I'll turn the call back over to Steve. Steve? Stephen Silvestro: Thank you, Ed. Operator, now let's move to Q&A. Operator: [Operator Instructions] And the first question comes from Ryan Daniels with William Blair. Ryan Daniels: Sorry, guys, can you hear me now? Yes. Can you guys hear me now? Stephen Silvestro: We can hear you, Ryan. Ryan Daniels: Okay. Sorry, about that. Congrats on the strong print. I want to start with the 2026 outlook. It's nice to see that so early in the year, one of the few companies doing that. And I'm curious if you could just offer a little bit more color there on why you're providing it at this time. I assume it's due to some enhanced visibility with the contracts. And then maybe question number two, you mentioned the strong RFP activity being part of that. Are you just seeing more new clients? Is it more shift towards digital, more omnichannel, more shift towards HCP given some of the D2C challenges? Any color on what's driving that? Congrats again. Stephen Silvestro: Thanks, Ryan. Good to hear your voice. So I'll start with the first one. We've been really articulating to the Street and also to our clients and investors that we're going to give more visibility on our visibility into the future as we've been migrating more toward a predictive model we've quoted in the past, subscripted momentum. And so we're going to continue to push that throughout the remainder of the year. And as a result of that, we're now getting more visibility into the out years, including 2026. In terms of the RFP situation, Ryan, RFP season has been very strong for the business. We do see more people coming into the digital space and making investments on the client side. And we're seeing equal parts, HCP and DTC at this point, interest in the RFP cycle. I would say the parts of DTC that we cover at OptimizeRx are CTV, ATV, the pieces that you're aware of. And in the event that we have a linear television ban or reduction or any of those pieces, our view and thesis is that our solutions that will continue to benefit disproportionately from those types of moves. So I would say, at this point, both DTC and HCP are looking very healthy. I appreciate the question. Operator: And the next question comes from Richard Baldry with ROTH Capital. Richard Baldry: When you look at the implied guidance for fourth quarter revenue, it'd be actually slightly down year-over-year at the top end of guidance. Talk about either any onetime year-ago issues or other things because your net retention would argue that, that's sort of difficult to do. Stephen Silvestro: Yes. Thanks for the question, Rich. Good to hear from you. So I mean, what we're looking at is really a full year guide at this point and trying to give a good range of what we believe will come in at. We moved away from quoting pipeline as everybody on the call knows and have moved principally towards contracted revenue and what our real visibility is. And so the new guidance that we've updated with is truly what our visibility is. It doesn't count bluebirds that might happen, buy-ups that might happen that are not accounted for right now where we don't have visibility in years past, we would have thought about that more in terms of on pipeline and probabilities. But what you're seeing in the guidance now is, I think, reflective of our true visibility that we know we can deliver on. Again, we're going to continue to be very transparent, very conservative, not sandbagging, but look to beat the numbers that we put out there every time. So hopefully, you appreciate the transparency and conservatism. Edward Stelmakh: Just to add a little bit. As Steve said, I think we do need to look at it on a full year basis rather than quarter-by-quarter. As you know, Q1, 2 and 3 have been extremely strong. So it is more of a smoother sort of phasing this year than it was in the past. So again, I would just encourage you to look at the full year performance versus last year. Stephen Silvestro: And part of it is the enhancement to the revenue model, right, Rich, part of it is we've been successful at migrating away from periodic revenue drops and getting to a more smooth revenue model. And so that's what Ed is referring to there. Richard Baldry: Got it. It's just implicitly a little hard to look at it as a full year, you only have 90 days left. So same question I think I'm going to get a similar answer. But if you look at the adjusted EBITDA guidance, you'd have an up revenue quarter, maybe 10% plus sequentially, but the adjusted EBITDA either be slightly down to narrowly possibly up Again, is there any like onetime expenses year-end things that true up higher that create more of a headwind because it wouldn't -- it'd still be down year-over-year as well. Stephen Silvestro: Sure. Ed, do you want to take that one? Edward Stelmakh: Yes, I can take that one. Yes, look, I mean, we're assuming a conservative gross margin number. There's nothing really in the operating expense line that's going to pop. So it's more of just being a little bit more conservative on what you think is going to happen with the channel and product mix. We do believe that we were shooting for hitting or beating the top end of the range. Operator: And the next question comes from David Grossman with Stifel Financial. David Grossman: Maybe we could just expand a little bit on the line of questioning you just went through. And maybe, Steve take a minute just to remind us fundamentally, what may be going on in the business that maybe smoothing out the quarters or maybe giving you better visibility? And then I have another question after that, but just curious, again, fundamentally, some of the changes that you guys have made that may be creating a little better visibility and again, giving you the confidence, for example, to guide to 2026 at this point. Stephen Silvestro: Sure. Yes, happy to talk to it and then Andy and Ed can chime in also. But I mean, if you think about our business data the way that we've talked about it over time, you've got our audience businesses, which is GAAP principally, and then you've got micro neighborhood audience, which is that targeting capability for DTC. Both of those are data-driven technologies that are -- lend themselves to becoming more subscriptive in nature. Then you've got our execution functions, both at point of care and the other omnichannel components for HCP and you've got that for DTC. And those are obviously going to be transactional largely because that's the way that component of not just our business, but the ecosystem operates. And so what we've seen is outsized growth in DAAP, like we've talked about in months past, and we've seen a resurgence of micro neighborhood audience growth. And so those pieces not only give us a smoothing of the revenue because of the revenue models, but they also give us a renewable view into what 2026 will look like and those contracts start earlier than we would normally do for transaction level contracting. So that's the big part of it. Andy, Ed, feel free to chime in if you want to add more. Andrew D'Silva: Yes. I mean, it's really -- go ahead, Ed. Edward Stelmakh: No, I was going to say, I mean, as you guys know, I mean, vast majority of our business comes from renewals. So if you take that into account and then add some of the successes that drove this year, on top of it with more visibility into next year in terms of signed contracts as we sit here today, we feel like we're in a position to say, right, looking at next year, we can start to make at least a general guide around bookends that we're going to shoot for. And as things progress forward, we'll continue to tighten that range. Yes, go ahead, Andy, you can add to that. Andrew D'Silva: No, you got it. You both you nailed it. David Grossman: So thanks for all those details. So if I recall, like last quarter, we talked about these managed services type of contracts that come in. How much of that was present in the third quarter? And are you kind of making the same assumption that you did last quarter where you're not assuming any of that comes to bear in the fourth quarter in terms of the guidance that you provided as well as the outlook for '26. Is that the way to think about it? Stephen Silvestro: Yes. Andy, why don't you take that one? Andrew D'Silva: Yes. So it went back to more of a normalized rate in the third quarter as it relates to that managed services business. The only thing that we're including in the forecast period for managed services business is stuff that we've already won and is starting to burn into revenue right now. We're not really including anything that's in pipeline and we don't have visibility to. So again, we're taking a very conservative approach to providing guidance with bookings that we feel very comfortable with. David Grossman: Right. So as we kind of think of your guidance for '26, can you help us kind of bracket the kind of retention that is the baseline, if you will, to achieve that range? Andrew D'Silva: Yes. So historically, between 5% and 15% of our business comes from new logos every year. So the remaining would be what you would consider net revenue retention on a normalized basis. David Grossman: Okay. And that's the same assumption underlying your '26 guidance? Stephen Silvestro: It is. Andrew D'Silva: Yes. We don't really guide based on net revenue retention, right, but that's kind of how it just shakes out as every year progresses. Stephen Silvestro: And David, on that note, just one other quick bullet for you. Just -- and you and I spoke about this last time we were together. We are seeing good growth in the mid-tier segment of our business, meaning the mid-tier segment of clients coming to the table who may not be in that top 20, 25, 30 manufacturers that are coming in with outsized spend, mostly because we're able to provide capabilities that can supplement -- not just supplement, frankly, replace a lot of the stuff that they can't afford to do internally. . Whereas the big manufacturers might have kind of Cadillac support, so to speak, the mid-tier businesses do not. But using the technology that we've got allows them to compete on level ground. And so that's why we're seeing such a drive there. In our commercial organization, that Theresa is leading, has done a wonderful job of driving that. So I just wanted to call that out as a key point. Operator: And the next question comes from Eric Martinuzzi with Lake Street. Eric Martinuzzi: I wanted to dive in on the RFP trends. You 0talked about they are improved. I was just curious, though, is that your win rate is the same and the number of RFPs has improved? Or is your win rate improving on a flat RFP trend? What can you tell us there? Stephen Silvestro: Yes, I'll start, and then I'll have Andy chime in, too. But all of the above, Eric, we're seeing more RFPs coming and the RFPs are more directly pointed at what we want them to be, which I think is good. The market is seeing what we are shifting the business model to over time. So the RFPs are definitely reflective of what we're providing the market, providing our clients. And I would say our win rate as a result of that is getting better. Again, I want to give some credit to our commercial team. They're doing an excellent job of getting out ahead of all of this stuff and engaging with clients. And when you're engaging with clients more intimately, you can tend to drive the crafting of the RFPs so that they get written at an appropriate level to something that you can respond versus just a random spray and pray request for information, right? And when we get those, the hit rate will be lower because there was no prior engagement. So hats off to Jen Dwyer, Theresa Greco and the entire commercial team for doing a great job there. Eric Martinuzzi: Right. And then you talked about the smoothing of the business. Maybe I could use a brief tutorial on the transactional where you said that those started later in the year as opposed to the DAAP and the micro neighborhood that are more sort of level loaded that kicks off to each of those types of campaigns. Stephen Silvestro: Sure. Yes, happy to talk about it. I mean you think about what DAAP and what MNT or MNA does, it's principally audience creation and it's the data that drives all of the campaigns, right? It's the technology that's producing -- finding those patients wherever they're going to be. And so because that is more of a software-like play that lends itself to a normal planning cycle where renewals are going to happen earlier. That's the way pharma manages that segment of their budget and then the transactional components, which is typically message distribution, whether it's at an HCP level or if it's something that's going through DSP like a trade desk or some other way, typically is budgeted and accounted for on a quarterly basis, and it's based on performance and driven that way. So bringing DAAP to the table and getting it more mature, which we've been working very hard on, as you know, over the last several years since we launched it, and now bringing in what we acquired through the Medicx acquisition with MNT, that has really started to transform the profile of the business, and that's what you're seeing reflected in the performance of this year as well. You're seeing it front and center, but it will reflect into 2026 as well. That's given us great visibility. I think everyone feels better about what we're doing there. We're significantly up year-over-year on visibility for next year. Eric Martinuzzi: Is there -- what's the right way to think about the percentage of the revenue in 2025 versus the percentage of the revenue in 2026 between those 2 buckets? Stephen Silvestro: We don't break it out. We don't break it out at a product level. Operator: Your next question comes from Anderson Schock, B. Riley Securities. Anderson Schock: Congratulations on another really strong quarter. So first, could you provide some color on the partnership with Lamar Advertising and on the size of the opportunity here? And I guess, will this gradually roll out in specific regions? Or is this going live across their entire national inventory? Stephen Silvestro: Yes. Happy to talk about it. Great to hear from you. So the whole idea with Lamar is they're looking to transform their business model, right? And their current business model is billboards. One of the things that OptimizeRx does really well, which you're acutely aware of is patient finding and an ability to be more precise in the way that we deploy messages across our omnichannel ecosystem. So think about the capability of doing that to enable a screen that's in a desperate location that might move from a random billboard to maybe a digital screen that's large, right? And that's really what Lamar is after there. The size of the opportunity is very large. I'm not going to take a stab at the TAM because it's not might take a stab at, it's really theirs. But the partnership is going to start rolling out pretty rapidly, I would say. And it's still early for us to start quoting projections on what we think it will do. It's really piloting at this point, but we're feeling pretty optimistic about the initial testing that we've done. And we'll release more information on it as we get some more results, but early stages look pretty encouraging. Anderson Schock: Got it. And then I guess this current guidance that you've provided for 2026 factoring any contributions from this partnership? Stephen Silvestro: No, zero, nothing. Too early for us to start factoring into forecast. We're just not going to do it yet. Anderson Schock: And then could you talk about the gross margin expansion in the third quarter? What really drove this? And how should we be thinking about margins going forward in the fourth quarter and also into 2026? Stephen Silvestro: Sure. Ed, do you want to take that one? Edward Stelmakh: Yes, sure. Yes. So look, I mean, it's typically driven by our product mix or solution mix and the channel partner mix. As we said before, as we scale the business, we have much more ability to negotiate more favorable deals with our channel partners, so that's reflecting yourself in the numbers as well as growth in DAAP and the DTC platform. So those 2 things together contributed to where we are right now for the year in Q4. Going forward, I would say we're kind of stabilizing in that upper 50s to low 60s range from a guidance perspective. But you can see there's certainly upside to that number as the year progresses. Stephen Silvestro: I'll add just one quick thing to that there, Anderson. So we also, in the third quarter, had a lot more -- in the second quarter had a lot more managed services revenue and we did not have nearly as much in the third quarter and managed services revenue is our lowest margin product. . Operator: [Operator Instructions] And the next question comes from Jeff Garro with Stephens. Jeffrey Garro: I want to ask on the 2026 guide and the profitability side. If I calculate it, right, at the midpoint, I see about 60 basis points of EBITDA margin expansion. I was hoping you could talk about the mix of gross margin expansion may be dependent on channel mix versus operating leverage? And then any areas of potential variability that could lead to more or less margin expansion than what we see at the midpoint there? Stephen Silvestro: Jeff, I'm happy to answer it topically, and we won't get too deep into 2026, but happy to answer it topically. And what Andy just said is really a clear articulation of the dynamics of the business that really govern it, right? So as we continue to see our audiences grow over time through the DAAP and MNT products, margin expansion will continue to be front and center we will also manage the channel partner mix on the other side of that looking for optimal margin and that gives us the dynamic of being able to continue to improve over time. Execution will be what it's going to be, as you know, from this business, and that's fairly predictable on the highs and lows. But those are the dynamics that are sort of shaping how we're thinking about 2026 gross margin expansion opportunities and where we've landed. Hopefully, that's helpful. Jeffrey Garro: Maybe a follow-up on the operating leverage side of things. You have certainly seen, I think, a quarter-over-quarter decline in adjusted operating expenses this quarter, seeing really good leverage and maybe not expecting that to be the persistent trend over the next 5 or so quarters, but just a little more color commentary on your ability to drive additional operating leverage in the business would be helpful. Stephen Silvestro: Yes, no problem. We're going to consistently -- go ahead, Ed. Yes, why don't you take it? Go ahead. Edward Stelmakh: Yes. So OpEx, as we said before, I mean, we have a highly leverageable business model as it is now. So as I said, on a cash basis, that was actually a bit of an increase, about $2 million versus last year. And that most of that is driven by the fact that our bonuses and variable comp are tracking our overperformance on the top line this year. So once you dial that back, you can pretty much assume a relatively stable operating expense run rate on a cash basis. Operator: And this concludes our question-and-answer session. I will turn the conference back over to Steve Silvestro for any closing comments. Stephen Silvestro: Thank you, operator, and thank you all for joining us today. We're pleased to be building on a strong operational and financial momentum. Our foundation is solid, our patient-focused strategy is working, and we're confident in the path ahead. What you heard today reinforces our belief in our ability to achieve both our near-term goals and our long-term growth objectives. I remain deeply optimistic about the future of our business and the opportunities before us. We look forward to speaking with all of you again on the next earnings call and meeting many of you in the upcoming investor conferences and one-on-one meetings in the coming weeks. Wishing everyone a wonderful rest of your day and a wonderful holiday season with your families and friends. Operator: Thank you, Mr. Silvestro. Before we conclude today's call, I would like to provide the company's safe harbor statement that includes important cautions regarding forward-looking statements made during today's call. Statements made by management during today's call may include forward-looking statements within the definition of Section 27A and the Securities Act of 1993, as amended, and Section 21E of the Securities Act of 1934 as amended. These forward-looking statements would not be used -- should not be used to make investment decisions. The words anticipate, estimate, expect, possible and seeking and similar expressions identify forward-looking statements. They may speak only to the date that such statements are made. Forward-looking statements in this call include statements made defining how pharmaceutical companies, patients and prescribers connect, our value, our growth plans, creating shareholder value, becoming a Rule of 40 company, estimated 2025 revenue and adjusted EBITDA ranges, capturing greater market share, expanding our participation in the pharma industry's digital ecosystem, our technology and growth opportunities and building a strong operational and financial momentum. Forward-looking statements also include the management's expectations for the rest of the year. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or qualified. Future events and actual results could differ materially from those set forth in, contemplated by or underlying these forward-looking statements. The risks and uncertainties to which forward-looking statements are subject to include, but are not limited to, the effects of government regulation, compensation, dependence on a concentrated group of customers, cybersecurity incidents that could disrupt operations, the ability to keep pace with growing and evolving technology, the ability to maintain contact with electronic prescription platforms and electronic health records networks and other material risks discussed in the company's annual report Form 10-K for the year ended December 31, 2024, and in other filings the company has made and may make with the SEC in the future. These filings, when made, are available on the company's website and on the SEC website at sec.gov. Before we end today's conference, I would like to remind everyone that an audio recording of this conference call will be available for replay starting later this evening running through for a year on the Investors section of the company's website. Thank you for joining us today. This concludes today's conference, and you may now disconnect your lines.
Operator: Good day, and welcome to the Air Products Fourth Quarter Earnings Release Conference Call. Today's conference is being recorded at the request of Air Products. Please note that this presentation and the comments made on behalf of Air Products are subject to copyright by Air Products and all rights are reserved. Beginning today's call is Megan Britt. Please go ahead. Megan Britt: Hello, and welcome to the Fourth Quarter and Full Year Fiscal 2025 Earnings Conference Call for Air Products. Our prepared remarks today will be led by Eduardo Menezes, Chief Executive Officer; and Melissa Schaeffer, Executive Vice President and Chief Financial Officer. We have prepared presentation slides to supplement our remarks during the call, which are posted on the Investor Relations section of the Air Products website. During this call, we'll make forward-looking statements, which are our expectations about the future. These statements are based on current expectations and assumptions that are subject to various risks and uncertainties. Our actual results could materially differ from these statements due to these risks and uncertainties, including, but not limited to, those discussed on this call and in the forward-looking statements and Risk Factors sections of our reports filed with the SEC. We do not undertake any duty to update any forward-looking statements. Please note in today's presentation, we will refer to various financial measures including earnings per share, capital expenditures, operating income, operating income margin, the effective tax rate and ROCE, either on a total company or a segment basis. Unless we specifically state otherwise, statements regarding these measures refer to our adjusted non-GAAP financial measures. Reconciliations of these measures to our most directly comparable GAAP financial measures can be found on our investor website in the relevant earnings release section. It's now my pleasure to turn the call over to Eduardo. Eduardo Menezes: Thank you, Megan. Hello, and thank you for joining our call today. Please turn to Slide 3. Earlier today, we reported our fourth quarter and full fiscal year 2025 results. Our numbers show consistent progress related to commitments we shared earlier this year. We delivered earnings per share of $12.03, which is above the midpoint of our full year fiscal guidance range. Our operating income margin of 23.7% and return on capital of 10.1% were also in line with our commitments for these metrics. Also, this year marks the 43rd consecutive year of increasing our dividend. In total, we returned $1.6 billion to our shareholders in fiscal 2025. I'm encouraged we are setting challenging but achievable targets and delivering on those commitments. We have taken several key actions starting in the second quarter to focus on the core industrial gas business and expect to unlock earnings growth through productivity, pricing, operational excellence and disciplined capital allocation. The last 3 quarters demonstrate that we are already making progress. Moving to Slide 4. We have 3 key priorities for 2026 that were part of the strategy we shared earlier this year. First, we expect to deliver high single-digit annual EPS growth. To be clear, our 2026 guidance anticipates additional helium headwinds in a sluggish macroeconomic environment. On our second priority, we will continue to make strides to optimize our large projects portfolio. We are working diligently to finalize our NEOM project and expect to improve our underperforming project portfolio with a goal of generating positive cash returns. On our third priority, we continue to take actions to balance our capital allocation and improve our balance sheet. We expect to reduce our capital expenditures to roughly $2.5 billion per year following the completion of several large projects. At this level of CapEx, we believe we can support our ongoing maintenance and invest in the traditional industrial gas projects while growing our dividend and longer term, returning additional cash to shareholders via share buybacks. In 2026, we expect our capital expenditures to be about $4 billion. In summary, we expect fiscal 2026 to demonstrate our commitment to continuously drive improvement in our core industrial gas business and growing alongside our customers. Please turn to Slide 5. We highlighted earlier this year that a portion of our productivity improvement will come from returning to an organizational headcount similar to what we had before we started several large clean energy projects. This slide offers a progress report on our actions in the savings that are being created. Since 2022, we have identified a total of 3,600 headcount reductions, which translates to [ 16% ] of our peak workforce. We expect these reductions to contribute approximately $250 million in annual cost savings or $0.90 per share in earnings once the reductions are complete. These cuts are not something we do lightly, but they are critical to offset inflation and adapt the organization to a lower level of CapEx spend. Our objective remains to return to staffing levels of 2018 adjusted for employee growth to support new assets, minus any other productivity we can find with new initiatives like AI. Moving to Slide 6. We have a summary of our expected CapEx expenditures after 2026. As we have previously said, we are also moving forward with several underperforming projects, giving our commercial obligations and project steps. We have roughly $2.5 billion remaining to be spent on these projects from 2026 to 2028. Though these products are not expected to contribute materially to operating income, we continue to work to improve their results through commercial negotiations, operational improvement and productivity. For our NEOM project, this slide reflects the CapEx related to our equity contribution to the overall project, which will be completed in 2027. Any further investments for ammonia dissociation in Europe will need to be approved separately. After we bring these projects on stream, we expect capital expenditures of roughly $2.5 billion per year, which can sustain both our future growth and ongoing maintenance. For our blue hydrogen project in Louisiana, we have halted making new commitments until an offtake agreement is reached. In this slide, our capital investment for this project in '26 reflects only prior commitments on the project and we have excluded any spending beyond 2026. Like in the case of NEOM downstream investments, they would need to be justified and approved based on firm offtake commitments. I'll talk more about the Louisiana and NEOM projects in our next slide. On traditional core growth, we expect to invest approximately $1.5 billion per year going forward. These are air separation hydrogen projects that we normally execute in 18 to 30 months, so there are always new products being added and completed products being removed from the list. The CapEx figures for fiscal year 2027 and beyond represents our expected average spend. Our focus will be, as always, on opportunities that meet our return thresholds with quality customers and contractual uptake. Moving to Slide 7. I wanted to close with a brief update on NEOM and Louisiana. Start with NEOM, the project is progressing well and is about 90% complete. Solar and wind power generation will be completed by early 2026, and we will start commissioning the electrolyzers and ammonia production. We expect to have ammonia production on stream with full product availability in 2027. We are, of course, following the regulatory developments in Europe. It is important to highlight that the scale of the energy transition is such that the volumes required to meet even the smaller mandates such as the Red III EU mandate to convert 1% of fuel sold to RFNBO fuels would create a green hydrogen demand equal to approximately 7x the total production of our NEOM project by 2030. Obviously, a significant part of the volume is expected to be supplied by local electrolyzers using renewable power, but it's important to highlight that our solution to bring green ammonia from Saudi Arabia for dissociation in Europe is competitive in terms of pricing and requires 0 public subsidies. As mentioned before, the market for green ammonia is also being developed, and that will be our main target for -- from the time the NEOM project starts. Additional feedback on the market development will be provided during 2026. Regarding our blue hydrogen project in Louisiana, we are evaluating proposals to divest the carbon sequestration, and ammonia production assets. We will only go forward with this project if we can sign firm offtake agreements for hydrogen and nitrogen from the facilities that will be owned and operated by Air Products. And of course, these agreements will need to comply with our return expectations with one or more high-quality counterparts. As previously committed, we expect to provide further updates related to this project prior to the end of 2025, so in less than 2 months from today. Let me finish by saying that I'm excited to launch my first full operating year with Air Products team. We have been working hard to right the ship and bring the company back to a position where we can deliver maximum value to our shareholders, customers and employees. Now I'll turn the call over to Melissa to discuss our financial results in greater depth and discuss our 2026 outlook. Melissa? Melissa Schaeffer: Thank you, Eduardo, and welcome and hello to those joining us on the call today. Please move to Slide 8 for a high-level summary of our financial results. We ended the fiscal year with earnings per share of $12.03, delivering our commitment to our shareholders and above market consensus. With respect to sales, favorable volume for on-site and non-helium merchant were more than offset by a 2% headwind from the prior year LNG divestiture as well as project exits. Volume was also lower due to the reduced global helium demand. Partially was favorable for non-helium merchant products across all regions. Operating income was down on volume and higher cost, partially offset by non-helium price. The higher costs were driven by depreciation, largely offset by productivity improvements, net of fixed cost inflation. Operating income margin of approximately 24% declined 70 basis points compared to the prior year, largely driven by higher energy cost pass-through. Return on capital of 10.1% was lower versus prior year as we continue to exit on our project backlog. Moving now to Slide 9. Our fiscal year earnings per share of $12.03 decreased $0.40 or 3% from prior year, driven by a 4% headwind from LNG divestiture and a 2% headwind from project exits. Without these discrete items, EPS would be up 3%. Additionally, we continue to see headwinds from helium, including unfavorable comparable volume and pricing across regions. Despite these headwinds, we continue to deliver on our base business with stronger non-helium pricing actions, ongoing productivity across our segments and favorable on-site and merchant contributions. Moving now to Slide 10. I will provide an overview of our results by segment for the full fiscal year. You can find additional details of the quarterly segment results in the appendix. For the fiscal year, America's results were down 3%. As a reminder, we reported a onetime asset sale associated with an early contract termination at the request of a customer in the prior year fourth quarter, which alone resulted in a 3% headwind in the Americas. Additional drivers include headwinds from project exits and helium and higher maintenance-related costs. These were partially offset by strong non-helium pricing actions, productivity improvement and favorable on-site contributions from our HyCO business. Asia fiscal year results were relatively flat, as lower helium was offset by favorable on-site, non-helium price and productivity. During the quarter, we made the decision to sell 2 coal gasification projects within Asia, which are now within assets held for sale. Europe's FY '25 results improved 4% as non-helium merchant pricing, productivity and favorable on-site contribution was partially offset by lower helium and higher costs associated with 2 depreciation and fixed cost inflation. The full year, Middle East and India equity affiliates income decreased 2% from prior year, primarily due to lower contributions from our Jazan joint venture. The full year results for the Corporate and Other segment were primarily impacted by the headwind from the prior year sale of LNG, partially offset by lower changes to the sale of equipment project estimates and lower costs with our continued focus on productivity improvements. Moving now to Slide 11. We continue to generate strong cash flows from our base business, supporting investments in both energy transition and traditional industrial gas projects. Additionally, we returned $1.6 billion in cash to our shareholders. We remain committed to disciplined cost control, a reduction in capital expenditures and strategic asset actions aimed at unlocking value and generating cash. Moving now to Slide 12. We will review our outlook for fiscal 2026. For the full year, we expect to deliver earnings per share in the range of $12.85 to $13.15, an improvement of 7% to 9% from the prior year. Despite a helium headwind comparable to FY '25, this growth is expected to be achieved through new asset contribution and continued focus on pricing actions and productivity. We also expect a 1% benefit from the rationalization of projects in large part due to the 2 Asia gasification assets we wrote down in fiscal 2025. We are focused on delivering these results in line with the 5-year road map we introduced earlier this year. For the first quarter of 2026, we expect to deliver earnings per share in the range of $2.95 to $3.10, representing a 3% to 8% improvement from the prior year. Our outlook assumes growth from continued pricing actions and productivity as well as a benefit from the rationalization of projects and lower planned maintenance, partially offset by lower helium. As a reminder, we expect our first quarter to be lower sequentially due to normal seasonality. With respect to capital, we expect to spend approximately $4 billion as we execute on our project backlog, including approximately $1 billion on traditional industrial gas projects and invest in ongoing maintenance. As we look to derisk our Louisiana projects and optimize our portfolio, we expect to be modestly cash flow positive in fiscal year 2026 and are committed to staying cash flow neutral through 2028 as we close out on several projects. Now we'll open the call up for questions. Operator? Operator: [Operator Instructions] We'll go first to Jeff Zekauskas with JPMorgan. Jeffrey Zekauskas: In your opening remarks, I think you said that you were evaluating proposals to divest the carbon capture piece of the Louisiana project, but you're still evaluating whether you would proceed with the project. So could it be that those 2 events would be linked, that is you would sell the carbon capture piece to a party, and then work with them to provide them hydrogen or hydrogen and ammonia? Eduardo Menezes: Jeff. Yes, let me try to explain that. The idea of this project is basically to transform into a regular hydrogen and air separation project where we supply hydrogen and nitrogen to someone that will produce the ammonia. The CO2 that is being produced by the facility has to be sequestered in order to -- for you to capture the 45Q credit, right? So what we're basically saying is that Air Products was developing by itself its own pore space to do that. And what we are trying to do at this point, we're evaluating proposals for someone to buy the pore spaces from us and provide the service of the CO2 sequestration or to just buy the pore space from us and provide the service from another location that this company may have. So that's the picture in terms of the CO2 sequestration. And yes, this is connected to the overall project, although if we decided not to go forward, of course, we still have this asset that is the pore space that we can try to monetize in the market. Jeffrey Zekauskas: And as for the Alberta project, because the cost overruns have been so high, why don't you simply stop the project? Or what impedes you from stopping it? And would that project have to be money losing on an EPS basis because the depreciation charges will just be so high from the cost overruns when it comes -- if it comes on? Eduardo Menezes: Yes, Jeff. This project, as I explained before, we have a long-term commitment for almost 50% of the volume with a major customer that depends on us. So we have a contractual commitment that we take very seriously. So we need to finish the project and supply the hydrogen to this customer. And we have some additional volume that we are working hard to find other ways to place in the market. As you probably know, we already have infrastructure in place in Edmonton. We have 2 other sites that are connected to a pipeline. And this third site will also be connected there. So we can move the product from these 3 sites to basically all the refineries that are located in that area. So that's the work we're doing with the additional volume, but our commitment to go forward is basically what we need to have in order to fulfill our contractual obligations. Operator: We will go next to David Begleiter with Deutsche Bank. David Begleiter: Eduardo, on the cost savings and the employee headcount, is the 20,000 headcount you're targeting a new base? Or could it go lower from there? Eduardo Menezes: Yes. This is what we are expecting to have at the end of this year. We continue to find ways to rationalize our workforce to make sure that we use all the technologies available. I think we demonstrate that we are reducing our SG&A year-by-year. And if I'm -- my recollection is correct, I think we said that our original number when we were in 2018 was close to 18,500 people. And our objective is to go back to that number plus the people that we absolutely need to operate some assets that we added since that date. So I would say that we still have some room to go, but it's an ongoing process to always optimize and make sure that you are as competitive as possible. David Begleiter: Very good. And just back on Louisiana. If you do move forward with that project with these offtaker partners you suggested, what would be the CapEx remaining to Air Products? Eduardo Menezes: Yes. We will provide that data, Dave, when we update the project. I think it's -- I hope everybody understands that what we are saying is trying to summarize that no offtake deals, no FID. So Air Products started this project without having an offtake deal. We paused the project. We're working hard to find solutions for that. The economics of the project, when you look at the natural gas price, the infrastructure that we have in place and the 45Q it is the right place to install green -- blue hydrogen and blue ammonia projects. I think both other ammonia producers and even our competitors that are doing similar projects in Texas and Louisiana saying exactly the same thing that you can be competitive even against gray ammonia in Europe. So we're working on that, trying to find a solution. I understand we are basically 45 days away from the end of the year. And if I really didn't think that we have a chance to have something, it would be much easier for me to say that today. But we still believe that we can find an interesting solution for this project, and we'll provide a full update before the end of this year. Operator: We'll go next to Duffy Fischer with Goldman Sachs. Patrick Fischer: Just want to get some insights into the growth into next year. So at the midpoint of your guide, you're up 8%, but there's a negative 4% from helium. So that's really 12%. Melissa called out one from the shutdown of the sale of the Chinese assets, which gets you to 11%. So of that 11% growth underlying, can you break that out kind of new projects, price, efficiencies, how you deliver that? And is that smooth throughout the year? Or are the oncoming projects back-end loaded? Eduardo Menezes: Yes. We expect contribution from new assets in -- both in Asia and the Americas. That can give us around 2%, 3% growth. And then the balance will come from price and productivity. I would say, half and half there. We are working very hard on the productivity side, as we mentioned on our headcount slide and on the pricing is a continuous work for us. The helium headwind that we have is very similar to what we had this year. I would say that when we say that this is the headwind for 2026 is basically agreements that we are reviewing and we're signing this year in 2025 or the previous year, now the fiscal year. Air Products, most of our volume comes from large liquid customers. As you know, our packaged gas business is basically limited to Europe. So we pretty much know where these agreements are going to be next year, and that's where they are at the fourth quarter of this year. So we're pretty comfortable that we understand well the headwind that we have in helium and in the base business, as I said, 3% of new assets and the balance coming from productivity and price. Patrick Fischer: Great. And I'm sure it's not your favorite subject, but helium was mentioned 29 times in your slide deck this quarter. What is your view on the helium industry going forward? Do you think we've stabilized at this point? So '26 will be the last year of headwind? Or do you think we continue to see headwinds in the '27 and '28 for that product? Eduardo Menezes: I didn't count the number of times, Duffy, but thank you for pointing that. Yes, it's -- we have a lot of debates on that. If we have a structural change in the market or just part of the cyclicality that you always had in helium, right? I would say that there were some significant changes in the way the market operates because of the disappearance of the BLM as a major source of helium globally and in the United States. And that took away a little bit of the inventory that you had that were able to regulate the market a little bit. I think most of the major players now, they are now installing their own storage. So we have our own cavern, our 2 competitors, they have their own caverns as well. So I hope that this will help regulate the market a little bit. And from what I see today, I see still some decline in '27, but not at the same level that we had this year. And the best guess that we have is that, that will be the lowest point and the market will stabilize. But we need to see how the sources develop and how the effect of this storage of helium will have in the overall marketplace. Operator: We'll go next to Patrick Cunningham with Citi. Patrick Cunningham: If you decide to forgo downstream investment in NEOM maybe based on unfavorable regulatory environment, whatever it may be, what do the commercial options look like? And would you expect to see any positive EPS contribution in 2027 under a scenario where you have to sell ammonia exclusively? Eduardo Menezes: Yes. We are still talking about the guidance for 2026, right? So we're going to work -- we are working on this issue. We're going to work during the year. And by the end of 2026, we'll be able to give you more guidance on that. Now, there is no question that in the beginning of this project, we'll need to commercialize the product as ammonia. The market for green and blue ammonia or low-carbon ammonia, whatever you want to call, it's developing. So I expect that we're going to have the ability to sell some of our production in the beginning of the operation as green, and that percentage will grow with time. What is exactly the numbers? As you know, ammonia, it's own market. It has different pricing dynamics. So we're going to need to wait a little bit more to give you a forecast for 2027. Patrick Cunningham: Understood. And then maybe just a quick one on equity affiliate income. We saw meaningful growth in the Americas this quarter. Can you provide some color on what was driving that and what we should sort of expect for step up or step down across all of the regions and equity income next year? Eduardo Menezes: Yes, I can ask Melissa to answer, but it's basically Mexico for us and they have been -- had a very strong second half of the year. Melissa Schaeffer: Yes. Thanks, Eduardo. So -- absolutely, so our Mexican joint venture did see improvements year-over-year. We do expect about a flat going into FY '26. However, we did see a slight decline in our Jazan joint venture in '25, and we actually look for that to be a pickup in '26. And obviously, interest rates do impact that. So as interest rates do decline, we will see improvement on the equity affiliate contributions from our Jazan joint venture. Operator: We'll go next to Josh Spector with UBS. Joshua Spector: Eduardo, I wanted to just ask you about the decision on Louisiana. I mean I think based on investor expectations, you might have had some license to maybe push out a decision there a little bit beyond year-end, but you're having the tax commitment to communicate something here in the next couple of months. So I'm just curious if you could talk about the range of scenarios there. Is that a go or no-go, meaning cancel decision? Or do you see a scenario where kind of some decision gets pushed out beyond the year-end time frame? Eduardo Menezes: Yes. I understand the curiosity, Josh. And I -- we would like to be able to communicate more at this point, but we really need to wait until the end of the year. Again, this -- I would say that if we are telling you that we believe that we have a reasonable chance to communicate something by the end of this year, it means that we have very advanced negotiations with counterparts on that, right? It is the largest project or would be the largest projects ever built or probably any other industrial gas company. So it's a very complex negotiation, and we have been working on that for several months now. I would say that from that perspective, it's going well. My main concern on this project really is on the capital estimate for the project. When you look at the slide, you can see a picture of coal box that we manufacture for this project. So we have all the major equipment done. We have all the engineering done, but we still need to do the construction. And the construction market in the United States is very hot at this point. A lot of competition from data centers and other people trying to build other structures and coming from different industries and able to pay different prices. I think this is affecting projects for the entire chemical industry. So we are looking at that very carefully, trying to understand what is real, what is not and what is a bubble with the point that if you look at our slides, you can see that we made a point about applying for a major air permit source -- air source permit there in Louisiana. And we did that because our potential counterparts asked us to have the flexibility of running the plant on a gray mold if something happens with the CO2 sequestration that we didn't expect to do or we still don't expect to do because the CO2 is a big contributor for the project. But -- it's something that the other projects are doing, and we decided to apply for that major permit. And that will take several months. It will probably take up to mid-2026. And from there, you need to do civil construction. So really, the peak of the mechanical and electrical construction would be like mid-2027. And the judgment that we need to make is how hot or not hot the U.S. construction market will be at that point. So that's where we have been working a lot of details behind that decision, and we will communicate clearly where we are in the project before the end of this year. Joshua Spector: Okay. And just a quick follow-up just with the guide for '26. Your comments are minimal volume growth to something to that extent. Just wonder if you could quantify minimal. Are we talking about near 0 growth. And basically, if we end up having a macro environment that looks like where we've been at the last couple of quarters, is that a risk to your guidance? Or is that largely baked in? Melissa Schaeffer: Yes, sure. Thanks for the question. So let's be clear. So again, as we stated, we do see several new assets coming on stream, both in the Americas and in Asia. Those will be ramping towards the back half of this fiscal year. So there is growth in volume associated to new assets. From a market volume perspective, we're not forecasting significant market growth at this time given the macroeconomic headwinds. However, if we see that improve, obviously, our results will improve. So definitely volume from new assets, but at this time, not forecasting significant market volume due to those headwinds. Operator: We will move next to Vincent Andrews with Morgan Stanley. Vincent Andrews: Just trying to reconcile the CapEx slide in this deck versus the one in the last one. It looks to us like your CapEx forecast for fiscal '26 has gone from about $3.1 billion to $4 billion. So first of all, is that correct? And secondarily, if it is, what's changed in that slide that's causing that? Melissa Schaeffer: Yes. Thanks, Vincent, for the question, and I'll take this one. So the CapEx guide that we gave in the second quarter, obviously was an estimate, right? So as we go through the year, we sit with all the regional presidents and really do a bottom-up forecast on the capital that we're going to spend over the next couple of years. So we've refined that -- we've adjusted based on new wins in all the different regions and are estimating around a $4 billion CapEx. Obviously, maintenance is a component of that CapEx. We're looking to improve on maintenance and take that down. So this could improve that CapEx number. But again, that's really a bottoms-up review that we do as part of our plan. So there was a small variance between the Q2 time frame CapEx forecast and what we're projecting right now. Vincent Andrews: Okay. And then just as a follow-up, separately in the corporate segment, which came in certainly better than what we had and I believe better than where consensus was. The slide -- and I apologize if you already spoke to this. The slide speaks to lower changes of sale of equipment project estimates. What does that mean? Melissa Schaeffer: Yes. Thank you. So we do have certain sales. It's a very small part of our business, but what we would call a sale of equipment. When we sell a project to a company that's not going to be a long-term sale of gas project. We have had some cost increases associated to certain projects that are sale of equipment that are again accounted on a percentage of completion accounting perspective. So as cost increases there, we show that in the P&L. We did have some smaller cost increases this year compared to last year, and that's really what you're seeing flow through there. Operator: We'll move next to Chris Parkinson with Wolfe Research. Christopher Parkinson: So let's talk about your base business a little bit, particularly electronics. Can you just go over kind of how we should be thinking about the intermediate to long-term growth algorithm that you have in your portfolio and how that exposure evolves with [ M.2 HBM ] growth and everything else. I'd love to hear your thoughts on that as well as where you think Air Products just broadly stands relative to peers in terms of what's embedded in, let's say, your non-large project outlook as it relates to your backlog? Eduardo Menezes: Thank you, Chris. Yes, electronics represents roughly 17% of our total sales in Air Products. It's a very important segment for us. We were really the pioneers in the area, initially with Intel, now with the other players. It's a market that is expanding very quickly. We have plants that we are commissioning right now. We have investments on other plants in Asia that we're doing, and we are in the process of participating bids for several others, right? As you know, the investment in this area has been very, very strong. So it's probably the brightest area we have for our traditional business, and it's an area that we have been focused a lot. I really -- on your point on the other products, I really would like to get a little more clarification exactly what you're asking other than the portfolio of new projects. Christopher Parkinson: Are you happy with where your existing electronics backlog exists relative to peers, given everybody has been wrong over the last few years? Or is that something you'd like to focus on as CEO? Eduardo Menezes: Yes. No, no. I will never be happy with that because I always want to have more than that. We're working very hard to get some new opportunities. We believe that there are some new projects that we will be able to announce in 2026. And I -- but I still believe that we have a very, very strong position in this market. And I have no other way to make comparisons with our competitors. I think our position on that market is stronger than it is in most markets. Melissa Schaeffer: And if I could add one point. So one of the assets that we spoke about is coming on stream this year is in the electronic space in Taiwan. So that's the starting of the ramp of that project. So that's one good example. But in the near term, where we're going to see improvements in the electronics space for Air Products. Eduardo Menezes: Yes. And the reality is in these places, it's like a continuous project because they have so many expansions and we are always building new plants in Asia, and hopefully, we will be able to move that to other regions as well as these customers, they start to invest outside of Asia. Christopher Parkinson: Got it. And just as a quick follow-up. To the extent that you can, can you talk about just kind of how we should be thinking about the run rates from Uzbekistan as well as like GCA and some of these other projects which have had some maintenance or kind of been more start and go. Could you just perhaps just give us a little framework on how we should be thinking about those as well. Eduardo Menezes: Yes. Uzbekistan is a very large syngas facility. It's operating well. We had a maintenance this year, but it was scheduled maintenance, this kind of plants you have to do that every few years. So no real issues there and the plant is running at very high rates at this point. And GCA is a project that we are still working on to basically bring to completion, and it's one of the projects that we expect to contribute this year in 2026. Operator: We'll go next to John Roberts with Mizuho Securities. John Ezekiel Roberts: Are you still anticipating doing ammonia cracking in Europe and building an ammonia cracker there? Eduardo Menezes: We are still waiting to see what the final regulation will be in Europe. As you know, they have this regulation to convert 1% of the fuels to RFNBO. This is for 2030 now. This has to be transposed by each country. There is other regulations that are probably not going to move. But this one, everything indicates that what you see in most countries, they are even proposing higher percentage than that. So I think Spain is 4%, Germany 1.5%. But all this has to be ratified and the expectation now is that we'll see this transposition of the regulations by March of 2026. So when the regulation comes out, then we're going to understand the size of the market with the best information we have today, it's not a huge percentage of the fuels. But when you think about green hydrogen volumes that are really, really small, that will generate a market. I think in our slides, we said that if the number is 1% is like 7x the volume of NEOM. At the current regulation levels that we see, that number is more like 20x. Again, these volumes, they can be supplied by local production using electrolyzers with renewable power or they can be supplied by cracking ammonia coming from a place like Saudi Arabia. So it's really a way to do some arbitrage on power prices and so forth. So we need to see how these ends. We need to see how the market develops and what opportunities we have. If the project makes sense, again, and if we have an offtake agreement, then we can do an FID and move forward with these projects. If not, will need to go in a different direction. But at this point, indications are that there will be a market, not a huge market, but very significant compared to the existing volumes in terms of green hydrogen and green ammonia. Operator: We'll go next to Laurence Alexander with Jefferies. Laurence Alexander: Earlier this year, when you put out the target of 6% to 9% growth through '29, what was your assumption around NEOM? Was it your predecessors' framework of realized prices will be roughly double the market price? Was it just a placeholder, 10% IRR? Was it -- can you give us some sense of what was embedded in that framework from the NEOM asset. Eduardo Menezes: No, we didn't add any kind of very large contribution from NEOM. At this point, we have the contribution from the JV point of view. The contribution from the product that we'll need to sell from there is something that, as I said before, we need to continue to work on to get a better understanding of what the numbers will be. But on our guidance for that high single digits between now and the '29, we count with a minimum contribution from that project. Operator: We'll go next to Matthew DeYoe with Bank of America. Matthew DeYoe: Two questions for you. I apologize, the first one is going to be a little long. So if I look at your performance versus Linde, Europe really shows the biggest opportunity for improvement. And notably, I think price there has kind of underperformed materially if you go back or look even to COVID or pre-COVID. I know helium is probably in there, but I think fundamentally, when electricity prices rolled over in '22 and '23, it looks like Air Products just like handed price back to customers and Linde didn't. And so net, you have a pretty wide margin differential between the two. I mean when -- do you kind of agree with that view, but is there an opportunity to catch up on the price differential? Or is raising price unilaterally like too difficult? And then, as my second, is there a world where you can just like monetize the $2 billion so cost in Darrow to another company that's looking to do a project along the Gulf Coast that might have maybe different strategic goals from Air Products. So I don't know, maybe you can get like 50% of that, right? Is there a way we can walk away with $1 billion and just say that's better than just a full project walk? Eduardo Menezes: Yes. On the -- we starting with the last question first, yes, absolutely. As I said, we have a lot of the critical equipment done for the project. the project has good economics. So that's definitely what would happen if we decide to cancel. We would try to monetize as much as we can. And I don't think your estimate of 50% is a bad estimate at this point. But again, this is something that you need to go and understand and see how much you can recover from that. On your first question, and I've seen your report on the prices in Europe and I think we're still trying to understand exactly the comparisons there because when you do comparisons quarter-by-quarter, not in an average for the year, you get to different results. And I think we can talk offline and explain a little bit of that to you. But when you look at performance in Europe. Yes, I understand our competitor improved a lot of their performance. I have a personal understanding for what exactly happened there. You always need to understand that Europe is -- it's easy to talk about as one market, but there are several different markets in Europe. It's easy to see that when you think about an island like the U.K. But the reality is, when you talk about industrial gases, Iberia is an Ireland, Italy is an island. And really the only large common market we have in Europe is the space between France and the Benelux in Germany. Eastern Europe also doesn't have the same geographical barriers, but the density also leads to the point that you have several different markets here. So when you think about that, and you forgot about Scandinavia, it's also a separate market. If you look at the positions that we have and the positions that our competitors have, the margins are little -- you can understand a little bit the differences in margin. I'd not say that we cannot improve our business in Europe. We're working to do that, to make it better on every line of business that we have. But I think the difference in performance is a little smaller than what you are -- you were calculating there just because of the positions that we may have or not in places like Scandinavia or Eastern Europe. But -- so that's the point I can guarantee you we're not giving -- we're not giving price back and we're working on our pricing day by day in Europe. And I look forward to have our group here reaching to you and talk about the difference on how you calculate that when you look at quarter results and annual cumulative results on pricing. Operator: We'll move next Arun Viswanathan with RBC Capital Markets. Arun Viswanathan: Just a clarification on the helium headwind. So I think maybe this year came in just slightly below your expectations. I think you're guiding at $0.55 to $0.60, maybe that's $0.49, so maybe that was a little bit better. Maybe you can just clarify that. And then on the helium headwind for next year, it looks like Q1 is maybe a negative 6%, but then the full year is negative 4%. So that appears to be projected to get better as you move through the year. What's your confidence in that, I guess? And is there a possibility that it could get worse? And then for my second question, just on CapEx, is there a possibility that maybe -- what kind of flex do you have there? Would you go down to maybe $3.5 billion if necessary for fiscal '26? And how soon you make those decisions? What kind of freedom are you giving yourselves to or time to make some more difficult decisions, I guess, if you need to? Melissa Schaeffer: Great. Thanks. I'll take this question. So let's start on helium. So you are right. We had forecasted between $0.50 and $0.55 headwind on helium for the full year. We came in at $0.49. So a little bit better than we had forecasted, but not significantly off. For FY '26, we're looking about the same run rate as what we saw in FY '25. Obviously, there are areas that we're going to continue to look to be able to push volume and price, but this is a difficult market. One of the things that I do want to remind everybody is that in Q1 last -- or this year, we had a bulk helium sale that we disclosed. That is causing a significant headwind as we lead into FY '26. So that is the difference in Q1 that you're seeing as a year-on-year comp that is giving us a little bit of a tough headwind. But again, full year, about 4% is what we're forecasting, 4% headwind coming into FY '26. Now on CapEx. So for CapEx, it's really a component of execution against our projects, right? So as long as we're continuing to execute against the projects that we have in our backlog, we will see that $3.5 billion to $4 billion. That is not something that would significantly change or that we need to make a decision on. Now as for Darrow, we obviously have commitments on purchase orders that were continuing to progress, but no new commitments are being made. So I don't see a significant variance or decision point that would change the FY '26 CapEx forecast. So between $3.5 billion and $4 billion is a number that I am pretty confident on. Operator: We'll go next to Kevin McCarthy with Vertical Research Partners. Kevin McCarthy: Can you elaborate on the decision to sell to coal gasification projects in Asia curious about what exactly you're divesting, whether you have any firm deals in hand today? If so, cash proceeds and any impact on your sales in Asia? Eduardo Menezes: Yes, Kevin. We -- as we explained, I think, 2 quarters ago, we have 3 major coal gasification in China -- projects in China where we own and operate the coal gasification part of the project. We have several others that we have the oxygen plant, but that's a different story. Out of these 3 projects, Lu'An is the largest one, and we have absolutely no issues with this project. It's operating. It's probably one of the largest coal gasification sites in the world, and this is continuing normally. We have 2 other sites that -- those are the sites we're taking actions that we have no operating issues, but we have customer issues. And we have been trying to work these issues for some time. These projects really -- they have been a drag for us in terms of operating profit. We have been booking only the sales that they have been able to pay. So the impact on sales is not exactly very large for us. And we decided to -- after several months of negotiation we decided to set these assets aside for sale. And we are in the middle of that process. I cannot give you specific data and value of when we can close this sale and the amount of money that we're going to be able to collect. But of course, we're trying to maximize the valuation. And we believe that the entire asset may have a better owner than us and the current owner of the syngas to methanol to olefins plant. So we hope that we'll be able to find that and monetize this asset better than what we would have if we keep running these plants. Kevin McCarthy: Eduardo. My second question is a bit of an unusual one. Would you comment on the market for rare gases, like crypton, xenon, neon, are you seeing any escalation of competitive intensity in Asia? And if so, is it meaningful? Or is it simply too small to matter given the small size of those markets. Eduardo Menezes: Yes. Air Products, unfortunately, is not a big player in this market, traditionally. So it's not something that we focus a lot. We have seen some degradation in pricing and increasing in the competition level from other players. But really, it's not something that affects us that much. So I don't think I would be the right person to give you a feedback on that. Operator: We will take our final question from Mike Sison with Wells Fargo. Michael Sison: One quick one on Louisiana. If you get to partners for sequestration pneumonia who want a similar return that you would want, is there still a good return on the hydrogen that you would do longer term? I suspect that -- that's kind of what the board of partner is looking for. So maybe just flesh that out as a scenario. Eduardo Menezes: Every -- we are looking at this, Mike, as a normal hydrogen project for us. So we have our criteria. The customer has its own criteria. And it needs to work for both sides for the product to move forward. That is all I can tell you. If it doesn't work for them, it's not going to work for us. And I believe there is a room today to get to the right returns. As I said, to get the right returns, you need to have a commercial negotiation on pricing, but we also need to have a firm estimate on the capital cost, and that's also part of the equation here. Operator: And that will conclude the Q&A portion of today's call. I would now like to turn the call back to Eduardo Menezes for any additional or closing remarks. Eduardo Menezes: I would like to thank everyone again for joining our call today. We appreciate your interest in Air Products, and we look forward to discuss our results with you in the next few quarters. Thank you, and have a great day. Bye. Operator: Thank you. Ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time.
Operator: Good day, everyone, and welcome to the SANUWAVE earnings call. [Operator Instructions] Please note, this call may be recorded. [Operator Instructions]. It is now my pleasure to turn the conference over to Morgan Frank, Chairman and CEO of SANUWAVE. Please go ahead. Morgan Frank: Thank you. Good morning, and welcome to the SANUWAVE's Third Quarter 2025 Earnings Call. Our Form 10-Q was filed with the SEC last night. Our earnings release was issued this morning, and our updated presentation was made available on the website in the Investors section. Please refer to that during the presentation, we really try to make it useful. Thanks. So joining in the call today is Peter Sorensen, our CFO. And after the presentation, we will open the call up to Q&A. So let me begin with the forward-looking statements and other disclosures. This call may contain forward-looking statements such as statements relating to future financial results, production expectations and plans future business development activities. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, many of which are beyond the company's ability to control. Description of these risks and uncertainties and other factors that could affect our financial results is included in our SEC filings. Actual results may differ materially from those projected in the forward-looking statements. The company undertakes no obligation to update any forward-looking statements. Certain percentages discussed in this call are calculated for the underlying whole dollar amounts and therefore, may not recalculate from rounded numbers used for disclosure purposes. As a reminder, our discussion today will include non-GAAP numbers. Reconciliation between our GAAP and non-GAAP results can be found in our recently filed 10-Q for the period ended September 30, 2025. All right. So now we have that out of the way, let's dig into other part. Our Q3 was an all-time record revenue quarter for SANUWAVE, up 22% versus the challenging Pigtail Python quarter last year, when a large order drove 89% year-on-year growth. The quarter was also up 13% sequentially from Q2. This brings the year-on-year growth for the first 9 months of 2025 to 39% versus the same period last year. We sold 155 UlTraMIST systems in Q3, also an all-time record and up from 124 last year, again, the Pigtail Python quarter and 116 last quarter. This took us to 1,416 units in the field, 504 of which that's 36% have been sold in the trailing 12 months. Applicator revenue was $6.8 million in the quarter, also an all-time record, up 26% year-on-year and 6% sequentially from Q2. At 59% of revenues for the quarter, this was in line with the 55% to 65% target range we have discussed on previous calls. We had 2 customers of about 5% in the quarter and 1 customer, a reseller that slightly exceeded that. No other customers exceeded 3% for the quarter. Gross margins were healthy 77.9% in the quarter, slightly down from 78.2% last quarter, but up from 75.5% a year ago. This was primarily as a result of slightly lower overall ASP for UltraMIST systems as a result of beginning to work with some larger resellers with whom we deal on a wholesale basis, where we sell systems at lower prices and allow them to mark the systems up when resold as opposed to selling at full price and paying commission. This works out about the same, maybe slightly better for us on the operating line, but it does impact gross margins a bit. This was offset by slightly higher prices on applicators and some ongoing cost reductions to the production of the UltraMIST system. The qualification of our new four-cavity mold for applicators and the new more manufacturable applicator process continues. We expect to have that process up and running for commercial production in January, though if we do really well, it could be as soon as December. But I think at this point, January is probably a better bet. The clean room and equipment are in and qualified. We just need to get through the design verification performance and shelf life testing stages. And unfortunately, things like shelf life testing are inherently time-based. We use a blended cost basis for calculating our cost of goods sold. So it will take a few quarters for this new process to show through fully. But we expect it to ultimately drive a few extra points of applicator margin as it reaches scale in the back half of 2026. So Q3 has been a productive time for SANUWAVE. We received $5 million payment for the exercise of IP licensing related to our intravascular Shockwave patent portfolio, and we refinanced our debt, reducing $27.5 million of debt, closer to $29 million with closing costs to $24 million and our interest rate from 19.5% to SOFR plus 350, which is currently about 7.63%. This placed the company on excellent financial footing and positions it well to pay down this debt from cash flow as the facility contains no prepayment penalties or fees. We also moved to our new larger headquarters back in August. And one last piece of good news based on the refi and our ongoing financial performance, I'm pleased to announce that SANUWAVE has alleviated its substantial doubt to continuous concern for at least 12 months as of this 10-Q. So moving on to the part I'm sure everybody wants to get to. The wound care market was a bit unsettled in Q3 as many practitioners seem to be taking the sort of wait-and-see attitude to what turned out to be some pretty substantial changes in the skin sub and allograft reimbursement market. These have been long mooted by CMS, and this seems to lead to a widespread taking the foot off the gas in the industry due to the uncertainty. While these changes, which were made final on Friday 31 did not affect any of our reimbursement for the 97610 code remains essentially unchanged, perhaps slightly up for 2026. It does affect many of our users and this in combination and perhaps particularly because of heightened fears about CMS audits and clawbacks in wound care led many providers to simply sort of back off a little and to use advanced wound care treatments on fewer patients at the margin. This uptick in audit and price sensitivity seems to be part and parcel to the broader CMS strategy of driving toward more on the lines of evidence-based medicine requiring more data on efficacy, product differentiation and value for money in treatment regardless of any near-term disruption, we think this is an overall positive trend for SANUWAVE and for UltraMIST, and we suspect that this is a paradigm in which our products can really thrive. It's only been a week since the final rule came out. And so it is perhaps a little early in making too many strong pronouncements about exactly how this all is going to play out. But in our experience, any certainty is better than huge uncertainty. And with the market having really no idea if reimbursement was going to be $2,500 or $500 or $127 per square centimeter in skin subs, this is simply too much variance for people to make decisions around. So now that answer is known, we expect people will rapidly adapt to this new reality and get moving. But we've had a flurry of calls this week from distributors, partners, prospective salespeople, and we believe that the weeks and months ahead will represent a profound opportunity to make some moves to improve our marketing and our sales positions. I mean you really sort of feel the market starting to crack back open again as soon as everybody knew that to which they were planning. During our September all-hands call, like I literally threw a picture of little finger from Game of Thrones and told the team, chaos is not a pit, it's a latter. And so we're in a climate. I mean while perhaps the hope that MAX disruption was behind us in the last call was a little bit optimistic, this seems like one of those moments in a market where the ones who figure out how to climb fastest can gain a lot of ground. And we are engaged currently with the most qualitatively and quantitatively promising sales funnel, I've ever seen in my tenure here. It's been a little bit frustratingly slow to move, but it feels like that may be rapidly starting to change. So this is an exciting time here and one that should be very good for SANUWAVE. With that, I'll now turn you over to Peter Sorensen, our CFO, who can walk you through the rest of our financials. Peter Sorensen: Thank you, Morgan. We had a strong third quarter at SANUWAVE with revenue reaching a new all-time quarterly record and up 22% year-over-year. This performance reflects the continued momentum of our commercial strategy and the growing demand for UltraMIST. Gross margins expanded meaningfully year-over-year, reflecting both the inherent leverage in our model and our disciplined approach to managing costs. Looking ahead, our focus remains on driving sustainable profitable growth. So with that, let's take a closer look at the financial results of the quarter. Revenue for the 3 months ended September 30, 2025, totaled $11.5 million, an increase of 22% as compared to $9.4 million for the same period of 2024. This growth was below our guidance for the quarter, but right in the midpoint of the preliminary range of results we disclosed on October 6 of $11.4 million to $11.6 million. Gross margin as a percentage of revenue for the 3 months ended September 30, 2025, came in at 77.9%, up over 240 basis points year-over-year, driven by lower UltraMIST system production costs and our strategic pricing initiatives across systems and applicators. For the 3 months ended September 30, 2025, operating income totaled $1.5 million, which is down by $0.5 million compared to the same period last year. However, operating expenses for the 3 months ended September 30, 2025, amounted to $7.5 million compared to $5.1 million for the same period last year, an increase of $2.4 million. This change was largely driven by an increase in noncash stock-based compensation expense of $1.4 million versus Q3 2024, in which there was no stock comp expense. Increased headcount expenses of $0.8 million, increased marketing expenses of $0.2 million, increased legal expenses of $0.2 million and R&D increased expenses of $0.1 million, partially offset by decreased commission expense of $0.8 million. Net income for the 3 months ended September 30, 2025, was $10.3 million compared to net loss of $20.7 million for the same period in 2024, an increase of $31 million. The increase in net income was primarily driven by the change in fair value of derivative liabilities, which resulted in a noncash gain of $6.1 million in Q3 2025 versus $18.8 million loss in Q3 2024, representing a $25 million year-over-year variance. In addition, we had a $5 million gain related to a patent sale as noted on our previous 8-K and in our most recent 10-Q. We also had lower interest expense of $1.6 million in Q3 2025, primarily due to the conversion of our previous outstanding notes into common stock in Q4 2024 as part of the note and warrant exchange. These impacts were partially offset by nonrecurring costs of $0.5 million related to the repayment of our senior secured debt. EBITDA for the 3 months ended September 30, 2025, was $12.4 million. Adjusted EBITDA was $3.5 million versus $2.1 million for the same period last year, an improvement of $1.3 million year-over-year. Total current assets amounted to $22.6 million as of September 30, 2025, versus $18.4 million as of December 31, 2024. Cash totaled $9.6 million as of September 30, 2025. We're grateful for the continued trust and support of our stakeholders. Q3 2025 was another excellent quarter for SANUWAVE, and we're pleased with the progress we've achieved across our business. As we head into the final quarter of the year, we remain committed to executing with discipline, driving growth and creating long-term value for our stockholders. With that, I'll turn the call back over to Morgan. Morgan Frank: Thanks, Peter. So moving on to guidance. As we stated in our press release, we are guiding to $13 million to $14 million in Q3 revenues, up 26% to 36% year-on-year and also representing -- which would represent another all-time high revenue quarter for SANUWAVE. We're starting to see significant cause for optimism now that the market concern around reimbursement in wound is alleviating because we now finally have some certainty rather than vast uncertainty. Obviously, it's only been a few days since the final rule was announced. But as I said earlier, we already feel some movement beginning and some of the log jams breaking free. So as ever, I want to express my gratitude to the SANUWAVE team for all the hard work and their commitment and trust. I'd also like to thank them for routinely following for my the highest reward for good work is more work, stick and pretending that, that's insightful and motivational. Well done, guys, and thank you. So with that, thanks, everyone, and we will open the call up to questions. Operator: [Operator Instructions] We'll take our first question from Ian Cassel with IFCM. Ian Cassel: I just had a couple of questions, mainly around the reseller model that seems to be picking up some steam. Maybe the first question, though, is due to the disruption in skin substitutes, I was curious if the resellers or distributors of those skin substitutes -- now the revenues are probably down 90% versus last year. And I'm curious if you're seeing any inbound interest from those resellers who are now kind of scrambling to pick up additional products to fill that revenue gap in their businesses. Morgan Frank: Okay. So I mean the short answer to that question is, yes. It feels like there is a substantial realignment beginning in the space. And obviously, this is a very significant change to a large product category. We've definitely seen some inbound interest. I think a bunch of it started even well before the rule came out and was sort of -- and some were sort of predicating the -- well, maybe we'd be interested in picking this up depending on what happens. I think it's a little bit premature to say, well, okay, this is going to result in a ton of new deals. But what I will say is distribution is an important part of this space. A lot of -- some of these distributors are very sophisticated. They have good account control. They do good work with the providers to help them even down to the level of selecting patients and determining care. It's something that we've been sort of stripping down and rebuilding this year. Our average sales through distributors and resellers was about 36% in 2024. In this quarter, it was about 25%. So that's up a little from last quarter, but still kind of not to levels where it used to be. And so we're kind of assessing what the right level of -- we're sort of assessing what the right mix for us is going to be. Ian Cassel: And how do you kind of blend that distributor channel with your direct sales force? How do you think about that? Morgan Frank: Yes. It's always -- that's always sort of the tricky bit. And we're doing it through sort of a deconflicting structure where if our reps are chasing something, it's theirs. And we don't -- what we want to avoid is are the 2 channels stepping on each other. And so it's sort of -- if a distributor wants to go after a customer, they'll come to us and say, "Hey, we think this is an interesting prospect. And we'll deconflict it through our internal -- we'll deconflict it through our internal list and say, yes, we don't have anybody who's working on that. Go ahead. Ian Cassel: And maybe last question on the reseller and distributor model, how do you handle inventory management? Are they kind of want to be stuffing the channel, so to speak, where they're buying 9 months' worth of inventory? How do you think about those inventory turns? Morgan Frank: Yes. Yes, yes. That's a great question. And that's something we've given a lot of thought to and something we worry about a lot. When you're dealing with stocking distributors, you always sort of run this risk of -- do you have too much inventory in the channel and will you wind up kind of choking on it? We've been trying to be sort of measured with this and not putting too much inventory into the channel to really avoid that problem. I think the first major distributor we dealt with on a stocking basis this year was back kind of towards the end of Q2. They took about 15 systems from us into inventory. And at the time, I was actually pretty worried about that. They came back 6 weeks later and said, yes, we've sold them. Can we have 10 more. Took 10 more and then went out and sold those again in another 8 weeks. And so I think if we can kind of keep those turns in the sort of 8 to -- if we can keep the inventory turns there in the sort of 8 to 12 weeks range, I think that's healthy. I think once we start seeing it bump up against that kind of like 10 to 12 area, we're going to start to get nervous for any given distributor. And then to look at them overall, obviously, I think we'd like to keep it more towards the sort of range. Operator: Our next question comes from Kyle Bauser with ROTH Capital Partners. Kyle Bauser: Maybe just following up a little bit on that. What's the latest rep headcount? Morgan Frank: Rep headcount is still 13, same as it was last quarter. We've rejiggered it a little bit. We changed the shape of a couple of territories, moved it to 12 national territories. And now have 2 full-time kind of national key account managers, but overall count is the same. Kyle Bauser: Got it. And how are you feeling about that heading into '26, you had a pretty good number in addition to having the distributors, as you mentioned? Morgan Frank: Yes. I think, obviously, given a lot of what's happening in the industry right now, as you can imagine, there are resumes. So I think we're going to kind of do this on a -- we're doing this on sort of a -- let's see what we see basis. I mean, obviously, we plan to grow this rep headcount as we go forward. Exactly how we do it right now is something that we are -- doing a lot of work to assess internally. Do we want to start bringing in some reps to just manage distributors? Do we want more key account reps? Do we want more national territories? Do we want to bring in a set of more kind of inside sales folks to either just handle customers or to just set appointments, right? So that we're having -- we can get our closers more time closing. Like that's really -- those are really the discussions we're having internally at the moment. I think we'll be continuing to add to the sales force on kind of a measured basis. Kyle Bauser: Got it. Yes. Makes sense. And just curious what sort of annual revenue some of your more productive reps are doing and maybe also kind of what's the reasonable run rate for reps to achieve? Morgan Frank: Yes. I mean it's -- to some extent, that's always going to be a little bit territory specific, right? So -- and a function of how well developed a territory is. I mean we had a rep exceed $2 million of sales in Q3. We had a couple of others over $1 million. And so as these ramp up, getting to this kind of $4 million to $6 million annual sales rate, I mean, it doesn't -- it's certainly not impossible. I think given the difference -- we have a couple of markets that are more developed than others. And so it's a question of kind of how long does it take to get an undeveloped market to look more like a developed market. But ultimately, I mean, rep productivity here can be very high. Kyle Bauser: Got it. And internationally, were any of the 155 systems sold were any of those into international markets in the quarter? Morgan Frank: No. Kyle Bauser: Okay. And maybe just lastly, on that point, how are you thinking about the international opportunity for UltraMIST? Would you ever I know you've got a lot to focus on in the U.S., but just curious if you'd be interested in looking to take on distribution partners in OES market. Morgan Frank: I mean it's certainly something we'd look at. It's always -- I mean, we sort of refer to this internally as the Golden retriever and a tennis ball factory problem, where you like what are you going to chase. And I think at the moment, there's so much domestic opportunity that it just -- this hasn't really gotten top of the pile. I mean if there were a really compelling distributor who could basically handle all of this without a whole lot of intervention from us in a market where there was where there was an easy regulatory pathway, I mean, I suppose we'd look at it, but it just isn't something we've spent a lot of cycle time on yet. Operator: Our next question comes from Carl Byrnes with Northland Capital Markets. Carl Byrnes: Again, considering the CMS fixed rate 127, 28 per square centimeter, would you expect that the private physician practices would look to UltraMIST as an additional line of revenue? And on that, I mean, how long do you think that takes to play out? And then I have a follow-up as well. Morgan Frank: I mean short answer is yes, right? I mean I think physicians are often maximizing 2 things, right? They're maximizing their desire to provide good patient care and for the patients to get better. And obviously, they're running business. And so to the extent that they find both revenue and care gaps, this becomes a very interesting option. I mean by -- on a relative basis, the attractiveness of UltraMIST seems to have increased a great deal, particularly from a -- if your goal is revenue maximization. Exactly how long that takes to play through is an interesting question. I'm not really sure how to answer it with any like rigor. It seems to vary a great deal by folks. I mean people just -- people respond to new realities with differing time frames. We've certainly seen a change in inbound. And we've certainly seen -- I mean there were -- we've certainly seen people who are sort of like on the fence saying, well, maybe let's see suddenly get more interested. And so I think there's definitely going to be some of that. Exactly how it plays out is complex. Carl Byrnes: Got it. And then just one follow-up question. Looking at mobile wound care, what do you think happens there given the CMS change? And kind of how does that affect your business? What percent of your business is tied into the mobile space? Morgan Frank: I think -- I mean, the mobile is experiencing a lot of the same issues as others. And they are widely divergent practices within mobile. And we've been doing some looking at this and kind of tearing into the CMS data just to get a look at what we think the interrelationships are between skin subs and UltraMIST. One of the things we discovered is that 55% of the practitioners who bill UltraMIST don't build any -- haven't built any skin sub at all in the last 4 years. So of the 45% of do, most are -- a lot of times, it's not the same patient or it's -- you can't build the 2 in the same visit. So from a standpoint of like what's mobile going to do, I think some of the folks who were most aggressively using skin subs may see their practices either change dramatically or terminate. But I think -- I mean, just speaking hypothetically, if my goal as a provider were to do the maximum number of skin sub applications, I wouldn't be using UltraMIST, right, because the wound would heal more quickly and you would wind up doing fewer applications. And so I think there's been sort of an inherent sorting here where the folks most interested in doing the most skin sub have also tended to be the folks who were not using a lot of UltraMIST. Operator: Our next question comes from Alex Silverman with AWM Investments. Alex Silverman: Two questions. One, can you give us a sense of what kind of toeholds or trialing you're doing in some of the very, very large wound centers? And then I'll ask my second question after. Morgan Frank: Well, certainly an interesting question. I mean we've -- we're starting to get -- I mean, we're starting to spread through a couple of hospital networks in particular or at least these are things that have been going on us, I think we could talk about them. One in particular is one of the larger hospital networks in the U.S. We've been in at a couple of their flagship facilities now for several months. It's gone really well. I think they are using the product in a similar fashion to some other large hospital chains, predominantly around treating half eyes and incipient half eyes -- sorry, that's hospital-acquired pressure injury. Essentially, you lay on your hip for your back too long, it turns into a pressure ulcer in a patient with suppressed immune system or health, those can be very, very serious, even life-threatening. And so we're starting to spread there. We're starting to work on how do we become a -- we were added to their approved vendor list. And so they're kind of 150-ish hospitals and 2,200 facilities are now free to buy. We're definitely working on some other large opportunities. Nothing I can really talk about by name here right now, but give you a little time on that, and I may have something for you. Alex Silverman: Okay. Great. And then second question, have you guys thought about how to get around the capital approval process, which can be so painful at some of these bigger buyers, the hospitals and the large wound care centers that have just painful processes? Morgan Frank: We have. In fact, it's something we've been giving a lot of thought to. And obviously, starting to have a bit of a balance sheet helps. The -- as we look at a -- hospitals, in particular, tend to have very difficult capital cycles and their capital budgets are highly segregated from their operating budgets. And so I mean, you walk into a hospital, you'll see tracking codes like even on computer monitors because those are leased, right? Like that's how aggressive the -- like the cap budgets are protected there. And so I think moving to something along the lines of a rental model at prices that make sense for both sides, particularly if you could tie it to some sort of usage minimums makes a lot of sense. Some hospitals don't seem to care. I mean we've seen a number that are just like great, let us buy the thing. But there are many others for whom the cap budgets are tight. So it seems to vary a lot hospital to hospital. But yes, we're definitely starting to consider the -- can we rent these to hospitals that we believe will be sort of high-use environments, like that can be a great model for us. Alex Silverman: I assume with a, I don't know, $5,000-ish cost for a system -- the payback of placing one of these is -- could be a pretty quick payback for you. Morgan Frank: Obviously, depending on -- I'm sure you can do the math, right, if we price it at various points. But the real -- I mean, obviously, the real fun for us is if you're selling -- if you're getting people to use 3, 4 cases of applicators a month, the value of the consumables rapidly exceeds the price of the capital sale. Operator: [Operator Instructions] We'll take a question from Andrew Rem with Odinson Partners. Andrew Rem: I just wanted to go back to this -- the reseller. And is there a way that you guys can kind of bifurcate the market where maybe direct you go to large accounts, heavy users and use resellers to get to kind of the fragmented small customers that would be less efficient to service on a direct basis? Morgan Frank: Yes. So you're speaking very much to an internal discussion we have frequently. We refer to them internally as Bunnies, Dear, Elephants and Wales. And the -- it's hard to have high-priced reps chasing bunnies. And so -- and a lot of the distributors know a lot of the smaller customers really well. So it's certainly something we're looking at and whether that ultimate -- whether that ultimately turns out to be the solution, it's certainly possible. It's an idea we're exploring. I think we're just trying to get some experience with it and see how it works. I mean we made a lot of changes in our distribution network and sort of tried to do -- try to move to a more engaged, more hands-on, more value-add channel. And so we're still getting some experience with it and seeing how it works and what it's good at and how to how to integrate it with our sales force most productively. But yes, I mean, the idea you discussed is certainly one we've been looking at. Andrew Rem: And would applicator sales also run through the reseller? Or would you just use them to sell systems? Morgan Frank: It's going to be -- I mean, ultimately, it depends on the distributor or reseller. Like from -- many of the folks we're starting to talk to now have much more sophisticated ERP systems and systems that can integrate with our own. So what we're really looking for is to make sure we understand exactly how many applicators would be in the channel and exactly what the flow through to end customers winds up being, we're very sensitive to that attach rate, like how many cases of applicators per week is a given user consuming. And so to the extent that we can sustain adequate visibility to that, we can allow sort of applicators into the channel. I mean, predominantly, what we've done with these distributors is at least in the past, is to -- they'll set up the customer. That customer will then come and order applicators from our portal. So we have a direct relationship with them. We're directly drop shipping to them. And then we'll pay commission to a distributor based on those applicators. But we're starting to look more at the -- many of these folks just want to do stocking entirely themselves. The question just becomes, can we sufficiently integrate it that it makes sense for both sides. Andrew Rem: And then maybe lastly, I'm not sure if this is a competitive, if it is, you don't need to answer. But it does seem like the current environment lends itself to leverage from -- for you guys in terms of negotiating with resellers. So -- and maybe that speaks a little bit to your increased sense of urgency, but maybe can you comment on that at all? Morgan Frank: I don't know that I really want to speak to something like leverage. We're -- this is one of those moments where there's kind of a sorting hat going on. And I think like some of the key salience in this market just changed and people are adapting to this new situation. And I think that provides a lot of opportunity. I think it's made a lot of people more interested in engaging with SANUWAVE. We've had a lot of inbound interest. And it feels like this is a great time to -- it feels like this is a great time to kind of make some new friends. Operator: It appears we have no further questions at this time. I'll turn the program back to the speakers for any additional or closing remarks. Morgan Frank: Well, thanks, everyone. I appreciate your making the time, first thing on a Friday morning, and we look forward to updating you further in the future. Thanks again. Operator: This does conclude today's program. Thank you for your participation, and you may disconnect at anytime.
Operator: Good morning, ladies and gentlemen, and welcome to the OR Royalties Q3 2025 Results Conference Call. [Operator Instructions] Please note that this call is being recorded today, November 6, 2025, at 10:00 a.m. Eastern Time. I would now like to turn the meeting over to our host for today's call, Mr. Jason Attew. [Foreign Language] Jason Attew: Good morning, everyone, and thanks for your attention today, as I know it is a very busy reporting week. Procedurally, I'll run through the presentation, and then we'll open up the line for questions. For those participating online via the webcast, you can submit your questions in advance through the webcast platform. Today's presentation will also be available and downloadable online through our corporate website. Please note that there are forward-looking statements in this presentation from which actual results may differ. Also, all amounts presented and discussed in today's call will be in U.S. dollars unless otherwise noted. I'm joined on the call today by Fred Ruel, the company's VP Finance and Chief Financial Officer, as well as my other colleagues as indicated on Slide 3. OR Royalties third quarter of 2025 was a straightforward one with sequential quarter-over-quarter improvement with respect to GEOs earned, cash margin, cash flows as well as our overall debt reduction. OR Royalties earned 20,326 gold equivalent ounces in the third quarter, a modest 3% improvement over second quarter of this year. Based on where we sit today after the first 9 months of the year, the company is tracking towards the midpoint of its previously published full year 2025 gold equivalent ounce delivery guidance range of 80,000 to 88,000 GEOs. And this would be based on normalizing for the higher-than-budgeted commodity price ratios. In other words, gold, silver, copper and gold year-to-date. More on this in a moment. Recall that we've been very specific -- explicit about the fact that due to sequencing at some of our major producing assets, including Mantos Blancos and ongoing ramp-ups at other assets like Namdini. The second half of the year was always expected to be a little bit stronger than the first half of 2025. Consequently, and at this stage, we think it's appropriate for outside observers to infer that Q4 2025 should be OR Royalty's strongest quarter of the year in terms of GEOs earned. And thanks to improved silver grades realized quarter-to-date, Mantos Blancos will be playing a key role in supporting what should be a very solid Q4 for us. Circling back on our gold equivalent ounce guidance for 2025 and commodity price ratios. It's worth noting that through September 30, 2025, and due to the higher-than-budgeted gold prices versus both silver and copper over that period, OR Royalties is tracking approximately 2,000 GEO to 2,100 GEOs lower than its original budget. In other words, these GEOs are "lost" when not normalizing for commodity price ratios. As a reminder, in February of this year OR Royalties applied a consensus commodity pricing and notably an 83:1 gold-to-silver ratio for its budgeted 2025 GEO delivery guidance. All else being equal and based on the current commodity price volatility, this number of "lost" GEOs could either grow modestly or potentially get smaller before year-end. The key message is that the same higher gold prices that have skewed the ratios versus our original budget affecting our GEOs earned have also more importantly, translated to record revenues and cash flows from operating activities for all royalties for both the third quarter and the first 9 months of the year. For context, the average realized gold price for the first 9 months of this year was $3,188 per ounce, which is over $900 per ounce greater from the same period last year. So as you can imagine, our shareholders should still be satisfied with the outcome associated with these year-to-date price movements. In addition, we are 65% of our revenues are directly derived from gold. And speaking of cash flows, we're once again happy to report cash margins for the period of just under 97%, in line with our budget for the year. OR Royalties ended the third quarter with $57 million in cash as at September 30. We are in a debt-free position for the first time in over 10 years as the company paid down the outstanding balance of its revolving credit facility during the period. And while members of our corporate development team remain extremely busy to this day, there were no major transactions announced by -- OR Royalties during the third quarter outside of our second $10 million milestone payment released to SolGold, given the ongoing progress the new management team there continues to make in advancing a new vision for Cascabel. With the rapid increase in already elevated precious metals, in addition to recent price volatility, I continue to espouse an internal culture of capital allocation discipline. where returns on new transactions must exceed our internal hurdle rates at what we believe internally to be more realistic commodity pricing scenarios as well as contract structures that must come with the appropriate security features. Here at OR Royalties, we have the fortunate luxury to be able to walk away from transactions that we can't work for any of these aforementioned reasons, thanks in large part to our already bought and paid for organic GEO growth profile over the next 5 years or 6 years. I'll spend a little bit more time on our growth profile a little bit later. With respect to our ongoing commitment to return capital to shareholders, the company declared and paid its quarterly dividend of $0.055 per share in the second quarter, marking its 44th consecutive dividend. OR Royalty's history of progressive dividend payment serves as a testament to the confidence we have in the consistency, predictability and the anticipated growth of the current and future cash flows underpinning our business. Now moving on to the company's financial performance for Q3 '25. Quarterly revenues of $71.6 million tracked 71% higher versus the same period last year, again, largely thanks to the increased commodity prices and deliveries. And it also represented a quarterly record for the company. Net earnings of $0.44 per basic common share for the period also marked a very significant year-over-year improvement, thanks again to higher commodity prices and deliveries, but also in part due to the fact that as of August 2025, OR Royalties is no longer accounting for its equity position in Osisko Development as an investment in an associate and instead will now flow through other comprehensive income. This change in the accounting treatment of the Osisko Development investment generated a noncash gain of $54 million in the third quarter, as a result of the revaluation of Osisko Development equity investment at fair value on the date of the loss of significant influence being mid-August, which was triggered by the ODV equity financings. Most importantly, Q3 saw sizable year-over-year improvements in both cash flow per share of $0.34 versus $0.19 in Q3 last year as well as quarterly adjusted earnings of $0.22 per basic common share, again, versus $0.11 in the same period last year. Next slide, please. During the third quarter of 2025, our GEOs earned came predominantly from Canada, and we derived approximately 95% of our GEOs from precious metals, the balance coming from our direct copper exposure through our copper stream at Harmony Gold's CSA copper mine in Australia. Some comments on specific mine performances during the quarter before speaking about a couple of our more material assets in greater detail. At Agnico Eagle's Canadian Malartic complex, it had yet another solid quarter with respect to GEOs earned. A reminder that historically, we've often seen strong fourth quarters at Canadian Malartic versus the other way around. And while that should bode well for our final quarter of the year, we are mindful of an announced 4 day to 5 day maintenance shutdown at the mine during the fourth quarter. At Capstone Copper's Mantos Blancos operation, Q3 production saw a significant year-over-year jump, thanks to a couple of things. First, much improved plant throughput, still largely holding consistent at a nameplate of 20,000 tons per day; and secondly, approximately a month's worth of improved silver grades contributing to our own third quarter stream deliveries. Recall that with the 2-month stream lag, our 2025 stream delivery year for Mantos Blancos started November 1, 2025 -- 2024, sorry, and ends October 31, 2025. As noted, throughput levels remained at or above the mine's nameplate capacity of 20,000 tons per day at Mantos Blancos. And our anticipation is that silver grades should stay higher and in line with OR's expectations through the final month of our stream delivery year, which was the October that just ended. And also, as indicated in last week's Q3 2025 update from Capstone, the Mantos Blancos Phase 2 feasibility study is still scheduled for 2026, which we believe will be in the first half of the year. Finally, we've recently been really impressed with the ongoing successful ramp-up at the Namdini mine in Ghana, which based on our GEOs earned and paid year-to-date, it is starting to hit its stride after a slower start to the calendar year. We're expecting continued improvements from Namdini going forward based on the most recently -- the most recent publicly available mine plan for the asset, which was the 2019 feasibility study completed by the former Cardinal Resources, to which we understand the current operator is adhering to. Moving to Slide 7. And as I mentioned earlier, the number of currently producing assets in our portfolio stands at 22. And while unlikely to be included in any of our GEOs received this year, the next asset expected to be added to this list will be Ramelius Resources Dalgaranga mine in Western Australia, with our partner recently having released a full integration plan for the high-grade underground mine, which includes some modest gold production out of the mine in the first half of 2026. So likely beginning early next calendar year, more on Dalgaranga a bit later. On our last call 3 months ago, we went out of our way to highlight the meaningful silver exposure provided by OR Royalties, which through H1 2025 was just over 26%. If we recall the same chart from the previous slide you'll have seen that silver represented over 30% of our revenues in the third quarter. Summing this all up, we are essentially flagging that OR Royalties can provide lower risk, higher quality and meaningful leverage to silver for investors that are looking for it, especially if silver prices continue to close the gap versus gold as it has done over the past month or so. Moving on to Slide 8, which many of you will have seen many times before. Our company continues to set itself apart from the rest of its relevant peers in 2 key areas. First, as it relates to lower-risk jurisdictional exposure; and second, as it relates to our peer-leading cash and gross margins. Starting with the former. Just a friendly reminder that OR Royalties is the unequivocal leader when it comes to both net asset value and gold equivalent ounces earned from what we define as Tier-1 Mining Jurisdictions, which include Canada, the United States and Australia. And we would think that with the recent explicit plans outlined for the first time by Ramelius regarding Dalgaranga as well as other recent development advances across -- advancements across our portfolio, this exposure could very likely grow in the near to medium term. Moving to the latter. Simply put, OR Royalty's peer-leading cash margins provide our shareholders with both transparent leverage to precious metals prices as well as unmatched downside protection. Switching gears to Slide 9 and focusing on our cornerstone asset. Our partner, Agnico Eagle, provided some relevant information relating to the Canadian Malartic complex along with its Q3 2025 financial results announced on Wednesday evening last week. As it relates to operations during the period, aggregate gold production of approximately 150,000 ounces to 157,000 ounces in the quarter was higher than planned, primarily as a result of higher grades at the Barnat pit at Canadian Malartic. The higher gold grades at Canadian Malartic were a result of the continued mining of mineralized zones near historical underground stopes in the Barnat pit that returned higher grades than anticipated. Flipping to Slide 10. The Odyssey underground gold production during Q3 was slightly ahead of plan at approximately 22,400 ounces, driven by higher ore mined of approximately 3,634 tons per day compared to the target of 35,000 tons or 3,500 tons per day. Regarding the development of Odyssey Underground, the third quarter of 2025 saw mine development advance ahead of schedule with a record 4,770 meters completed. The breakthrough of the ramp to the mid-shaft loading station at Level 102 was completed in the third quarter of 2025. And the main ramp towards the shaft bottom progressed to a depth of 1,059 meters as at September 30, 2025. As previously noted by our partner and firmed up during the third quarter, Agnico Eagle approved the extension of the shaft -- the first shaft by 70 meters to a depth of 1,870 meters amongst some additional loading station adjustments. This adjustment is expected to improve operational flexibility and efficiency in the early 2030s, reducing reliance on truck haulage and further unlocking the significant exploration potential at depth. And speaking of efficiency, the sinking of the first shaft is already 2 months ahead of schedule. Looking at exploration, Agnico continues to press ahead aggressively with 29 surface and underground drill rigs operating during the period. The drilling program at Odyssey targeted the upper Eastern, lower Eastern and lower western extensions of the East Gouldie deposit. The new Eclipse zone and portions of the Odyssey deposit near the Odyssey shaft. Our partner believes this area of East Gouldie has the potential to add indicated mineral resources and potential mineral reserves to East Gouldie by year-end. The drilling success should benefit the ramping up of the mining operations and provide additional flexibility in mine development at East Gouldie, including a potential second mining area in the upper part of the mine. We touched on the following subject in our last quarterly conference call, but I think it's once again worth time to reiterate that our partner, Agnico Eagle, continues to openly discuss the concept of a second shaft at Odyssey. On Slide 9, we've provided just a small sample size of the details provided by Agnico as it relates to the current concept, including specific underground mine throughput profiles as well as aggregate potential underground production range in ounces as well as a breakdown of what is being targeted for both Shafts #1 and #2, expected grades and recoveries and finally, fairly detailed time lines to achieving all of this. What does this mean for OR Royalties? Distilling all of this down, it means that we could see an approximately additional 15,000 GEOs from a second shaft over and above what would be expected from the first shaft. The sheer amount of gold discovery to date at Odyssey Underground and more specifically East Gouldie on which we have a 5% NSR royalty and which continues to expand, continues to support our partners' plans. The current mineral inventory at the East Gouldie sits at approximately 50 million gold ounces and continues to grow. Agnico Eagle now has over 29 drills turning to expand this ounce inventory in addition to firming up the confidence of what has been previously defined. Given the sheer magnitude of the potential upside here, we can sympathize with Agnico's approach of taking a measured and methodical approach to the potential addition of the second shaft. Consequently, it is unlikely that there will be any meaningful public disclosure as it relates to specific details on the second shaft until the first half of 2027. Though Agnico has already indicated that upon release of those figures, a final investment decision would be quick to follow, if not almost immediate. Here at OR Royalties, it is our continued belief that the value of the potential second shaft at Odyssey is not currently fully reflected in our share price or even for that matter, in Agnico's share price despite the fact that we truly believe that there is little doubt that this project will eventually be sanctioned and completed. Finally, the potential second shaft only serves as a component, albeit a key one to Agnico's broader plans, which could see the entire complex produce 1 million ounces from 2030 onwards when factoring in additional regional ore sources such as Marban and Wasamac. As a reminder, Marban is subject to an NSR royalty or NSR royalties owned by OR Royalties as well as the toll milling royalty, while Wasamac ore would be subject only to the toll milling royalty. Agnico noted on their conference call last Thursday that the studies on both the second shaft and the complex's path to 1 million ounces remain on track. On to Slide 10, which touches on Dalgaranga, a high-grade underground gold asset in which OR Royalties owns a 1.44% gross revenue royalty and which was acquired just over a year ago. On July 31, Ramelius Resources fully closed its acquisition of Spartan Resources. And then just 2 weeks ago, our new operating partner provided its detailed plans of how it expects Dalgaranga to fit into this gold production growth over the next 5 years. In summary, Ramelius is choosing to operate and concurrently expand its central processing facility at its pre-existing Mt Magnet Hub in order to accommodate ore from Dalgaranga. Eventually, and within the next 2 years, the facility will be completely expanded to 5 million tons per annum and with 2 separate crushing circuits to accommodate ores from both Mt Magnet and Dalgaranga due to their respective different grind size and recovery profiles. In the meantime, higher-grade ore from Dalgaranga will be fed through the pre-existing unmodified plant with lower recovery rates expected to be achieved during this interim period. The good news out of all of this for OR Royalties is that Dalgaranga is now very likely the next producing asset in our portfolio with the first production expected in the first half of 2026, with significant step changes in growth expected after that based on Ramelius' financial year. Based on the recently provided production profile, Dalgaranga is also set to produce close to 275,000 ounces of gold in Ramelius' financial year in 2030 alone. None of these figures include any potential additional ore source, ounces sourced from Dalgaranga's Gilbeys Underground or a potential Never Never open-pit project, which serve as potential upside and on which Ramelius has also completed a PEA level scoping study -- scoping studies, respectively. And of course, this doesn't include any potential future exploration upside success within our royalties area of interest either. To sum up these points, we think that the recently released plans from Ramelius represents the first positive early indication of the true potential of this high-grade asset going forward. We'd like to extend our congratulations to the entire Ramelius team on having completed these creative and well-received integration plans in relative short order post this acquisition of Spartan Resources, and we very much look forward to Ramelius' execution going forward. Moving to Slide 13, but also staying down under. We're happy to report that Harmony Gold's acquisition of MAC Copper closed on October 24, 2025. The most immediate impact to OR Royalties and more specifically, OR Royalties International was the receipt of $49 million in cash for the 4 million shares held in MAC Copper. Even more exciting, though, is the future of this asset under such a deeply skilled underground mine operator such as Harmony. With the transaction closed, the approximate 3-month integration process of the asset is now underway. with Harmony looking to immediately execute on available synergies while also looking to maximize operational efficiencies once the integration is complete. Furthermore, Harmony has already provided a time line with respect to future catalysts at CSA, most notably an updated life of mine plan expected in August of 2026. Before that, however, will be some key interim updates in late February or early March of 2026, at which time Harmony is expected to provide a fiscal year 2026 production guidance for CSA as well as detailed updates on operational performance, key project development milestones and finally, on recent exploration activities. From our understanding, Harmony doesn't plan to deviate from either of the 2 projects started under MAC Copper, specifically the Upper Marn mine as well as the CSA ventilation project, with the latter still scheduled for completion in Q3 2026. Recall that these 2 projects are expected to get the mine to a point where it can sustainably produce at the 50,000 tons of copper per annum level, which represents a production expansion of approximately 25% of the most recently completed full year of operations in 2024. Recall the underground mine that had been the key bottleneck with the surface processing facility still having plenty of latent capacity, a facet that we expect Harmony to take full advantage of over time. Let's move to Slide 12. We're now highlighting the CSA expansion projects more explicitly in our 5-year growth outlook to 2029, alongside Island Gold, Dalgaranga and the others. As it relates to CSA, these expansions were always expected based on our exchanges with both MAC Copper and now Harmony Gold. Another minor change on this slide versus previous variations is that we've reintroduced the Eagle Mine in the Yukon back into the optionality bar, where previously it had been completely removed. And this actually provides a very good segue into Slide 13, which provides an ongoing summary of the significant progress being made on some of our key optionality assets that are currently excluded from our 5-year outlook. Though this slide might provide a good foundational preview on how to think about what might be included in our 2030 5-year outlook when released in mid-February of next year. As noted in our press release last night, we'll start with Cariboo and Spring Valley, 2 shovel-ready, fully permitted sizable gold projects that each resides in what we would define as Tier-1 Mining Jurisdictions. In aggregate, these 2 assets would be able to provide OR Royalties and their shareholders with approximately 16,000 GEOs in aggregate once fully underway. Starting with Cariboo, with another round of additional financing just completed, ODV is already moving forward with preconstruction and construction activities for the development of the project, including certain detailed engineering, procurement, underground development, operational readiness planning and other early works activities. We're expecting more news from the Osisko development team in the near term as it relates to more concrete plans and timelines for the Cariboo construction, which is set to be completed in order to achieve first gold production in the second half of 2028. Moving to Spring Valley, our understanding that Solidus and its build team are effectively ready to go as the company is keen to move forward with construction work. However, at this time, our partner is seeking final authorization of project financing via the proposed $835 million of U.S. EXIM bank facilities. So stay tuned on this one. Progress continues at pace at Agnico Eagle's Upper Beaver project in Ontario. Elsewhere, United Gold or Lydian Armenia is already drawing down on its credit facility in order to move forward with what's left to complete for the construction of Amulsar. In fact, we just had our team on site this past September, and they were very pleased to see this kind of activity there, the first of its kind in a really long time. And at South Railroad, Orla Mining should have an updated feasibility study out before the end of this year with the final record of decision expected mid-2026 and first gold and silver before the end of 2027. Finally, at Eagle, we understand that first round bids for the asset were due in the first week of September 2025, with those interested parties that made it into the second round now completing more due diligence, including site visits. The hope is that a new owner can be announced sometime in the coming months with a potential new plan of operations, including a potential timeline to restarting production following fairly soon after that. Quickly on Slide 14. On top of everything else we've mentioned, here is an updated list of key catalysts on currently producing assets on the left and key near-term development projects that fall within our current 5-year outlook on the right. I'll single out just 2 for now. Looking to the right side, one second. Looking to the right of the slide and starting with Windfall, it's likely that Gold Fields provide some updated economic numbers on the project at its upcoming Capital Markets Day scheduled for next week on November 12. Recall, the most recent fulsome update from Gold Fields provided the expectations that an updated feasibility study, along with final project permits as well as final IBAs with the relevant First Nation groups are now expected in what is shaping up to be a very busy 2026 for Gold Fields at Windfall. Second, and touching briefly on what has been and continues to be a busy year for Marimaca Copper with the MOD feasibility study now completed, it's quite possible that in the next few months, we could see additional major milestones achieved in the form of final permits for the MOD projects and our partner securing full financing to move forward with a final investment decision and subsequent project construction. Finally, we'll end on the formal part of the presentation on Slide 15, which outlines the current state of OR Royalty's balance sheet. At quarter end, we were completely debt-free and had cash of $57 million. This cash balance would have grown to approximately $106 million if we've been able to include the $49 million value of our MAC Copper shares, which are listed on this slide as investments held for sale, given this was representative as of September 30. The good news is this cash was received this past week. So factoring this all in, with approximately $1 billion in potential available liquidity at the end of the quarter, the balance sheet is looking incredibly strong. Our improved financial position is key as OR Royalty's corporate development team continues to be stretched to capacity across multiple transaction opportunities. At the same time, our robust organic growth profile and deep pipeline of tangible optionality affords OR Royalties the luxury to maintain a disciplined approach and wait for the right deal as we're not willing to sacrifice investment returns, deal economics or contract features just for the sake of adding gold equivalent ounces. As such, we plan to adhere to our time-tested strategy of measured and disciplined capital allocation in the pursuit of high-quality accretive streams and royalties that will bolster the company's current and near-term GEO deliveries as well as cash flows for the benefit of our current and future shareholders. And with that, we will conclude the formal part of today's call, and we can move forward with the Q&A. Joel? Operator: [Operator Instructions] Your first question comes from Joshua Wolfson with RBC Capital Markets. Joshua Wolfson: A couple of questions. First for Malartic, this has been a very strong year for the asset, outperforming expectations on Barnat grades. The existing mine plan in 2026 outlined a little bit lower production before, I guess, some further increases thereafter. I'm wondering how OR is thinking about the near-term outlook for the asset in the context of what next year looks like and what we should expect there? Jason Attew: Thank you, Josh. I note you had 2 questions, so we'll come back to you in a second, but I'm going to hand it over to Guy, who is best situated to answer the question for you in the audience. Guy Desharnais: Josh, we're not expecting any surprises. As you know, the grade overperformance is due to blocks that are around the underground stopes and Agnico takes a fairly conservative approach to whether those blocks appear in the resource reserve models. We continue that -- we expect that to continue into the final pits that we see there. So no expected surprises. We do get more detailed information at the beginning of the year with respect to their short-term mine plans, but we don't have those yet. Jason Attew: And your next question, Josh... I can keep going. I've got a couple of them. For Eagle, I'm wondering if OR has been involved in any part of the negotiation process with some of the parties here that have been, I guess, providing offers. So look, I think everybody is aware, there is a public process that BMO Capital Markets Restructuring Group is running. It's safe to say that, as we mentioned, the first round of indicative bids, nonbinding bids passed and they've selected a number of we would -- what we would qualify or what they've told us is high-quality operators with very, very good ESG credentials. In addition, given the fact that we are a stakeholder, given our interest, we've also signed an NDA with the group PwC, who's obviously acting for the Yukon government and BMO Capital Markets. So it's really not appropriate for us to be able to comment on, again, any discussions we may or may not have with potential operators. They are running the -- BMO Capital Markets is running a very fulsome and proper public process that you certainly and everybody, all stakeholders will be able to see in the fullness of time. All we can say is as a stakeholder, we're quite pleased with the progress that has been made. We do believe that at some point, and we'll very likely get visibility in 2026 as to what the plan of the next operator of the Eagle Mine will be -- and at that point, we will determine or decide whether we reinclude the Eagle GEOs into our 5-year outlook. So there's not much more that we can say on that, Josh, apart from we're very pleased with the quality of interest from established operators that are looking to set a base up in the Yukon. Joshua Wolfson: Great. And then one last one. I think in some of the prior conference calls, you had talked about some potential for a transaction to be announced before year-end. It sounds like the company is instituting some greater discipline. And I'm just wondering what the outlook is still for that negotiation process. Jason Attew: Yes. No, it's a really good question. I'm looking at my team around the table here. As I said in my remarks, the corporate development technical teams are just flat out right now. We're looking at a lot of opportunities. However, as I've said in the past, I mean, if our group can get 1, maybe 2 high conviction, very good returns for our shareholders over the course of 12 months to 18 months, we will do that. What we've seen in the marketplace, though, is we have not been able to conclude those transactions, both on a couple of things, as I said in my remarks, value. We're not seeing -- we've got to obviously make a spread on our own internal hurdle rate. We're not seeing deals right now that satisfy that criteria. As also, we've seen some loosening of structure, i.e., there's been a number of deals, as you would know, that are unsecured or the security instrument is not where we, as risk managers on behalf of shareholders' capital are comfortable with at this stage. So there's certainly a desire to get things done, Josh. It's just we have to remain very disciplined and really stick to and pick our spots. Operator: [Operator Instructions] Your next question comes from Tanya Jakusconek with Scotiabank. Tanya Jakusconek: Can I just continue on Josh's questions on the transaction opportunities? Jason, you mentioned on your call that you have an internal rate of return metric that you're very focused on as part of your strict valuation for all metrics for transactions and you said it's a more conservative gold price. What sort of internal rate is that? Is it... Jason Attew: It would vary, Tanya. And so maybe we can take this conversation offline because I think it is important you understand it, but I'll just talk about broad parameters. We obviously have a weighted average cost of capital within our company. That's mainly informed by a revolving credit facility. Our revolving credit facility is based on a variable rate. I think you know what prime rates and where the rates have been going down. So approximately, and it could vary over time, but approximately, it's about 4.5% in terms of our cost of capital or cost of debt if we were to dip into the revolving credit facility. So that is obviously what we need for a transaction is a spread beyond that. And what we also do is we don't do transactions and we don't look at transactions in the frame of spot prices right now. We do continue to look at consensus pricing and be informed by that. All that said, we do look at spot as a relevant benchmark. It is a very competitive sector and very competitive for deals right now. And then we have to really lean on our technical team, Guy and Brendan, in particular, to look through the asset and see what might not be publicly disclosed in terms of technical reports to look for upside, both geologically, mine life extensions and operational efficiencies. So it's a very complex -- well, it's an answer that has many different components to it. Very happy to walk you through our methodology at some point. But you can think around those parameters, as I said, a spread over that hurdle. And obviously, if we did a transaction in one of those Tier 1 jurisdictions, the hurdle or the spread would be significantly less than, let's call it, Tier 2 or Tier 3. And we've proven that in the past. Let's go back to the Cascabel transaction that we did with Franco and what the Street had suggested in terms of the internal rate of return that was mid-teens for us, 14% to 15%. So those are approximately the goalpost, Tanya. Tanya Jakusconek: Okay. So definitely over 5% spread over that. Maybe just on the opportunities that you're seeing out there. I think on the Q2 conference call, it was quite a wide spread from like $50 million to $1 billion. I mean, you can drive a truck through that. Maybe we could talk a little bit more about what are you seeing currently in the environment? Is it a much tighter spread? Is it still streams versus royalty packages? Is it still development or financing for asset sales? What exactly are you seeing? Jason Attew: The answer to all those questions, Tanya, is yes, all of the above. Again, it varies for sure. And some obviously deals that are in flight we've been working on for can be 2 years, 3 years and some obviously come in through processes of existing operators, for example, deciding now is the right time to sell a royalty package off that they've put in a portfolio many, many years ago and obviously are looking at the commodity complex and saying, is this the right time for us to extract value. So again, there's a lot of different opportunities out there for us. I think I'm consistent in saying that for us, being a mid-tier streaming and royalty company that the strike zone for us is anywhere between $50 million and $500 million. We do have ample liquidity and capacity to do that given, again, we're now 0 debt and completely undrawn on our revolving credit facility. But there is many, many opportunities out there. As I said, our team is very busy, and I will -- because I don't think it's -- I will again emphasize that for our company, given our growth profile, we just have to be incredibly disciplined around capital allocation. Tanya Jakusconek: Okay. I guess we'll get more into that at your Investor Day. Maybe just a final question. As I think about 2026, and I know pricing is important, whether you keep the 82 or 83:1 ratio. As I think about -- and you provided the 5-year 2029, you're up in that 120,000 GEO, 125,000 GEOs or thereabout. As I think 2026, would it be fair and it's just a directional situation, would it be fair to assume that '26 could look very similar to '25? Jason Attew: Yes. No, it's an excellent question, Tanya. Look, obviously, we'll provide more details when we put out our 1-year guidance in February of 2026 as well as an updated 5-year outlook. What we've been consistent in saying in the past is this growth rate, 40% over the next 5 years is not linear. You know the assets that we have in production currently. Really the only new asset that's going -- unless we actually bring an asset through an acquisition, the only really new asset coming in is the Dalgaranga that we talked about on the call. We do expect next year for Mantos Blancos to continue to have the higher silver grades that we've just recently started to experience. So those are the big drivers of growth for 2026 as well as the Namdini mine in Ghana as it hits its full stride in 2026. That's probably the best guidance I can give you at this stage. We can certainly talk about it further on Monday at the Investor Analyst Day, but we'll give all that specificity to the extent we can in February of 2026. Tanya Jakusconek: And look forward to your Investor Day. Operator: Your next question comes from Carey MacRury with Canaccord Genuity. Carey MacRury: Just a quick one for me. There was a copper buydown option on the MAC Copper stream. Just wondering if that option transfers now to Harmony and if you have any thoughts on whether they will execute that or not? Jason Attew: So really good question. Cary, effectively, you can think of everything that we had with MAC Copper as essentially being assigned to Harmony Gold. So yes is a straightforward answer. And anything that you're modeling or seeing with MAC Copper, you can just assume and because it has been assigned to Harmony Gold. There's been no changes in the structure, no changes in effectively anything commercially with respect to that -- both the silver stream and the copper stream. Carey MacRury: And that option only kicks in after -- on the fifth anniversary, they can exercise early. Jason Attew: That's correct. Operator: There are no further questions at this time. I will now turn the call over to management for closing remarks. Jason Attew: Thank you, Joel. As always, if anyone on the call or listening to this replay has additional questions, insights or observations on our business and our business strategy, please do reach out to Grant, Heather or myself, and we're more than pleased to provide more information about the bright future for our company and its shareholders. In addition, I would like to provide a final plug for our Investor and Analyst Day, which is planned to be a 2-hour session this Monday, starting at 1:00 p.m. at Vantage Venues in Downtown Toronto. My team will go through in much greater detail our assets, including the potential for growth, insights and opportunities that we do see within our portfolio. If you can make it down in person and you haven't already done so, please RSVP to my colleague, Grant Meonting. And if you can't make it in person, a live webcast link was also provided in our press release last night. We hope you can join us either way. And if not, a recording of the event will be available on our website in relatively shorter order after the event. Thank you again very much for your time, and we look forward to engaging with you in the future. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Operator: Good day, and welcome to CoreCivic's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call may be recorded. I would now like to turn the call over to Jeb Bachmann, Managing Director, Investor Relations. Jeb Bachmann: Thank you, operator. Good afternoon, everyone, and welcome to CoreCivic's third quarter 2025 earnings call. Participating on today's call are Damon Hininger, CoreCivic's Chief Executive Officer; Patrick Swindle, CoreCivic's President and Chief Operating Officer; and David Garfinkle, our Chief Financial Officer. We are also joined here in the room by our Vice President of Finance, Brian Hammonds. On this call, we will discuss financial results for the third quarter of 2025 as well as updated financial guidance for the 2025 year. We will also discuss developments with our government partners and provide you with other general business updates. During today's call, our remarks, including our answers to your questions, will include forward-looking statements pursuant to the safe harbor provisions of the Private Securities and Litigation Reform Act. Our actual results or trends may differ materially as a result of a variety of factors, including those identified in our third quarter 2025 earnings release issued after market yesterday as well as in our Securities and Exchange Commission filings, including Forms 10-K, 10-Q and also 8-K reports. You are cautioned that any forward-looking statements reflect management's current views only and that the company undertakes no obligation to revise or update such statements in the future. Management will discuss certain non-GAAP metrics. A reconciliation of the most comparable GAAP measurement is provided in the corresponding earnings release and included in the company's quarterly supplemental financial data report posted on the Investors page of the company's website at corecivic.com. With that, it is my pleasure to turn the call over to our CEO, Damon Hininger. Damon T. Hininger: Thank you, Jeb. Good afternoon and thank you for joining us for CoreCivic's third quarter 2025 earnings call. On this afternoon's call, I will discuss our near-term and long-term outlook and recent contracting activity. Following my opening remarks, I will hand the call over to Patrick Swindle, our President and Chief Operating Officer. Patrick will review the performance of our core portfolio, discuss in further detail our operational activities relating to facility activations during the quarter and how we are preparing for additional demand from our government partners. We will then turn the call over to our CFO, Dave Garfinkle, who will provide detail on our third quarter financial results as well as our updated 2025 financial guidance and provide an update on our capital allocation strategy. I will then conclude with some closing remarks before we open up the call for Q&A. First up, an update on our activation activities, where we've made substantial progress on contracting several idle facilities. Since our last earnings call, we announced new awards at the 600-bed West Tennessee Detention Facility, the 2,560-bed California City Immigration Processing Center, the 1,033-bed Midwest Regional Reception Center and the 2,160-bed Diamondback Correctional Facility. In aggregate, these 4 new contract awards are expected to generate annual revenue of approximately $320 million once we reach stabilized occupancy. Our updated full year 2025 financial guidance reflects significant earnings growth from 2024. Although these recently announced new contract awards negatively impact our financial guidance for the fourth quarter for start-up related activities, which Dave will review in detail, these new awards set us up nicely for an even stronger 2026. Once we reach stabilized occupancy for these new awards, which we expect to occur during the first half of 2026, we expect our annual run rate revenue to be approximately $2.5 billion and annual run rate EBITDA to increase by $100 million to over $450 million, and this is not counting any additional contract awards. While staffing ramp continues at each of these facilities with some already accepting detainees, the intake process at our Midwest facility has been delayed by a lawsuit filed by the City of Leavenworth. And although we are optimistic, we cannot predict if or when a favorable resolution will be achieved. Patrick will provide further details on the progress of these activations. Moving to a discussion of the business climate. At the end of September 2025, nationwide ICE detention populations were at historical highs of around 60,000, an increase of a couple of thousand from the end of the second quarter. U.S. Immigration and Customs Enforcement or ICE, has been our largest customer for over a decade. From the end of 2024 through the third quarter, ICE populations in our facilities increased 3,700 to almost 14,000 or 37%. We believe that enforcement activity could gain additional momentum in the coming months as more agents are hired to meet ICE's 100,000-bed detention target. Nationwide populations from the United States Marshals Service, our second largest customer, have remained relatively flat, although we expect Marshals populations to increase in 2026 due to an anticipated increase in enforcement activities and as more U.S. attorneys are put in place. Our Marshals populations have declined slightly to just over 6,300 at the end of September. Many of our state partners continue to face complex correctional challenges either because of staffing shortages, overcrowding or outdated infrastructure. Our year-over-year state populations were up about 600 people driven most notably from new contracts with the State of Montana and increased populations in Georgia. We are in conversations with numerous existing and potential state partners to accommodate their additional demand. As we continue to look for additional ways to meet our government partners' needs, we believe that we can make available substantial capacity to meet future demand. Even after the earlier mentioned activations, we own 5 idle corrections and detention facilities containing approximately 7,000 beds. Along with surge capacity we have made available at certain facilities, partial capacity we have in facilities that are currently in operation and capacity we can make available through third-party leases like our great partnership with Target Hospitality I previously mentioned, we have close to 24,000 beds that we have informed ICE could be available. We continue to believe that detention beds like these represent the best value and are the most humane, most efficient logistically, have the highest audit compliance scores in their system, are more secure, weather-proof and are readily available. One final comment before I pass the call over to Patrick. As you all know, the company has a authorization for a share repurchase program for up to $500 million in the aggregate. During the 9 months ended September 30, 2025, we purchased 5.9 million shares of common stock under the share repurchase program at an aggregate cost of $121 million or $20.60 per share. Since the share repurchase program was authorized in May of 2022, through September 30, 2025, we have purchased a total of 20.4 million shares of our common stock at an aggregate cost of $302 million or $14.81 per share, excluding fees, commissions and other costs related to the repurchases. As of September 30, 2025, we had approximately $198 million of repurchase authorization available under the share repurchase program. Looking at the current stock price and our historical EBITDA trading multiples, the market is assuming a $300 million EBITDA run rate for the company, which is clearly a misalignment with our recent operating performance and anticipated forecast for 2026. With that, we expect to be executing an aggressive buyback plan this quarter, likely to be more than double the amount we have done in previous quarters. With that, I will pass the call over to Patrick Swindle for further review of our operations activities during the third quarter. Patrick Swindle: Thanks, Damon. I'll start with a high-level overview of our top line revenue and third quarter operational performance. Federal partners, primarily Immigration and Customs Enforcement and the U.S. Marshals Service comprised 55% of CoreCivic's total revenue in the third quarter. Revenue from our federal partners increased 28% during the third quarter of 2025 compared with the prior year quarter. Further breaking down our federal revenue, revenue from ICE increased $76.2 million or 54.6%, while revenue from the U.S. Marshals Service decreased by 5% versus the prior year quarter. Some of this decline is simply a shift mix where ICE and Marshals share a contract. As Damon mentioned, we expect increases in U.S. Marshals populations later in 2026. Revenue from our state partners increased 3.6% from the prior year quarter. This increase includes additional revenue from the State of Montana, resulting from the 2 new contracts we signed with the state since the second quarter of 2024 and population increases in Georgia. Total occupancy for our Safety and Community segments for the quarter was 76.7%, up 1.5 points since the year ago quarter. As we noted on our last quarter earnings call, total occupancy reflects the transfer of our 2,560-bed California City Immigration Processing Center from our Property segment, which isn't included in these occupancy statistics to our Safety segment. Although this facility recently transitioned from a letter contract to a definitized contract, we have not yet begun receiving any detainees until late in the third quarter. Therefore, if we exclude this additional capacity from the calculation, making a more apples-to-apples comparison with prior periods, our reported occupancy would have been 79.3%. The average daily population across all of the facilities we manage was 55,236 during the third quarter of 2025 compared with 50,757 in the year ago quarter. This increase was driven by more demand for our services and new contracting activity. Our teams continue to be successful in working with our government partners and managing the additional people in our care, which we are focused on every day. Our third quarter results exceeded our internal projections for adjusted EPS and normalized FFO per share by $0.03 and $0.04, respectively, and adjusted EBITDA by $4.8 million. As Damon alluded, the third quarter was a very busy quarter with reactivation activities at several previously idle facilities. We resumed operations in March at the 2,400-bed Dilley Immigration Processing Center under a new 5-year agreement and reached full operational capacity in September. Shortly after the second quarter earnings release, we announced a new IGSA contract for our 600-bed West Tennessee Detention Facility. This contract has a 5-year term and is expected to generate $30 million of annual revenue once fully activated. Full ramp is expected to be completed by the end of the first quarter of 2026. Effective September 1, 2025, we transitioned from a letter contract with ICE to a definitized contract at our 2,560-bed California City Immigration Processing Center. The new contract is for a 2-year period and is expected to generate annual revenue of approximately $130 million once fully activated. We began receiving detainees at the facility on August 27 and expect the activation to be completed in the first quarter of 2026. Effective September 7, 2025, we transitioned from a letter contract with ICE to a definitized contract at our 1,033-bed Midwest Regional Reception Center. This new contract is for a 2-year period and is expected to generate annual revenue of approximately $60 million once fully activated. However, the intake process continues to be delayed by the lawsuit with the City of Leavenworth that Damon mentioned earlier. Given the facility's centralized location, ICE is eager to begin fully utilizing this facility, and we're optimistic about successfully resolving the dispute. The recent entrance into the lawsuit by the Department of Justice could help expedite a favorable outcome. Effective September 30, 2025, we entered into a new IGSA between the Oklahoma Department of Corrections and ICE to resume operations at our 2,160-bed Diamondback Correctional Facility. This new contract has a 5-year term and is expected to generate approximately $100 million in annual revenues once fully activated, which we currently forecast to occur in the second quarter of 2026. In aggregate, these 4 recently announced contract awards are expected to generate annual revenue of $320 million. Despite visibility into annual run rate EBITDA, we do not believe the current stock valuation reflects the cash flows of our business, particularly considering these new contracts and our growth potential. Therefore, we plan to accelerate the pace of our share repurchases in future quarters, taking into consideration stock price and alternative opportunities to deploy capital, among other factors, as Dave will discuss further. The substantial progress made during the quarter in reactivating previously idle facilities couldn't have been accomplished without the hard work of our employees and the strong relationship with our government partners. However, we know there's more work to be done. Activations are complex and activating 4 idle facilities simultaneously is particularly complex. But I'm confident we have the right plan and the right teams in place to be successful both in these and future activations. In the meantime, we continue to remain focused on effectively managing our core portfolio and ensuring we meet our high operational standards as well as those of our government partners. Without this focus and performance, these additional opportunities may not exist. And so as I turn it over to Dave to discuss our third quarter financial results in more detail, our capital allocation activities and assumptions included in our updated 2025 financial guidance, I'd like to again express my appreciation to our 13,000 employees for their focus and commitment to our mission. Dave? David Garfinkle: Thank you, Patrick, and good afternoon, everyone. In the third quarter of 2025, we generated GAAP EPS of $0.24 per share and FFO per share of $0.48. Special items in the third quarter of 2025 included a $2.5 million gain on the sale of assets, a $1.5 million asset impairment and $0.8 million of M&A charges, including our acquisition of the Farmville Detention Center on July 1, reported in G&A expenses. Excluding special items, adjusted EPS in the third quarter was $0.24 compared with $0.20 in the third quarter of 2024, an increase of 20%. And normalized FFO per share was $0.48 per share compared with $0.43 per share in the prior year quarter, an increase of 11.6%. Adjusted EBITDA was $88.8 million compared with $83.3 million in the third quarter of 2024, an increase of 6.6%. Adjusted EPS and normalized FFO per share exceeded our internal forecast by $0.03 and $0.04 per share, respectively, and adjusted EBITDA exceeded our internal forecast by $4.8 million. The increase in adjusted EBITDA from the prior year quarter of $5.5 million resulted from higher federal and state populations as well as higher average per diem rates across much of our portfolio, partially offset by start-up activities in the third quarter of 2025 and some one-time benefits in the prior year quarter. The number of ICE detainees in our care followed national trends, which remained at or near record highs throughout the third quarter of 2025. As Damon and Patrick both mentioned, the third quarter was a very busy quarter for idle facility activations. We completed our reactivation of the Dilley Immigration Processing Center in September and are now generating revenue under a fixed monthly payment for the full 2,400-bed facility. During the third quarter, however, this facility accounted for a net decrease in facility net operating income of $3.4 million or $0.02 per share compared with the third quarter of 2024 as the facility was fully operational during the third quarter of 2024 until the contract with ICE was terminated effective August 9, 2024. As we previously disclosed last year, we also accelerated recognition of deferred revenue of $5.7 million in the third quarter of 2024 due to the contract termination. Shortly after last quarter's earnings release, we announced a new contract under an IGSA between the City of Mason, Tennessee and ICE to activate our previously idled 600-bed West Tennessee Detention Center, where we began receiving detainees on September 8. In September, we announced that we transitioned from short-term letter contracts at our 1,033-bed Midwest Regional Reception Center and our 2,560-bed California Immigration Processing Center into newly signed longer-term contract structures. We began receiving detainees at the California City facility on August 27. While obviously good news, we did incur facility operating losses at these 3 facilities during the third quarter of $3.4 million or $0.02 per share for start-up related activities. Although not impacting the third quarter, on October 1, we announced a new contract award under an IGSA between the Oklahoma Department of Corrections and ICE to activate our 2,160-bed Diamondback Correctional Facility, which commenced September 30. Other factors affecting EBITDA and per share results included higher G&A expenses, the favorable impact of our share repurchase program and the acquisition of the Farmville Detention Center on July 1, 2025. Operating margin on our Safety and Community facilities combined was 22.7% in the third quarter of 2025 compared to 24.9% in the prior year quarter. Excluding the aforementioned operating losses at the 3 facilities in various stages of activation, operating margin was 24% for Q3 2025. Again, margin in the prior year quarter was favorably impacted by the accelerated recognition of deferred revenue at the Dilley facility and a ramp down of populations at the facility in July 2024 despite generating a fixed revenue payment for the full facility through the August 9 termination date. Turning next to the balance sheet. During the third quarter, we repurchased 1.9 million shares of our common stock at an aggregate cost of $40 million, increasing our year-to-date repurchases to 5.9 million shares at an aggregate cost of $121 million. As of September 30, we had $197.9 million available under our $500 million Board authorization. As mentioned last quarter, on July 1, 2025, we acquired the Farmville Detention Center, a 736-bed facility located in Virginia for a total purchase price of approximately $71 million, including the acquisition of working capital accounts at an attractive return. After taking into consideration these share repurchases and this acquisition, our leverage measured by net debt to adjusted EBITDA was 2.5x using the trailing 12 months ended September 30, 2025. At September 30, we had $56.6 million of cash on hand and an additional $191.4 million of borrowing capacity on our revolving credit facility, which had a balance of $65 million outstanding, providing us with total liquidity of $248 million. Moving lastly to a discussion of our updated 2025 financial guidance. We expect to generate adjusted diluted EPS of $1 to $1.06 compared with $1.07 to $1.14 in our previous guidance and normalized FFO per share of $1.94 to $2 compared with $1.99 to $2.07 in our previous guidance. We expect adjusted EBITDA of $355 million to $359 million compared with $365 million to $371 million in our previous guidance. Our updated guidance reflects the favorable results for the third quarter, updated occupancy projections consistent with current trends as well as updated assumptions for start-up activities related to new contracts signed during the third quarter at our West Tennessee Detention Facility, our California Immigration Processing Center, our Midwest Regional Reception Center and our Diamondback Correctional Facility. Our revised guidance reflects a reduction in EBITDA at these 4 facilities of $10 million to $11 million compared with our prior guidance. In other words, the reduction in our guidance is essentially attributable to the updated assumptions for the start-up activities at these 4 facilities. These start-up activities will also negatively impact Q4 margins. We are currently preparing our 2026 budget and expect to provide financial guidance for 2026 in conjunction with our fourth quarter earnings release in February. However, as Damon mentioned, upon reaching stabilized occupancy at these 4 facilities, we currently expect our run rate EBITDA to be no less than $450 million. We currently expect to reach stabilized occupancy of the last activation of these 4 facilities in the second quarter of 2026, so we will not reach a full year run rate in 2026. Also keep in mind, activating facilities is a complex and challenging process with certain factors like the pace of intake and resolution of the legal dispute at our Midwest facility, to name a couple, not always within our control. We still have 5 remaining idle facilities containing 7,066 beds. And we believe incremental demand for more idle facilities will likely be needed once ICE absorbs the recently contracted beds. With historic funding levels for border security and immigration detention obtained under the One Big Beautiful Bill Act, ICE's publicly stated intention to reach 100,000 detention beds nationwide as well as growing demand from existing and potential new state government partners, we believe there are numerous opportunities to activate additional idle facilities we own. We also believe there could be opportunities to manage additional bed capacity not currently in our portfolio. These opportunities would be incremental to the aforementioned run rate EBITDA levels after considering any start-up expenses. We plan to spend $60 million to $65 million on maintenance capital expenditures during 2025, unchanged from our prior guidance, and $14 million to $15 million for other capital expenditures increased primarily for preplanned investments at the newly acquired Farmville Detention Center. Our 2025 forecast also includes $97.5 million to $99.5 million of capital expenditures associated with potential facility activations and additional transportation vehicles, up from our prior guidance for requests from ICE in connection with the new contracts at the California City and Diamondback facilities. During the first 3 quarters of the year, we spent $51.6 million on potential idle facility activations and additional transportation vehicles. Finally, with respect to our capital allocation strategy, we do not believe the price of our common stock reflects the value of the cash flows of our business, particularly considering recent contract wins, and therefore, expect to accelerate the pace of our share repurchases in future quarters. Our Q4 guidance contemplates double the space of the previous quarter. Our share repurchases will take into consideration our stock price, liquidity, earnings trajectory and alternative opportunities to deploy capital. We expect adjusted funds from operations or AFFO, which we consider a proxy for our cash flow available for capital allocation decisions such as share repurchases and growth CapEx such as facility activations to range from $210 million to $219 million for 2025. We expect our normalized annual effective tax rate to be 25% to 30%, unchanged from our prior guidance. The full year EBITDA guidance in our press release provides you with our estimate of total depreciation and interest expense. We are forecasting G&A expenses in 2025 to be approximately $167 million, excluding expenses associated with M&A transactions. Before we turn the call back to the operator for Q&A, I'd like to turn the call back to Damon for his closing remarks. Damon T. Hininger: Thank you, Dave. Well, as you all know, in August, we announced that Patrick will succeed me as CEO effective on January 1, 2026. I've had the great honor and the privilege of holding the CEO title for over 16 years, and I'm humbled by the opportunity to have served this great company since I started my career as a correctional officer in the summer of 1992. I still clearly remember working my first post, which seems like yesterday. And I never would have, in my wildest dream, think that I would be someday the CEO of this great company. It has truly been an amazing ride. And so as I close out my prepared remarks for my 65th and last quarterly earnings call, I want to express my gratitude to you, our investors, both new and long term for your confidence, support and ideas. Also to our government partners, to my fellow Board members, mentors and colleagues, both current and retired and all the other people with whom I have had the honor and privilege to work with, many of whom I call very dear friends. My sincere thanks to each and every one of you. I am tremendously excited and very proud of Patrick, and I know he will steer our company to new heights and tremendous success. Beyond my transition agreement, I do not know yet what the next chapter in my life will bring. But I do know it will be shaped by my experiences at CoreCivic, which has ingrained in me a call to continuous public service and improving people's lives. Best of luck to each and every one of you. And with that, I turn the call over to operator for questions. Operator: [Operator Instructions] Our first question comes from Joe Gomez with NOBLE Capital. Joseph Gomes: Before I start, let me just say, Damon, it's been a pleasure working with you, and good luck on your future endeavors. And Patrick, I'm looking forward to seeing you fill Damon's shoes going forward. Damon T. Hininger: Thank you, Joe. It means a lot. You've been a tremendous friend and always grateful for your advice and support perspective. So I'm going to miss you my friend. Joseph Gomes: So to the questions. We obviously, in the news is the government shut down ICE looking to hire 10,000 people. And I think there's some concern out there that the level and pace of ICE detentions has slowed significantly from where originally people were thinking they would be. I think at one point, 3,000 a day they were talking about. And I just wanted to kind of get your thoughts, Damon, on where the pace of ICE population detentions are for you guys? Is it meeting your goals or how far below has it been your expectations? And how you see that maybe playing out the rest of this year? Damon T. Hininger: Great question, and I'll probably tag team with Patrick a little bit on this. But the shorter answer is that, as you know, we're a 24/7 essential service for the government. And so on our side, on the contractor side, I mean, we're seeing the pace, admissions, discharges and activity in our facilities pretty much status quo, I mean, pretty much what we expected. In fact, I'd say, it's increased a little bit not just on the detention side, but we're also being asked to do a lot more transportation. We are expecting that with the demands and expectations and the priorities for this administration after the inauguration. But I'd say, even that's picked up a little bit more than what we expected. And not quite to your question, but I would say also on the contracting side. So again, we've had probably the fastest clip of 4 contracts in a period of time that I've ever seen in the company history with the 4 that we've announced here in the last 90 days. And so all the activation activities around those 4 facilities, obviously, a lot of that's on our shoulders. But I'd say, on the government side, clearances, helping people getting situated that are obviously going to be monitors and other support staff that are going to help the mission of these facilities, I'd say none of that has slowed down at all. But Patrick, add and amplify to that, if you don't mind. Patrick Swindle: Sure. The only thing that I would add, Joe, is that really 2 things. One of them is the scale of increase in enforcement activity that has been implemented is really unprecedented and it's of a level that we really have not seen previously. And the consequence of that is you're going to see, I'll call it, an uneven or non-linear growth path. And so I wouldn't expect that you're going to see steady increases progressively. But what we do know is our Department of Homeland Security has been very committed to hiring additional officers to help them implement the mission. We've seen no indication that there's been any change in terms of policy or policy approach that would cause us to believe that what we've experienced more recently is anything other than the natural ebb and flow of ramping up to a scale that, again, we haven't seen previously. And so as a consequence of that, I think it's really difficult to predict exact timing. But to Damon's point, we've signed 4 contracts. We're executing those and ramping them very quickly. We're going to be bringing those online but certainly wouldn't interpret pace as being an indication of any indicator of a lessening of long-term demand potential. Joseph Gomes: Okay. And then just -- I don't know if you can provide a little more color on when you talk about the guidance and updated occupancy projections, we talk about those are less than what you originally were projecting. And same with the assumptions for start-up costs, assuming they might be higher than what you were originally projecting. And I'm just trying to get a little more color on those comments and how they relate to the updated guidance. David Garfinkle: Yes, Joe, I'll take the second part of that question. Our updated guidance really reflects the start-up activities in Q4 relative to our last guidance. So last guidance, remember, we hadn't signed the West Tennessee contract. We didn't sign the Diamondback contract. So neither of those 2 contracts were in our guidance for the year, the fourth quarter. So incorporating those new contracts into our guidance does result in some operating losses at those facilities as well hire staff, continue to ramp up staff before we start receiving detainees. Now we have started receiving detainees at the West Tennessee facility, but the Diamondback facility is really just beginning its ramp-up. So that did take the guidance down in Q4, which I don't take as bad news. I mean, I'd rather have the contracts with start-up activities than leaving the guidance where it was without those contracts. And what was the first part of your question, Joe? Joseph Gomes: Just we talked about some of the updated occupancy projections... David Garfinkle: Yes, occupancy, we expect that to increase because we are ramping up California City, our West Tennessee facilities, as I mentioned, are both taking on detainees. I would say that the rest of the core portfolio is at or near capacity. So I wouldn't expect a large increase from existing facilities. So as we ramp up additional idle capacity, the only opportunity is really to bring on new capacity and activate additional facilities with higher populations. Joseph Gomes: And Dave, maybe I can follow it up with the increased CapEx spend for ICE ask. What is ICE asking for that is going to increase the CapEx that you weren't originally anticipating? David Garfinkle: Yes. So Diamondback and Cal City, both asked for renovations to parts of the facility. That was really the increase in our CapEx guidance. I think it was intake areas. They want to expand the intake areas because ICE is a transient population. So typically, you have a higher volume of activity compared with a state population, which is what we had previously at both of those facilities. Joseph Gomes: Okay. And then one more for me, if I may, on the buyback. You have your leverage goal of 2.25 to 2.75. I think you said 2.5 at the end of the quarter. We see where the stock price is. You already said you're looking at getting more aggressive. Would you consider exceeding your leverage goals given where the stock price is on that -- to even acquire additional shares? How aggressive would you be? David Garfinkle: My short answer is yes, but I see we've got a couple of other people anxious to answer that question. So I'll flip it over to Damon and Patrick. Damon T. Hininger: Joe, we're all nodding yes. Yes, yes, yes. I mean, if you think about it this way, and this is a pretty sweet way to end as a CEO. I mean, we look at our forecast next year, as I said in my script, $2.5 billion forecast in revenue, over $450 million in forecasted run rate EBITDA. And you look at the stock price, and that's ridiculous. I mean, so I think absolutely, we are looking at this quarter and then going into next year. If the price is going to sit around this level, this is a tremendous opportunity to buy back shares. And so I'm saying it obviously as CEO, we've got obviously the management team here, but I know I'm very confident our Board feels the same way, and this will be a conversation we'll have in the coming days and weeks, not just the aggressiveness of the plan, but also if we need potentially more authorization. But anything to add to that, Patrick. Patrick Swindle: The only thing that I would add is our leverage target has been based on a trailing leverage basis. And so when you look at the growth that we're expecting for 2026, it's one of the fastest growth years year-over-year that we've experienced in a very long time as a company. And so when you think about that scale, we have to consider trailing leverage, but we can also look at it already identified cash flows. And so it's awarded contracts that would drive us to a $450 million or greater run rate. So it's not speculative in terms of our ability to achieve that level of cash flow. And so certainly, we have to consider trailing leverage. We're not going to not think about that. But we also do have to compare that with an expectation of rapid known and cash flow growth that gives us the ability to be more aggressive on the margin. Operator: Our next question comes from M. Marin with Zacks. Marla Marin: I want to follow-up on something you touched upon in the script -- in your scripted remarks. We're all hearing a lot with the government shutdown about how payments to various entities are not being processed or not being processed as quickly as they were prior to the shutdown. Can you just give us some color on what that means for you in terms of when you finally do collect the cash in that you're expecting? Will it be a flat lump sum? Will you get interest on that? How will that work for you guys? David Garfinkle: Yes, I'll take that one, M. Thanks for the question. Yes, we expect when the government resumes operations that we will get paid in full for all the services that we've provided in the past. I don't exactly know the mechanics of how they process those. I imagine it goes into a queue. As we submitted our invoices, there'll be in a queue at ICE and Department of Homeland Security and they'll process those invoices according to due date. But I don't have visibility into exactly how they process them. But when they do process them, they do pay with interest. I think that interest is in the low-4% today. So that's not something we have to ask for. It's automatic under the Federal Acquisition Regulations of the Prompt Payment Act. So we will collect interest with the payments when they resume operations and make their payments to us. Marla Marin: Okay, great. And you have a lot going on and there's a lot of noise in the third quarter numbers, as you indicated, with start-up costs, reactivating idled facilities. So you still have a handful of idled facilities after you reactivate the ones that are currently in the process of reopening. And in the earlier comments, you did say something about future activations and that you wouldn't be surprised if there were demands that warranted reactivating additional facilities. Is it right to think that there have been any kind of -- not negotiations, not at that point yet, but any kind of like early, early, early discussions about some of these other facilities? Damon T. Hininger: Absolutely. Yes, this is Damon. I'll take that question. And the short answer is absolutely. So if you rewind the last quarter, we were looking at the rest of this year, there was a couple of facilities we didn't talk about on the call, but we were having conversations. One of those is Diamondback, the one in Oklahoma. So obviously, those things happen discretely with the partner based on kind of what their needs and expectations and timing and how much capacity and whatnot. So we're having similar conversations today. So I think that's one question that's important to answer right now because you got the government shutdown, and I think there's probably assumption that all that activity is shut down. That's not the case. We're still seeing active requests for information on facilities where we could expand, where we've got maybe a small allotment of vacant beds that they may want to contract for and then vacant facilities. We still have people or still have customers indicating interest not only about those facilities, but actively going out, touring, inspecting the facilities, determining how we can meet their mission. So all that activity is still very active even though with the government shutdown. Operator: Our next question comes from Kirk Ludtke with Imperial Capital. Kirk Ludtke: Damon, congratulations on a great run. Damon T. Hininger: Thank you, Kirk. It's been a real blessing. I appreciate that. Kirk Ludtke: And best of luck. I guess with respect to the 100,000 beds, I'm hearing less -- we're hearing less about fewer alternative sites being opened by ICE. But can you just maybe comment on -- are you competing with those alternative sites of military bases, et cetera? And if so, how many beds are available at those locations that you think you might be competing with? Damon T. Hininger: Yes. Great question. And I think we've indicated or have alluded to anyway in the last couple of quarters, we think it's kind of the all of the above approach. So clearly, there's been some activity of both DHS leadership and ICE leadership to look at some of these alternatives for various different reasons. But indicating our value proposition here last 90 days, again, we signed 4 contracts with facilities where we had vacant capacity. So the value proposition and the location of our facility is obviously very attractive with these new contract awards. And so I think to get to 100,000, I think, as I said earlier, I think it's going to be a little bit of all of the above approach. And I think it's also going to be a case of as they look at our capacity being more secure, but I think also maybe a little longer-term solution and then these alternatives, especially the soft side of ones where they're more short term in nature, again, I think it will just be determined on the mission and the location. But anything to add there, Patrick? Patrick Swindle: The only thing I would add is 100,000 beds is really a guidepost more than a hard target. And so it's going to be really somewhat dependent also on enforcement. And so if you were to look at all of the beds available in the sector today and you look at the potential demand opportunity that can result from the higher enforcement rate activity, all of our beds could be used and you could still have a scenario where many more beds are needed. And so we've talked on past calls about our having thought about how we might provide capacity in addition to our existing facilities of the 7,000 beds that we talked about being available. And again, we want to be flexible and nimble and help our partner meet the need that they have at any moment in time. And I certainly wouldn't interpret all of our facilities not having been contracted for as an indication that, that may not be coming, because again, growth isn't going to be linear. And as the number of officers are put in place and out in our communities enforcing the law, you would expect you're going to see an ebb and flow in demand that will ultimately result in more bed need. And so I would say, from our perspective, we think that it is a both end solution. Kirk Ludtke: Got it. That's very helpful. And have you staffing issues, any issues there finding people to work at your facilities you're ramping up? Patrick Swindle: No, we're having a very strong experience from a hiring perspective. As you can see in the broader economy, there has been some broader economic weakness, and we're certainly experiencing that as we hire. And so the backdrop that we've encountered as we've gone out to activate these facilities has helped us activate very efficiently approaching our staffing targets ahead of schedule in most all cases and really don't see ourselves inhibited by our ability to hire. Kirk Ludtke: Got it. Great. And then last one. Are there any limitations on share repurchases in your credit agreements? David Garfinkle: No. Operator: Our next question comes from Raj Sharma with Texas Capital. Raj Sharma: My first question is around how much -- your guide -- your sort of soft guide that you just gave on fiscal '26. How much of the revenue embedded in 2026? What is the reactivated of the 5 facilities? How much are they contributing in revenues and in EBITDA to that fiscal '26 guidance? David Garfinkle: Well, the -- if you're talking about the 4 we just announced in the third quarter is about $321 million in -- yes, that's about $320 million in revenue. I would say, if you look at '26 versus '25, that's probably about $250 million of incremental revenue because we are generating some revenue at these facilities and did generate some revenue at Midwest Regional Reception Center and Cal City under the letter contracts earlier in the year. So yes, I'd say the increment in revenue is about $250 million. It'd be hard to estimate. I don't think we're ready to put out a number on EBITDA of those facilities. But I think it's fair to say the margins would be comparable to other margins we have for other contracts that we've announced, taking into consideration both the geography and size of the facility. Raj Sharma: Right. Is it also fair to say that those margins on the reactivated facilities are higher than the overall company EBITDA margins? David Garfinkle: Well, I'd say, we've got some state contracts that we've had for a long time and perhaps haven't kept up with per diems. In a portfolio of our size, you don't have all contracts that are as profitable as they would be if you're entering into a new contract. So I'd say, on average, across the whole portfolio, when you're taking into consideration state contracts, local contracts and so forth, they're probably slightly higher. Raj Sharma: Great. And then -- so we're assuming that these reactivated facilities are definitely all fully functional and normalized mid of 2026. What occupancy levels would you be -- are you targeting for mid-'26? David Garfinkle: Well, I'd say -- yes, we're still in the process of preparing our 2026 budget. So I wouldn't put a number out there just yet. I mean, the frame of reference, we were at what, -- I'm sorry, Q4 occupancy combined safety at 76.7%. So that includes all of our idle capacity, including the facilities that we're activating. So I could easily see getting in the low-80s and perhaps mid-80s in 2026 on average. Raj Sharma: Great. That's super helpful. And then just the idle facilities, your 7,000 idle facilities, what level of ICE demand do you see there or is it only going to be ICE to reactivate those remaining 7,000 or would there -- you think there could be some state demand, especially given the federal -- the shutdown impacting operational matters? Patrick Swindle: So this is Patrick. Much of the focus in this conversation so far has been ICE because ICE contracted for the 4 additional facilities that we're presently ramping. But our pipeline is much broader than just ICE. And so we're having ongoing conversations with state customers and other federal partners around potential bed utilization. And so we are not a single customer story. And again, going back to the outlook that we talked about in terms of our run rate, that's only reflective of contracts that have already been awarded. And so when you look at the discussion around EBITDA run rate in excess of $450 million, utilization of any additional capacity would certainly be in excess of that. And so again, we think we have opportunities with ICE. I don't want to diminish that, but we do also have a much broader pipeline than conversations that we're having with non-ICE partners. David Garfinkle: And looping back, Raj, on the question you asked regarding revenue, I was talking about the contracts that we announced in the third quarter. Don't forget, we also have the Dilley Immigration Processing Center. That one became fully ramped as of September. So there's probably another, I don't know, $70 million, $60 million in incremental revenue in 2026 versus '25 since it will be on a full run rate basis here beginning in Q4. But Damon, back to... Damon T. Hininger: Patrick makes an excellent point. I just want to underline one of his comments. On the state side, we've got probably about half a dozen states that are engaging us. Some of them are existing, some of them are potentially new ones that are looking for capacity. And that's probably the strongest kind of engagement we've had from our state partners or at least state portfolio in probably 12 or 24 months. So absolutely, it's a story that touches both federal and state opportunities. Raj Sharma: Great. That's very helpful. I had a question on the -- any indication of rising -- given rising labor costs, how are your wage trends tracking across activated facilities? Do you have rate escalators with ICE or state contracts? Patrick Swindle: We do have rate escalators in many of our contracts, but the wage environment is very much moderating across our markets. And so if you were to look at the staffing environment that we're experiencing today, I would say, it's the most favorable that we've experienced since before COVID. And so it's not something that we take for granted, and we're out actively working to hire additional employees. So we're very actively in the market. But at this point, we do not see either market pressure or wage pressure that causes us concern. Raj Sharma: Great. And just lastly, on any cash collection delays. I know that you addressed this question a little earlier due to the government shutdown. I know you mentioned credit line availability. Could you comment on that again, please, how long you're good for and what the working capital impact? David Garfinkle: Yes. We're probably -- yes. So it's -- given a revenue from the federal government, it's probably about $40 million per month. So who knows how long the government shutdown is going to last. Lord help us. We hope it doesn't go through all of November. But if it does, I know we've got a very supportive bank group. We do have an accordion feature on our bank credit facility. So we could always exercise that. I've been in contact with banks as I always have been in contact with our banking group, and I know they would be very supportive. Operator: Our next question comes from Greg Gibas with Northland Securities. Gregory Gibas: Damon, I wanted to wish you luck on your future endeavors. Damon T. Hininger: Yes, sir. Thank you very much for that. Let me know if you know anybody is hiring. Gregory Gibas: Well, I was going to ask about capital allocation but really appreciate your commentary on accelerating share repurchases given the stock's valuation. I had a few kind of modeling-related questions. And I guess, first, maybe, Dave, like to what degree do you expect start-up costs from the ramping up facilities to carry into the first half of 2026, if at all? David Garfinkle: Well, there definitely would be some carried over into '26 because we don't have -- like Diamondback is I think the last facility expected to complete stabilized occupancy, and that's in Q2. Now our Midwest Regional Reception Center, we're kind of on hold pending the resolution of the legal matter. So don't know how long that will extend. We're optimistic that we can get that favorably resolved in the fourth quarter, but don't really know and don't have complete control over the timing of that. So there'll be a little bit of start-up in Q1. As I think about start-up, when I talk about start-up, I'm also talking about an operating loss at the facility. So we will be generating revenue, because like at Cal City, we're already accepting detainees and West Tennessee as well. So that will flip to profitability. I would imagine at least at those 3, Midwest aside, sometime during Q1 -- yes, probably during Q1. Gregory Gibas: Okay. That's fair. And probably fair to say the majority of the, I guess, impact of these start-up costs for those 4 awards in Q4? David Garfinkle: I'm sorry, what was the question? How much is it in Q4? Gregory Gibas: Well, I guess, I was just kind of curious like the majority, I guess, of the impact from those start-up costs is recognized in Q4? David Garfinkle: Yes, more so -- yes, exactly right. Gregory Gibas: Yes, makes sense. Great. And then I guess I would just ask, what is a fair EBITDA run rate exiting the year, excluding those one-time and start-up costs? I think last quarter, you previously spoke to expectations of close to $100 million run rate ending the year. And wondering if any assumptions have changed around that. David Garfinkle: No assumptions have changed other than adding a couple of new contracts because the $400 million did not include our West Tennessee facility and did not include our Diamondback facility. Diamondback facility is a 2,160-bed facility, so a large facility. So yes, I mean, I don't -- I would -- it's going to be -- again, we gave the soft guidance of no less than $450 million once they reach stabilized occupancy. That's probably the best number I could give you at this point. Gregory Gibas: Yes, makes sense. And yes, that's what I was asking kind of prior to those awards. So great. And I guess, just to clarify from your previous commentary, you were saying that about $250 million or so of the $320 million expected to be recognized in 2026, excluding Dilley? David Garfinkle: No, no. That was the increment in '26 over '25 because we recognized some revenue from those activations in 2025. So I was talking about the 4 facilities that we announced in the third quarter. So that revenue is probably $250 million 2026 over 2025 and then another $60 million if you include the Dilley facility, incremental revenue 2026 over 2025. Operator: Our next question comes from Ben Briggs with StoneX Financial. Ben Briggs: Damon, congratulations on a very successful career. And I hope you enjoy a well-deserved time off before whatever it is you decide to do next. Damon T. Hininger: Thank you, sir. I appreciate that. Yes, sir. Ben Briggs: Great. So the vast majority of mine have been asked and answered. I think one that I would get in here is, I know you referenced kind of a longer-term $450 million adjusted EBITDA, call it, run rate. Obviously, as you guys have discussed on the call, there are CapEx investments that are required upfront as you sign contracts that result in that longer-term increased EBITDA. Do you know -- I mean, I know you may not have an exact number, but any kind of range or just the best way to think about what the CapEx costs kind of all in, in aggregate to get there are going to be or is it just too much of an unknown with not all the contracts finalized and just too many moving pieces? David Garfinkle: Yes, that's a really good question. Again, let me just through a little bit. So our guidance for 2025 was $97.5 million to $99.5 million. There'll probably be a carryover of another $20 million or so in 2026. That does include CapEx associated with some facilities that we have not announced new contracts on. So if you recall at the beginning of 2025, we began -- we leaned forward on CapEx because we wanted to prepare all of our facilities to accept detainees as quickly as possible. So that number that I just gave you all in would -- I won't say it will cover every one of our facilities. And then whenever we activate a facility, there's always some stocking of equipment that we have to add to the -- in addition to the hard infrastructure renovation type assets. So I'm not sure if that answers your question, but it's probably $150 million-ish all in for all facilities. Operator: Our next question comes from Daniel Furtado with PhillyFin. Unknown Analyst: I was a little bit late on the beginning, but did you give any -- are you willing to give any update on PECOS? Damon T. Hininger: We did not say anything about that, and there's really no update today. Again, we always continue to have a dialogue with not only as our partner with ICE, but also with Target about what the needs are there in the Southwest, notably in Texas. So no real update to share today. Unknown Analyst: Okay, great. And then my follow-up is simply this discussion about the share repurchases. And I know this -- clearly not trying to put you on the spot, but have you given any thought to potentially a tender considering what the stock price has done and your desire to repurchase shares? Damon T. Hininger: Yes. Probably it wouldn't be appropriate to go into kind of the weeds of what we discussed with the management team with the Board. But I guess the message is that we clearly think the stock is undervalued based on the forecast. So we'll be looking at every opportunity to deploy capital and buy back shares. And so always looking at potentially different ways to do it and maybe more efficient ways, but I wouldn't say anything more than that. We clearly see the opportunity. Operator: Our next question comes from Edwin Groshans with Compass Point Research & Trading. Edwin Groshans: Damon, congratulations and enjoy your retirement. I just have -- I guess my question kind of focuses on -- you saw a lot in the press changes at ICE management. This seems to be the third swing at it. You've mentioned on the call the hiring of new agents, which appears that that's going to take some time. Can you just discuss like as ICE appears to get more aggressive or gets more agents, how much impact that has on your facilities and how quickly it improves activation or even if you can give some sense of bed count? Damon T. Hininger: Yes, great question, and I'll probably tag team with Patrick a little bit on this. But as Patrick alluded to earlier, it's been -- and I shouldn't say just this year, it's really kind of our business. It's a little lumpy. And I think that's probably the case in this situation with ICE. So on their side, they're looking at additional 10,000 agents. They're looking also at lawyers, judges, other support staff to help with the mission. And obviously, that's going to impact the enforcement operations, both on the interior and on the Southwest border. And then in turn, obviously, that's going to impact the tension. So I would say, as you look at kind of last 60, 90 days, I think they have been going very aggressive on hiring, but it does take some time because -- and we appreciate it on our side to get them through training, get them through the screening process and get them to where they're able to go out and affect the mission of ICE. And so I think as that continue to kind of ramps up -- and again, I'd describe it as lumpy. As they got kind of more bandwidth on their side to do more enforcement operations, then obviously, that's going to impact the need for detention capacity. So the conversation is just real time. It's been like that for basically the last year. They're telling us kind of what the needs are, where the priorities are, where the capacity potentially is going to be needed as they kind of ramp up operations. And then obviously, we'll move on a parallel path to meet the need if we've been given the opportunity to provide a solution. But anything to add to that, Patrick. Patrick Swindle: The only thing that I would add is that I think it's important to note that as we open a facility during activation, all beds aren't immediately available on day 1. And so we have ramp schedules that we have built into our contracts at a pace at which we believe we can safely accommodate ramps in population. And so as we continue to open new facilities, we're seeing those beds utilized at a pace that's consistent with what we initially expected. And so I think to the point that Damon just made, I think what you're going to see is a little bit of ebb and flow. And so more beds have been contracted for both with us and with others. Those beds are progressively being utilized, and absorption is occurring, but there are beds available. As you see a further step-up in enforcement, you would see further bed need manifest. And so again, it's not a linear growth path either for populations or for enforcement or for contracting, but the direction it appears to be very much intact. And again, as we provide beds on schedule, they're being utilized. Edwin Groshans: Great. I appreciate that. And I know you mentioned earlier in the call, a surge capacity. Is that surge capacity available as activation is occurring? And then once activation is up and running, the surge can then leak into the new facilities or is that separate? Patrick Swindle: That capacity generally is consistent in terms of the ebb and flow of what we might see on a surge basis versus inactivation. And so new beds being brought online are going to be utilized. There are still going to be times at our facilities, particularly depending on the field office where surge beds may be needed. And so it's going to be somewhat geography dependent and it's going to be somewhat facility dependent in terms of whether surge capacity would be used, when it would be used. But it is still available and in addition to the new beds that we would be bringing online. Edwin Groshans: And then just my last one on this is, there's been a lot of discussions about deportations. You mentioned the judges, which I appreciate. There's going to be work to do mass deportation. Are you seeing in your model yet, are deportations having an impact on detentions or is detention still running ahead of deportations, i.e., intake is greater than outflow? Patrick Swindle: Well, we see -- there is variation as enforcement occurs. And it really is very dependent on the field office, the country of origin that the individual is being transported to. And so I would say there's not really a universal answer to that because it really is dependent on, again, where the enforcement action occurs, where the individual is placed, the agreement that we have in place with the country of origin, all of those are going to impact the amount of time that someone would spend in detention. We do see a strong motivation for speed of deportation. But certainly, we see a lot of variation as individuals manage their way through the court process. Edwin Groshans: And last one -- I promise, this is my last one. I guess there was a lot of talk about ICE was tending to move people to different regions because of legal actions that's happening. Have you seen that or is most of the business still happening in the region where the people are picked up? Patrick Swindle: Well, I guess what I would say is -- and this has historically been the case. ICE -- so some customers have very tight geographic footprints. And so for many states, what you find is they want to stay within the border of that state. For some federal agencies, they want to stay within a particular district. In the case of ICE, we see -- we've always seen movement across the country. And so I've not seen broadly what I would describe as purposeful intent to move folks around the country for that reason. But we do see lots of movement around the country, which is really driven by the staging aspects of managing populations and aggregating individuals in certain locations in advance of deportation. Operator: Our next question comes from Jason Weaver with JonesTrading. Jason Weaver: At this point, just a couple for me. I'll try to be quick. Looking past your idle capacity and the facilities that are in various stages of reactivation now, can you update us a bit on what you're seeing or looking for in the long end of the pipeline to add ICE beds? That is, if we're trying to move to 100,000 capacity or greater? Damon T. Hininger: Yes. I'll tag team with Patrick on this. This is Damon. Part of that conversation has been ongoing where they'll say, ICE will say, hey, we've got a certain need for capacity today in a certain region. But in the next, say, year or 2 years, we might have a need for more capacity. So the way we look at it, and obviously it's the most efficient way to do it is to look if we've got a base of operations in a certain location, can we add capacity both short-term and long-term. So it's a 2-way conversation. ICE says, hey, we may have a little bit of a higher population for a period of time, for 12, 24 months. So that would lend us to say we probably don't want to do a very large capital investment to meet that need. So we'll look at more kind of short-term solutions that we can maybe add to a facility and kind of leverage the base operations. So those conversations are ongoing. It's kind of alluded back to my earlier comments and what I said in my script, which is where we can either expand capacity in existing facilities or and/or go to a third-party like Target where they could meet the need either with a standalone or again maybe add capacity to an existing operation. So it's kind of all of the above approach. Jason Weaver: Okay. That's helpful. And then just as it pertains to Midwest Regional, do you have any upcoming hearing dates or events scheduled where we might see some developments there? Damon T. Hininger: Yes. There's a couple of hearings. I don't have the exact dates in front of me, but there's a couple of hearings here in the next probably 30 -- I think, 30 to 45 days. I think there's at least a couple before Christmas. Operator: There are no further questions at this time. I'd like to turn the call back over to Damon Hininger for closing remarks. Damon T. Hininger: Thank you so much. Well, this has been a really fun call. Thank you for all the well wishes. And again, as I kind of wrap up, 16 years of service as CEO, almost 33 years as a member of this great company. I'm deeply grateful for all of you on the call and also previous investors that have given me a lot of support and guidance over the years. I also want to say to every single employee in our company, 14,000 strong and also the ones that have worked with us previously, I'm deeply honored and grateful to work alongside you all during these 33 years. You all have inspired me in so many different ways and it has made me a better person and have made this a better company. And really going into this year has given us a very strong 2025. I mean, this year, it is really breathtaking the amount of activity we've seen in the organization to meet the needs of not just one customer, also we've talked a lot about ICE, but also other federal partners and a lot of activity on the state side. So 2025 has been a great year. But boy, as I said earlier, next year with a forecast of $2.5 billion in revenue, over $450 million in annual run rate and EBITDA. Those would be 2 record numbers for us as an organization. So again, thank you for the organization, for the company, employees and also for our customers to give us that trust and confidence to provide that type of service to have these type of milestones. So with that, we adjourn. Enjoy the rest of your day. Thank you for calling in today. Operator: This concludes the program. You may now disconnect.
Operator: Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Azimut Group 9 Months 2025 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Giorgio Medda, CEO of Azimut. Please go ahead, sir. Medda Giorgio: Thank you, and good afternoon, everyone, and thank you for joining us today for the Azimut's 9 Months 2025 Results Presentation. I'm Giorgio Medda, CEO of the Group, and I'm very pleased to be here with Alessandro Zambotti, our CEO and Group CFO; and Alex Soppera, Head of Investor Relations. This period marks another important step in our growth journey, reflecting both the strength of our business model and the consistency of our strategies across markets. This year, in 2025, we continue seeing a great execution and delivery in terms of objectives, translating into tangible results and exciting corporate development that we will certainly elaborate in detail later. So moving on to Slide 3, please. So let me start with the key highlights for the period. So the first 9 months of 2025 represent the best on record for Azimut in terms of managed net inflows, reaching EUR 13 billion, together with a strong 17% growth in recurring net profit. These results confirm the strength of our diversified business model and certainly the quality of our recurring revenue base. We also made very significant progress on the TNB transaction, which continues to advance and represent a transformational step for the group. Alessandro will discuss about this in more detail later. But now we certainly -- I can say we operate with greater clarity and visibility over the next regulatory steps related to the TNB project whose authorization is expected by the second quarter of 2026. Building on the strong commercial momentum to date, we are raising our core group net profit guidance for 2025. And today, we are projecting the core group net profit to exceed EUR 500 million in 2025, while we see 2026 net profit, including the expected contribution from the TNB transaction to surpass EUR 1 billion. As a result of the updated time line regarding the TNB authorization, we have decided to anticipate selected key guidelines from our Elevate 2030 strategic plan, in particular relating to our global business. The new strategic plan will outline an even more ambitious growth trajectory, further cementing Azimut's leadership position among global independent players. And -- but certainly, I mean, I will be able to elaborate on that in greater detail later in the presentation. So moving to Slide 4 and turning to the highlights for the first 9 months of the year. Let me mention that total assets have reached EUR 123 billion, marking a new record for the group. Net inflows were equally strong at EUR 15 billion, of which 43% came from our global operations. This demonstrates and shows the continued diversification of our growth and the relevance of our global platform, which once again outperformed other players in the Italian asset management industry. Revenues in the 9 months exceeded EUR 1 billion, supported by a 9% increase in recurring revenues, confirming the quality and resilience of our business mix. EBIT stood at EUR 471 million with recurring EBIT up 12% year-on-year, and group net profit reached EUR 386 million, representing a 17% growth compared to the same period last year. That is essentially driven by the steady expansion of our recurring profit base. And finally, let me stress what is the contribution from our global operations, reaching EUR 60 million, corresponding to EUR 43 million in the same period of 2024. So this is almost 50% growth versus the 9 months last year. This consistent growth across regions confirms the effectiveness of our international strategy and the scalability of our global business model. And let me say as a general comment that these figures put us in a strong position to continue executing our long-term growth agenda while we continue creating value for our shareholders. So looking at the bridge between 9 months 2024 and 9 months 2025, I'm looking actually at Slide #5. Our group net profit reached EUR 386 million compared with EUR 439 million in the same period last year. And the difference here mainly reflects lower performance fees and capital gains below the operating profit line, while recurring profitability continues to grow very strongly. So recurring EBIT increased by 12% after costs, confirming the solid momentum of our core operations, while performance fees were lower by about EUR 19 million, mainly due to insurance-related products. However, I would like to highlight our strong 3Q results and a solid start into Q4. Strategic affiliates in GP stakes have contributed slightly less than last year, with dividends from our GP stake in activities offset by lower net results from Sanctuary Wealth and AZ NGA. Under other items below EBIT, the comparison is significantly affected by nonrecurring items, most notably the capital gain from the sale of our stake in Kennedy Lewis. And as such, it's important that throughout this call and for the broader analysis in general, I would rather focus solely on recurring growth, which posted a 17% growth year-on-year as a result of our continued expansion across the globe. So on Page 6, you will see how our total assets have evolved since the start of the year under the new reporting method. I won't go too much into the detail of this analysis as these are figures that have been already published and commented on press releases. But the thing I would like to mention here that what is remarkable is the fact that growth was essentially coming from organic flows, which have totaled almost EUR 12 billion during the period and represents the best results on record in Azimut's history. And while we don't have all the final numbers as of yet, let me anticipate that October is poised to be another month with very strong inflows across the board. Turning to Page 7. Again, here, I wouldn't go too much into the details of this, which will be also commented by Alessandro more in detail. But let me certainly mention in Slide 7, the breakdown based on our 4 distribution lines. Integrated Solutions is our core line of engagements with clients, including Italy, Brazil, Egypt, Mexico, Taiwan and Turkey. This continues to be a powerhouse and command superior margins that are driven by the vertically integrated business model and market-leading positions that we have in these geographies. We have then the Global Wealth division, which brings together the group's hubs in Monaco, Dubai, Singapore, Switzerland and the United States that is becoming an increasingly important growth driver, serving high net worth and ultra net worth clients worldwide. And then we have the institutional and wholesale effort that is gaining traction and saw a very strong increase in profitability. Let me remind you that this segment brings together our global institutional initiatives across LatAm, Asia and EMEA and certainly Italy. The strategic importance of this business is rising and will continue to do so. It's a source of innovation, distribution diversity and partnerships such as the contribution for Nova. And also, let me mention that strategic affiliates remain in a phase of growth and consolidation, and we still have investments ramping up to expand the respective aggregating platforms of financial advisers in the U.S. and Australia. And very important also to mention that as we keep growing, the group is able to maintain a very healthy recurring net profit margin at 43 basis points. So moving to Slide #8 and zooming in on the performance by region. The results confirm the strength and the diversification of our global platform. Again, here, I won't go into details too much as numbers and the notes speak for themselves. But let me tell you that something that is very, very important to highlight here, Azimut has evolved from a successful Italian player into a global platform with very strong local routes and international breadth that spans 20 countries. Every region is contributing to growth, guided by unified culture, consistent governance and the shared vision for the long-term value creation. We're going to talk about Elevate 2030 later, but these results set a very solid foundation for the ambitious growth targets that we are setting for ourselves in the years to come. So let me now hand over to Alessandro for a more detailed commentary on the figures. Alessandro Zambotti: Thank you, Giorgio, and good afternoon to everybody. So we can now move to Slide 9. Total revenue in the first 9 months 2025 go up to EUR 1 billion, so marking an overall increase of 6%, EUR 61 million year-on-year. This is the result of an increase in recurring fees, plus EUR 58 million, thanks to the strong growth recorded in terms of total assets. And in particular, EUR 31 million came from the Italian perimeter with a strong contribution from all business lines from mutual funds, alternative funds and pension funds and also to Nova. Some numbers, at the level of the alternative funds, we have a positive contribution of EUR 12.5 million to the growth. Mutual funds around EUR 7 million and discretionary advisory services and pension funds contributed for EUR 9 million. With regards to our global operation, we have a contribution of about EUR 27 million, thanks in this case as well to the asset growth, mainly driven by U.S., Brazil, Singapore and Monaco. We should also factor in the change in perimeter due to the consolidation of Kennedy Capital and HighPost, which occurred for EUR 17 million. So moving to the performance fees were EUR 4 million lower year-on-year, mainly reflecting softer results in the first half of the year, but partially offset by strong third quarter performance, thanks to Brazil, Turkey and Monaco. Then at the level of the insurance revenue, we have a decrease by EUR 80 million compared to the first 9 months of last year. But however, in this case as well, despite market volatility, we have a positive contribution from performance fees of about EUR 27 million in these 9 months and in particular, strong contribution in the third quarter. We also grew our recurring revenue by about EUR 8 million compared to last year. And these 2 components largely compensated for the lower performance contribution resulting in an overall variance of EUR 16 million compared with last year. And to conclude this first part of the revenues at the level of the other revenue were up to about EUR 15 million compared to last year. And I mean, in general, we continue to see good consistency across all the areas that contribute to this line. But I would like particularly to highlight the contribution from a structuring fee related to our Brazilian private infrastructure business. These fees are not recurring on a quarterly basis since they depend on deployment activity. But however, given the size and the ongoing growth of our infrastructure platform, we do expect them to recur on an hourly basis, although with varying amount depending on timing and at the level of the single transaction. So then now moving to Slide 10. We are going to focus on cost trend. Compared to revenue growth of about EUR 61 million, cost increased by a total of about EUR 33 million. Distribution costs increased by EUR 24 million. This change is explained by the general increase in distribution costs, mainly within the Italian perimeter directly correlated to the growth of our assets and revenues and EUR 8 million as well from the growth of the variable and dispensing component, so an increase in marketing costs is also directly connected to the TNB project operation. And finally, EUR 4 million stemming from the increase in costs directly linked to the growth of our foreign business. The administrative costs were up by about EUR 11 million, and this is largely explained by the change in perimeter, meaning the line-by-line consolidation of Kennedy Capital and HighPost that contributed about EUR 4 million with offsetting effect from the FX. And we also would like to highlight anyway the cost discipline, especially concerning the Italian perimeter. And then D&A on the other hand, we see that it is substantially in line with the previous year. Moving to Slide 11. As you can see, considering the revenues and cost, the dynamic just explained, we're recording a strong EBIT growth of 12% or EUR 47 million year-on-year. Equally important, we recorded a growth in the recurring net profit of about 17%, EUR 44 million versus the first 9 months of last year. Before moving to the next slide, let's highlight also the significant contribution from the finance income item, which shows an increase of about EUR 62 million, driven by EUR 37 million from assets and portfolio performance, EUR 19 million from the fair value option and equity participation, EUR 9 million from interest and EUR 8 million from GP stakes & affiliates. And then also, we had a negative, in this case, negative impact of the IFRS for EUR 11 million. Now moving to Slide 12. We have the classic picture of our net financial position, which is a positive balance at the end of September of EUR 765 million, substantially the same value of last year compared to June, we have an increase of around EUR 120 million. That can be reconciled considering the pretax results of EUR 198 million less the tax advance of EUR 7 million, EUR 8 million, its M&A for EUR 8.5 million, the proceeds from the sale of RoundShield that contributed to the cash for EUR 38 million and then a technical adjustment of EUR 27 million from UCI units moved out from the net financial position. Moving to Slide 13. Let me share a key update on the TNB project. During the past month, we secured the antitrust approval to acquire the banking license. And I am delighted to announce today that we have signed yesterday a binding agreement with the Banca di Sconto. Our negotiation with FSI continued following the press release published to date. We have updated the project finalization time line to Q2 '26. This timetable establishes a clear and orderly process, providing Azimut and its shareholders with greater visibility on the final stages of the transaction. The schedule is fully aligned with the operational work already underway for the launch of TNB. And then I remind you, once again, the extraordinary long-term value of this transaction. So again, the EUR 1.2 billion potential total consideration plus the EUR 2.4 billion revenue guarantee plus the 20% stake that we will maintain in TNB. Turning to Slide 14. We have here shared the '25 targets. We confirm our net inflow target for the full year of EUR 28 billion to EUR 31 billion. We have already achieved more than EUR 15 billion of net inflows at the end of September. We saw preliminary figures for October and an expected contribution of about EUR 14 billion from the NSI integration could lead us to reach up the guidance. And then moving to Slide 15. Given the strong results achieved in the first 9 months, we are pleased to announce an upgrade to our '25 core group net profit target. We now expect to exceed EUR 500 million in '25 compared to our previous lower end guidance of EUR 400 million. Looking ahead to 2026, including the expected contribution from TNB in this year, as a result of the updated time line, we estimate group net profit to amount above EUR 1 billion. Finally, reflecting both the strength of our results and our solid capital position, the Board of Directors intend to propose announced the dividend policy for the 2025 financial year. This will be above last year EUR 1.75 per share, which represented a 61% payout on recurring net profit, further demonstrating our commitment to rewarding shareholders through sustainable and growing returns. We will share the final details with our full year '25 results presentation that will be happening at the beginning of March '26. Thank you for your time and your attention. Now I hand over to Giorgio, again. Medda Giorgio: Thank you, Alessandro, and I will move to Slide 16. So following the completion of the ordinary supervisory review by the Bank of Italy on part of our Italian business, we can say that we have full clarity and greater visibility on the regulatory time lines ahead. This gives us a very solid foundation to move forward with confidence towards the launch of TNB that is a key milestone in Azimut's evolution. The group strategic plan, Elevate 2030, which will include targets for all business lines and both the Italian and global platforms will be presented in full as previously announced to the market following the authorization of the TNB transaction. However, global expansion continues to be a cornerstone of Azimut's strategy, and we continue building on our presence in 20 markets. And we are very determined to continue strengthening our leadership among the world's leading independent players. And that is why, in the meantime, we have decided to share a few key guidelines focused on our global business that is a part not impacted by the supervisory review. This plan emphasize growth, diversification and sustainable value creation for shareholders. With Elevate 2030, we are certainly defining an even more ambitious growth trajectory, one that will showcase the full potential of our diversified global platform and reinforce Azimut's position as a truly global success story. But let us now take a closer look at what lies ahead, and I will move to Slide 17. So first of all, to help everyone to better understand the potential of our global operations, we started with a bottom-up analysis of the expected contribution in terms of net inflows from each region. This has historically been an area where the market underestimated our potential, and we believe these figures better illustrate the scalability of our platform. What we're showing here are the expected yearly net inflows from our global operations only, and we are excluding Italy. These targets are indeed very ambitious, but we see them as incredibly realistic. They are consistent with our historical growth trajectory, which also reflects a clear step-up as we continue to scale, broaden our investment solution base and bring innovation to our markets. And indeed, we believe a strong potential for Azimut to replicate the success that we have achieved in Italy. We expect total net inflows from our global platform between EUR 5 billion and EUR 8 billion per year, with the Americas region remaining a major growth driver, contributing EUR 2 billion to EUR 3 billion annually, supported by the integration of NSI in the United States, which will add approximately $16 billion or EUR 14 billion upon closing of the transaction at the end of the year. Our strategic affiliates led by Sanctuary Wealth in the U.S., AZ NGA in Australia, also very well positioned now to capture powerful structural trends and the shift of top financial advisers away from bank-owned networks towards independent platforms continues to accelerate and the ongoing intergenerational wealth transfer in both markets is expanding every day the addressable client base for advisory-driven models like ours. For the strategic affiliates, we are expecting to add between EUR 1.5 billion and EUR 2.5 billion of annual inflows, confirming the strength of our partnership model in high potential markets. The EMEA and Asia Pacific regions will also contribute steadily, driven by our ongoing expansion in markets such as Egypt, Taiwan and Singapore. And overall, this figure illustrates the depth and balance of our global business. In general, what I would like to stress here that the international component of Azimut is becoming an increasingly powerful engine of growth and value creation under the new strategic plan. So moving to Slide 18. Here, we are really converting the inflows into the overall asset base at the end of the period. And we are now projecting our global average total assets to grow from around EUR 54 billion to between EUR 95 billion and EUR 110 billion by 2030. This is a very exciting plan. We are essentially showing here our ambition to double our asset base. But certainly, it demonstrates the strength and maturity of our global platform. Achieving these goals will require certainly focus and determination, but I believe we have all the right elements in place. We have now a robust and diversified product offering across public and private markets. We have the ability to tailor solution to the specific needs of each client, and we have a unique entrepreneurial model and mindset that will allow us to move quickly and seize opportunities. This combination gives Azimut a unique and clear competitive advantage and positions us among the very few independent global players able to grow at scale while preserving quality and agility. And now moving to Slide 19. I want to really focus on margin. This is a very important element to help the market better understand what lies ahead and the true earnings power of our global business. Here, we show where our current net profit margins stand today by region and where we expect them to evolve by 2030. We have provided what is a wide enough range to capture different market conditions, but also we want to illustrate what is the significant operating leverage and the economies of scale that our global platform can deliver as it continues to grow. The Americas are expected to see margins rising from around 27 basis points today to between 25 and 35 basis points by 2030. And this will be our largest region by total assets, supported by the NSI integration and the planned launch of active ETFs, which will bring Azimut's global product capabilities to the world's largest market. EMEA remains our most profitable region with margins expanding towards 50 to 60 basis points, while we see the potential for the Asia Pacific region to gradually improve its contribution as the region scales and matures. Looking at these figures on a consolidated level, we expect the global business, excluding Italy and the strategic affiliates, to reach a net profit margin between 30 and 40 basis points by 2030, corresponding to an annual profit of approximately EUR 180 million to EUR 280 million. This compares with a margin of around 35 basis points and a net profit of EUR 70 million generated in the first 9 months of this year. Also, I think it's important here to put into perspective that since 2019, our global net profit has grown at a compound annual growth rate well above 35%. And this gives us a very strong base and clear visibility on the profitability path we are building towards 2030. I would move to Slide 19, 20 and 21. And on the next 3 slides, you see the same breakdown as before, but this time by business line rather than geography. And that should help everyone to cross check our assumptions and better understand the contribution of each vertical to the overall growth plan. I will not spend too much time here, but it's important to highlight the strength and balance across our global platform. And let me tell you that the Elevate 2030 plan will bring greater transparency to the market by showing our strategic and financial objectives through these 4 verticals that we have already introduced this year with the new reporting structure. This structure certainly enhances clarity, ensures consistency in how we represent value creation and makes it easier to appreciate the growth and profitability potential for each business line. And obviously, 4 verticals provide a diversified and complementary growth platform that is underpinning our market leadership, operational integration and long-term strategic partnerships. I would move now to Slide 23, where there is essentially highlighted what is a key pillar for Elevate 2030, that is strategic capital management. This is a framework designed to enhance our valuation to strengthen financial flexibility and deliver consistent and attractive returns to our shareholders. Our focus is on improving transparency and disclosure to help close the valuation gap that we continue to believe the market is still applying to the stock and not really truly appreciating the potential of Azimut. We are also proactively managing regulatory risk by simplifying our structure and ensuring greater operational clarity across jurisdictions. And we furthermore plan to unlock value from our global operations through a series of operations that could potentially include targeted demergers, dual listings and/or strategic partnerships. We're also very pleased today to announce a new share buyback program with a commitment to cancel up to EUR 500 million of repurchased shares over the next 18 to 24 months, equivalent to around 10% of our share capital. This initiative aims to maximize shareholder remuneration and reflects the constructive feedback that we have received from our investors over the last few months. And it's a clear signal of our confidence in the strength of the group, the resilience of our cash generation and our commitment to delivering tangible value to shareholders. Beyond this, we remain committed to maintaining a debt-free position given the strong cash flow generation of our business. However, we will preserve the optionality for future value-accretive M&A opportunities to be financed via debt. And as Alessandro has already highlighted, we will propose a new enhanced ordinary dividend for the full year 2025 versus the prior year. And certainly, we will give you more insight with our full year results in March 2026 when it comes to a broader and more comprehensive dividend policy as part of the Elevated 2030 plan. I mean, I think we can already anticipate that when it comes to shareholder remuneration, one key principle will be that any policy that we will announce to the market will be aligned with cash flow generation to ensure an attractive and sustainable payout over time. So let me move to the last slide, really to wrap up everything that we discussed and shared with you today. So first of all, we are upgrading our 2025 core net profit target to above EUR 500 million, and we project now net income to exceed EUR 1 billion in 2026. This reflects the solid momentum we have built throughout the year and continued strength of our recurring earnings. Second, we have made meaningful progress on the TNB transaction, gaining enhanced clarity on the time line for the next steps. And this gives us a clear regulatory and strategic pathway to move forward. Third, with Elevate 2030, we are releasing ambitious yet achievable targets for our global operations, and we project between EUR 5 billion and EUR 8 billion of annual net inflows over the next 5 years and total assets between EUR 95 billion and EUR 110 billion by 2030, with an expected net profit margin in the region of 30 to 40 basis points. And last point, our strategic capital management remains a key driver of value creation, supported by a EUR 500 million share buyback program with full cancellation of repurchased shares and the new dividend policy to be presented in 2026 after the completion of the TNB transaction. But as we mentioned, already we are providing an announced dividend payout for 2025, obviously applying on a payment in 2026. Together, we believe these initiatives position Azimut for a new chapter of profitable discipline and sustainable growth. With this, we are done and we certainly open the floor to any questions. Operator: [Operator Instructions] The first question is from Gian Luca Ferrari of Mediobanca. Gian Ferrari: Three for me, please. The first one is on the foreign business. I think what you are telling us today, Giorgio, is that the foreign operations are closing this year very close to the cost of capital you put in that development outside Italy. And given the trajectory you are disclosing today, is it fair to assume that by 2027, the IRR of this will reach 20% or something very close to that level? The second is on Nova. Last week, Amundi and then UniCredit, they have been pretty vocal in what is the relationship among them. I will not ask you the level of AUM you are expecting from UniCredit given the acceleration of the divorce, let's say, from Amundi. But I'm more curious to understand what is the level of margins after 2028? So after UniCredit will have exercised the call option. Is it fair to assume that your 20% in Nova will represent something like 15, 20 basis points on the AUM that UniCredit will have transferred at that point? The third question is, I don't know if I can ask this question, but are you eventually considering a dual listing of Azimut even in other stock exchange like in the U.S., for example? And sorry, if I may, the last one. I saw in the press release, you -- after the Bank of Italy inspection, you have some, let's say, adjustments to the business to be compliant with what Bank of Italy is asking to you. Are the costs related to that material or we are talking about a few million euros? Medda Giorgio: Gian Luca, I'll pick your first and second question. So regarding the foreign business or the global business, as we call it [indiscernible], you look at this year and you look at what we have delivered for the first 9 months, I think it would be fair to assume that we will generate a return on invested capital of between 13% to 15% that I think is above our cost of capital. So I think we are already proving value creation. And yes, indeed, when you look at the earnings trajectory over the next couple of years, certainly, I see as very realistic, a return on invested capital in the region of 20% within this time frame. When it comes to Nova, as you know, and I think it's important for me to stress it again, we will never, never disclose any confidential information regarding the activity of clients with our platform. We have never done that with any client. We will never do with Nova. But let me guide you towards some generic principles that govern our partnership with Nova. Certainly, the moment that UniCredit will exercise the call option to buy 80% of Nova, that should not have a material impact on earnings contribution. As already today, we have an agreement under which we are working like UniCredit was already an 80% shareholder. And when it comes to basis points, I think we've guided in the past a range between 40 to 50 basis points. I would assume that we are ballpark again in line with that level in the second stage of this partnership if we get to the second stage after the exercise of the call option. You were also asking about dual listing. Yes, indeed, the U.S. stock exchange remains a very viable option for us. Certainly, we see today a very significant valuation differential for players in our industry being listed there as opposed to be listed in European markets, but we will retain obviously full optionality in deciding which exchange will be eventually decided for our alternative listing. Alessandro Zambotti: I take the Bank of Italy side. So in general, as you said and as you probably read on the press, the report is focused on increase our strength in terms of [indiscernible] strategic planning. So nothing let's say, that cause us an impact on the business and therefore, on the P&L of the group. Therefore, it's just a matter to focus on paperwork and fix what, let's say, they found missing. But as you said also during the question, it's just a few, let's say, a few euros to spend to fix quickly the gap and then looking forward, focusing on our business. Operator: The next question is from Giovanni Razzoli of Deutsche Bank. Giovanni Razzoli: Two set of questions. The first one is on the target for the international operation contribution. You are targeting EUR 5 billion to EUR 8 billion of inflows, half of that are from the states. But if I look at the 9 months run rate, you are already at close to EUR 4 billion, EUR 4.5 billion with U.S. at EUR 2.5 billion. So I was wondering if we can consider the low end of the range, this EUR 5.8 billion contribution of inflows from the international operation as a quite conservative target. The second question relates to the announcement of the share buyback. I was wondering how shall we look at the 10% share buyback that you have announced in the context of the 3% treasury shares that you have already owned. So shall we assume that the 10% is on top of the 3% or you will proceed with the cancellation of the 3% and then on top of that, in 2 years' time, you will buy another 10% with the cancellation? And then as you have mentioned medium, long-term targets, given that your net financial position is very strong, actually, you are cash positive with a capital-light business, shall we assume that apart from this EUR 500 million share buyback, if I move forward, I don't know, 3, 4 years down the road, the share buyback becomes a kind of recurring component of your distribution strategy, let's say, EUR 500 million of share buyback in 2 years' time as a kind, as I said, of recurring contribution of your remuneration policy? Medda Giorgio: Yes, Giovanni. So let me start with the question regarding the EUR 5 billion to EUR 8 billion expected net new money from our non-Italian operations. Indeed, we have provided you a target. This is a target applied for a 5-year period. Certainly, we always work with the ambition of beating the targets that we set for ourselves. And indeed, I would say that the bottom end of that range assumes a deterioration in market conditions and things changing as opposed to what we are leaving now. But the range is a range, is a long period of time, and I would certainly with everyone in Azimut to make sure that our real objective is to beat that range. When it comes to the share buyback, I don't know which figure you are looking at, but I would say that probably today, treasury shares amount to 1% of our outstanding capital. And you should assume that the 10% is on top of this 1%. And for the question regarding what will happen in the next 3 to 4 years, I would certainly be thinking what we have announced today. And time will tell. I think we are making a very strong statement in terms of committing to ensure that our shareholder remuneration policy is inclusive and makes all our shareholders to benefit from the value that we create every day in our business around the world. What is important to say here is that after the TNB transaction, we'll be able to provide a more comprehensive shareholder remuneration policy, including also the ordinary payout policy when it comes to dividends. Operator: The next question is from Hubert Lam of Bank of America. Hubert Lam: [indiscernible] in the global business. Just wondering how much of that would you expect it to be coming from organic in your plans? And how much is it M&A? Do you need M&A to kind of get there? Or are you confident that organic, you can still achieve your targets? Second question is on the share buyback, the EUR 500 million. I'm just wondering in terms of timing when it could start, do you need the approval for the new bank first before you can start the share buyback? Or can it come before that? And lastly, any questions on the new bank. Any update in terms of expected profits you expect from this, both in '26 and maybe beyond that? Medda Giorgio: Hubert, I'll reply to your first 2 questions. I'm not sure I got right your first one. But let me start with the first one regarding organic growth from our global operations, the guidance we provided, you should assume it's mostly organic. And by the way, when you look at what we have done this year, again, the figure that we mentioned earlier is essentially mostly organic. So you should really consider any M&A contributing to this level. When it comes to the share buyback, as a matter of fact, the share buyback is live in the market because we had already approved the share buyback with our AGM in the first quarter this year. What the AGM will approve next year will be the renewal of the plan and the cancellation of the repurchased shares. But the share buyback is, as a matter of fact, right now live in the market. And as far as your first question is concerned, we missed it. Hubert Lam: Yes. Sorry about that. Yes, so the answer to the first 2 are very clear. The third question -- yes, sorry, on the new bank. Just wondering how much in terms of profit contribution we can expect from it in terms of delivering profits in '26. I know that's just the first year and also like beyond, any update in terms of guidance around that? Alessandro Zambotti: Well, nowadays, it's running around -- with the projection at the end of the year, it's around EUR 60 million for '25. Therefore, I would say we are going to be the 20% of this range less a few costs that obviously has to be incurred through the fact that it has no spending banks. Therefore, I would say that we are in this range. Operator: The next question is from Alberto Villa of Intermonte SIM. Alberto Villa: A few left. One is on the acquisition side. I read that your Chairman also indicated that there might be opportunities for future acquisitions, especially in LatAm. So I was wondering if you can give us an idea what is, let's say, of interest for the group in terms of completing the setup of the global operations you have. And broadly speaking, what is the leverage that you would consider as a good setup for the group if you find an interesting opportunity also inorganic in the framework of the -- also the capital remuneration and shareholder remuneration that you have in mind? Medda Giorgio: Okay. Thank you, Alberto. So your first question referring to the interview of our Chairman a couple of weeks ago in Italy. Indeed, we will continue to explore and to seek acquisition opportunities on a bolt-on basis and acquisitions that will never be material in terms of cash outlay and certainly will carry a strong strategic sense in terms of adding and complementing our existing businesses around the world. I think during the interview, it was mentioned our interest in Latin America. Let me tell you that there are a few situations we are looking at in Brazil, but that would be negligible in terms of cash investment for the firm, but certainly we will strengthen our distribution business in the country. And when it comes to the leverage, we often said that we certainly recognize the merits of having an optimal capital structure policy. And in general, we would guide the market when it comes to what we would envisage in the case of a transformative or material M&A transaction in terms of leverage, probably in a situation where we have a net debt to EBIT in the region of 1 to 1.5x ratio. Operator: The next question is from Elena Perini of Intesa Sanpaolo. Elena Perini: I have some left. The first one is about your new net profit target for '25 and 2026. So basically, you move the more than EUR 1 billion target to next year due to the timing of the conclusion of the TNB transaction, if I understand correctly. And while you have for 2025, a target about EUR 500 million. In terms of targets, just to refer to your global business. The wide range that you set for 2030 is EUR 180 million to EUR 280 million is only due to the different range of annual flows and due to the different potential margins on the assets? Or are there any other factors that could explain this wide range? And then a clarification about other income and tax rate. About other income, you mentioned structuring fees. Are there any recurring items for next quarters too? Or do they represent a one-off item? While for the tax rate, I think that there are some one-offs for this quarter as you confirm your guidance of 25% for the full year, but I'm asking you about this. Alessandro Zambotti: Yes. Thank you, Elena. I'm going to take a few of your questions, and then Giorgio will conclude. So starting from your first part relating to the net profit, the new target and as well the moving of the EUR 1 billion to the '26, it's clearly -- your understanding is correct. I mean the contribution of TNB that we plan -- I mean, we're planning at the end of the year is not going to happen. Therefore, obviously, the contribution and the equity transaction is going to happen in '26 and therefore, as well the P&L impact from this transaction is going to be booked next year. And at the same time, following the good results and the good trend of the group, we were updating the guidance for the, let's say, the simple reason that the projection that we see, the trajectory that we see for the last few months of the year is if nothing happens, let's say, complicate, we will be able to get the target. Then you refer to the other income. As you were saying, there is a one-off effect that is linked to the structuring fees. But at the same time, as I was saying at the beginning, it has not to be considered one-off for the yearly basis because it's quarterly basis, for sure, we cannot say that every quarter, we will have this contribution. But looking on a yearly basis, this amount I mean could happen that following this type of services that we are providing, they came up -- I mean, a contribution as well on the other income on the future years. And then at the level of the tax, I think it's more close to the constant of seasonability. I mean, this quarter, it's always lower than in December, considering also the provision of all the dividends coming from the other countries, we will probably get higher impact of tax for that, we kept the guidance stable as per the previous. Medda Giorgio: And yes, when it comes to the 2030 margin targets, the EUR 180 million to EUR 280 million net profit from global operations. Look, this range is admittedly very large. It reflects simply the addition of the lower bound targets for each division or geography and the upper bound. There is nothing else there. It certainly is a basic assumption that the business mix going forward will essentially remain unchanged or not dramatically different from what it is today. But as I said, we work every day to beat the target that we give ourselves, and we certainly do our best to even do better than what we are disclosing today. It's 5 years, it's a pretty long period of time, but we are starting off a very strong base, and I see us capable of doing very, very well. Operator: The next question is from Ian White of Autonomous Research. Ian White: Just a couple from me, please. First of all, can you call out some of the most important drivers of the improved organic net inflow performance this year, please? I'm particularly interested in where you think you've seen the strongest growth in your market share, thinking about the organic flows specifically. That's question one. And question two, in terms of the Bank of Italy's inspection, can you say a bit more about the specific findings there and the remediations that you're going to introduce? Am I right to read into the statement today that the delay to TNB approval is linked to the regulators' findings? And if so, what's your view as to why the regulator has connected those things, please? Medda Giorgio: Okay. Let me take your questions. So I'll start with the first regarding the underlying drivers of our terrific net new money performance this year. I think we -- if you look at the presentation that we have shown earlier, Slide 6, you find what is a pretty accurate detailed breakdown in terms of net new money to different product lines as opposed to different geographies. Let me tell you from a qualitative standpoint that fund solutions have been doing very well in Italy. Certainly, we have the contribution of Nova here, but let me mention what also we have done in Turkey, in Egypt, in the U.S., that is certainly our key product, our bread and butter, and we are proving now to be able to grow both catering to individual clients and institutional as well in terms of wholesale agreement. Let me mention that our Wealth Management business has been this year delivering incredible growth out of Asia, out of the Middle East. Switzerland, Monaco as well doing better than the previous years. And we see now what is a very sustained momentum that is a testament of our ability of building now a cross-border platform and being able to deal with high net worth, ultra net worth individuals that are recognizing Azimut's the ability and the capability to deliver performance vis-a-vis even larger players. Then when it comes to your question regarding the ordinary inspection from Bank of Italy, yes, again, I would refer to the press release, you should assume that we are subject to inspections every week. As you can imagine, we operate across 20 countries. We are subject to the supervision of 20 regulators, sometimes in certain markets like in the U.S. by 2 regulators in the same country. That is also the case for Italy, by the way. And there are routine inspections. So you can say that every day, we are subject to an inspection. So I do not see the Bank of Italy inspection in Italy has been particularly different from others that we have been subject to. And also, let me stress you that the -- let's say, the topic of the inspection was not the announced transaction with TNB. The inspection was very much covering for our, let's say, asset management product factory activities and has been very much referring to this aspect of the business that is not related to the announced transaction with FSI. One of the outcomes of the transaction was that we need to put in place some very ordinary remedial actions. And as you can imagine, although these actions are not related to the TNB transaction and considering the time line is relatively short, we will work on this remediation plan with some very close deadlines, also suggesting that there's nothing dramatic there, maintaining what is an achievable target for the transaction to close within Q2. By the way, this inspection started even before the binding agreement was signed with FSI, and it's really to be seen as completely unrelated. Maybe unfortunate in terms of timing, but to be honest, not really a reason of concern for us. Ian White: Okay. If I can just clarify, I'm not sure if I missed this. In terms of the -- is the delay to TNB approval a direct consequence of things that the regulator has found on its -- during its ordinary inspection? Or am I reading that incorrectly? Medda Giorgio: Not at all. It's procedural, if you want. And as we said very often, the 2 things are separate. There is no really -- we should not see the TNB transaction as the inspection that could be related to each other. As a matter of fact, the transaction occurs in a way where the company that is spinning off half of our network is the one that was subject to the inspection, but nothing of the activities that will be spun off has been subject to the inspection itself. It was mostly related to funds management to discretion portfolio management, really nothing at all that was related to the asset base that will be spun off. Operator: [Operator Instructions] Mr. Medda, there are no more questions registered at this time. Medda Giorgio: Okay. Let's close the call here, and let me wish everyone a good end of the year. And obviously, we keep looking forward to seeing you soon. Thank you. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.
Operator: Good morning, ladies and gentlemen, and welcome to the CrossAmerica Partners Third Quarter 2025 Earnings Call. [Operator Instructions] This call is being recorded on Thursday, November 6, 2025. I would now like to turn the conference over to Maura Topper, Chief Financial Officer. Please go ahead. Maura Topper: Thank you, operator. Good morning, and thank you for joining the CrossAmerica Partners Third Quarter 2025 Earnings Call. With me today is Charles Nifong, CEO and President. We'll start off the call today with Charles providing some opening comments and an overview of CrossAmerica's operational performance for the third quarter, and then I will discuss the financial results. We will then open up the call to questions. Today's call will follow presentation slides that are available as part of the webcast and are posted on the CrossAmerica website. Before we begin, I would like to remind everyone that today's call, including the question-and-answer session, may include forward-looking statements regarding expected revenue, future plans, future operational metrics and opportunities and expectations of the organization. There can be no assurance that management's expectations, beliefs and projections will be achieved or that actual results will not differ from expectations. Please see CrossAmerica's filings with the Securities and Exchange Commission, including annual reports on Form 10-K and quarterly reports on Form 10-Q for a discussion of important factors that could affect our actual results. Forward-looking statements represent the judgment of CrossAmerica's management as of today's date, and the organization disclaims any intent or obligation to update any forward-looking statements. During today's call, we may also provide certain performance measures that do not conform to U.S. generally accepted accounting principles or GAAP. We have provided schedules that reconcile these non-GAAP measures with our reported results on a GAAP basis as part of our earnings press release. Today's call is being webcast, and a recording of this conference call will be available on the CrossAmerica website for a period of 60 days. With that, I will now turn the call over to Charles. Charles Nifong: Thank you, Maura. Maura and I appreciate everyone joining us this morning, and thank you for making the time to be with us today. During today's call, I will go through some of the operating highlights for the third quarter. I will also provide commentary on the market and a few other updates as I typically do on our calls. Maura will then review in more detail our financial results. If you turn to Slide 4, I will briefly review in more detail some of our operating results for the quarter. For the third quarter of 2025, our Retail segment gross profit decreased 4% to $80 million compared to $83.6 million in the third quarter of 2024. The decrease was primarily driven by a decline in motor fuel gross profit due to lower retail fuel margins for the quarter compared to the prior year. For the quarter, our retail fuel margin on a cents per gallon basis decreased 5% year-over-year, as our fuel margin was $0.384 per gallon in the third quarter of 2025 compared to a historically strong $0.406 per gallon in the third quarter of 2024. In comparison to the prior year, crude oil prices were much less volatile during the third quarter of 2025, which resulted in lower market volatility. And as a result, our retail fuel margins were lower year-over-year. For volume on a same-store basis, our overall retail fuel volume declined 4% for the quarter year-over-year. Our retail volume performance for the quarter was bifurcated between our company-operated and commissioned sites. For our company-operated sites, our same-store volume for the quarter was down slightly less than 3% year-over-year. Our pricing strategy for our company-operated retail sites overall remained unchanged. We strive to be competitive at each location for the market the site is in. For our commission class of trade, our commission same-store site volume was down approximately 7% for the quarter. The decline was due in part to our decision at select sites to adjust our pricing strategy. With many of the sites that we converted throughout last year, we were very aggressive with fuel pricing initially at conversion, which generated strong volume growth and provided us with data about the volume potential of the locations. These sites are now same-store locations. And in the third quarter, we sought to balance the volume and margin performance of these locations, which led to lower same-store volumes in our commission sites in addition to the overall volume decline in the market. Based on national demand data available to us, national gasoline demand is down approximately 2.5% for the quarter. So our company-operated sites slightly underperformed the market volume for the quarter, while our commission sites were below national market volume, primarily due to the deliberate pricing strategy changes we implemented during the quarter. In the period since the quarter end, national retail volume has been down approximately 3.5% and our overall retail same-store volume has been down slightly more than that year-over-year, as we continue to adjust commission pricing strategies relative to the prior year, and we compare against what was for us a very strong volume performance last October. In the same period, retail fuel margins have been significantly higher than the average third quarter retail fuel margins, as oil market price volatility has generated favorable market conditions for enhanced retail fuel margins. For inside sales -- on a same-site basis, our inside sales were up approximately 3% compared to the prior year for the third quarter. Inside sales, excluding cigarettes, increased 4% year-over-year on a same-store basis for the quarter. Our inside sales growth was driven by strong performance in our packaged beverage and other tobacco products categories. Also, our food category contributed to our relatively strong 4% growth in same-store sales for the period. Overall, national demand for inside store sales for the quarter was flat to slightly positive, indicating our relative outperformance for the quarter. On the store merchandise margin front, our merchandise gross profit increased by 5% to $32 million, driven by an increase in sales in our base business and an increase in store merchandise margin percentage. Our merchandise gross margin percentage was up strongly over the prior year, approximately 100 basis points. This was primarily due to strong growth in certain higher-margin categories like other tobacco products and also due to our transition from a commission-based model for certain products in the third quarter of last year into owning and selling these products directly for the current quarter. In the period since the quarter end, same-store inside sales have been approximately flat compared to the prior year. In our retail segment, if you look at our total number of retail sites at the end of the quarter, our company-operated site count decreased by 8 sites this quarter relative to the second quarter of this year. The decrease in company-operated sites reflects the asset sales we completed during the quarter. The divested locations were lower performing sites in markets that we decided were no longer strategic for us. Our commission agent site count also decreased modestly by 3 sites during the quarter relative to the second quarter. Site divestitures this quarter represent our execution on our continued strategic focus on being in retail, in the right markets, with the right assets and positioning our portfolio for long-term success. We continue to look for opportunities in our portfolio to increase our retail exposure and our overall retail strategy has not changed. The Retail segment performed well for the third quarter. On a fuel margin-neutral basis, the segment outperformed the prior year on strong inside sales and expense reduction, which Maura will address in her comments. Our volume performance at first glance underperformed, but this was due primarily to deliberate decisions we made in our commission class of trade to adjust our volume and fuel margin mix at select sites. In the period since the quarter end, we have benefited from a very strong fuel margin environment throughout the month of October. Moving on to the Wholesale segment. For the third quarter of 2025, our Wholesale segment gross profit declined 10% to $24.8 million compared to $27.6 million in the third quarter of 2024. The decrease was primarily driven by a decline in fuel volume, fuel margin and rental income. The primary factor for the fuel volume decline was the conversion of certain lessee dealer sites to company-operated and commission agent sites, which are now accounted for in the retail segment. Rental income declined for the same reason and due to the site divestitures we have completed thus far this year. Our wholesale motor fuel gross profit declined 7% to $15.7 million in the third quarter of 2025 from $16.9 million in the third quarter of 2024. Our fuel margin decreased 2% from $0.09 per gallon in the third quarter of 2024 to $0.088 per gallon in the third quarter of 2025. The decline in our wholesale fuel margin per gallon was primarily driven by movements in crude oil prices and lower prompt pay discounts associated with lower gasoline prices, which reflected lower crude oil prices during the quarter compared to the prior year, partially offset by better sourcing costs. Our wholesale volume was 177.7 million gallons for the third quarter of 2025 compared to 186.9 million gallons in the third quarter of 2024, reflecting a decline of 5%. The decline in volume when compared to the same period in 2024 was primarily due to the conversion of certain lessee dealer sites to our retail class of trade. The gallons from these converted sites are now reflected in our retail segment results. For the quarter, our same-store volume in the wholesale segment down approximately 2.5% year-over-year. So the additional approximately 2.5% drop in volume, the difference between the overall volume decline of 5% and our same-store volume decline of 2.5% for this segment was largely due to converting sites to the retail segment or the loss of independent dealer volume. As I mentioned in my retail segment comments, national demand data available to us indicated national volume demand was down around 2.5% for the quarter. So our same-store wholesale volume performance for the third quarter performed in line with overall national volume demand. In the period since the quarter end, wholesale same-store volume has been down approximately 4.5%, so slightly worse than national volume demand, which has been down approximately 3.5%. Regarding our wholesale rent, our base rent for the quarter was $8.5 million compared to the prior year of $10.4 million, a decrease due to the conversion of certain lessee dealer sites to company-operated sites as well as our real estate rationalization efforts. As we have previously explained, the rent dollars for the converted sites, while no longer in the form of rent, are now effectively in our retail segment results through our fuel and store sales margins at these locations. During the quarter, we continued with our real estate rationalization efforts, realizing approximately $22 million in proceeds from the sale of 29 sites during the quarter that we primarily used to pay down debt. For the most part, we sold sites with continuing fuel supply relationships, so we realized an extremely attractive effective multiple on these divestitures, strengthening our financial position today and positioning our portfolio for the future. Year-to-date, we have realized approximately $100 million in proceeds from asset sales, our biggest year ever. We continue to have a strong pipeline of asset sales for the rest of the year and are building a pipeline of asset sales for 2026. While we don't expect next year to be the record volume of sales that we have executed this year, we do expect it to contribute meaningful proceeds for us to either put into the balance sheet or to invest into the business. Overall, the third quarter was a solid quarter for the partnership. While our EBITDA was below the prior year, on a comparable fuel margin basis, our EBITDA results exceeded the prior year despite us realizing approximately $100 million in asset sale proceeds this year. During the quarter, we continued to make meaningful progress on our strategic goals with another strong quarter of site divestitures, which strengthened our balance sheet by lowering our debt level by approximately $22 million compared to the second quarter and further optimize our operating portfolio for the future. Since the end of the third quarter, we've had a strong start to the fourth quarter, benefiting from a very favorable fuel margin environment. With that, I'll turn it over to Maura to further discuss our financial results. Maura Topper: Thank you, Charles. If you would please turn to Slide 6, I would like to review our third quarter results for the partnership. We reported net income of $13.6 million for the third quarter of 2025 compared to net income of $10.7 million in the third quarter of 2024. This increase in net income was driven by a combination of factors, including a decline in adjusted EBITDA year-over-year, offset by increased gains on the sale of assets that Charles discussed in his commentary and a decline in interest expense. We recorded a net gain from asset sales and lease terminations of $7.4 million during the third quarter of 2025 compared to $4.7 million during the third quarter of 2024. Interest expense declined from $14.1 million during the third quarter of 2024 to $11.8 million during the third quarter of 2025, a material benefit to our quarter as a result of our strategic activities, which I will discuss further later on in my comments. Adjusted EBITDA for the third quarter of 2025 was $41.3 million, a decline of $2.6 million or 6% compared to the prior year period. This decline was primarily due to a decline in fuel and rent gross profit, which was offset by a $4 million decrease in overall expenses during the quarter year-over-year. Our distributable cash flow for the third quarter of 2025 was $27.8 million, a slight increase from $27.1 million for the third quarter of 2024. The increase in distributable cash flow was primarily due to lower cash interest expense, sustaining capital expenditures and current income tax expense, offset by our lower adjusted EBITDA. The decline in interest expense we experienced during the quarter was due to a lower average interest rate during the period and a lower average outstanding debt balance on our capital credit facility during the period, as we have materially applied the proceeds of our asset sale activities to pay down our revolver balance. Our distribution coverage ratio for the third quarter of 2025 was 1.39x compared to 1.36x for the same period of 2024. Our distribution coverage for the trailing 12 months for the period ended September 30, 2025, was 1x compared to 1.26x for the same 12-month period ended September 30, 2024. During the third quarter of 2025, the partnership paid a distribution of $0.525 per unit. Charles provided information in his comments on our top line and gross profit metrics during the quarter and how they impacted our adjusted EBITDA compared to the prior year. I will now touch on the expense portion of our operations. In total, across both segments, we reported operating expenses for the third quarter of 2025 of $57.5 million, a $3.2 million decrease year-over-year. We reported G&A expenses for the quarter of $6.5 million, a $0.8 million decrease year-over-year, resulting in a total expense decrease for the organization of $4 million or 6% over the course of the past year. As I touched on during our last quarterly earnings call, we have cycled through the first year of operations of many of our locations in their new classes of trade, which typically results in elevated expenses to onboard and upgrade the converted locations. As a result, we are experiencing a stabilization of our expense profile in our current class of trade site count. We will, of course, continue to experience seasonality of certain types of operating expenses in our stabilized portfolio, like increased labor in the summer and increased snowplowing in the winter. Returning to our operating segments. Retail segment operating expenses for the third quarter declined $1.6 million or 3%. This was driven primarily by the reduced site count in our retail segment this quarter, specifically the 4% decrease in average company-operated site count year-over-year. On a same-store store level basis, operating expenses in our retail segment were down 2% for the third quarter of 2025 compared to the third quarter of 2024. The decline was primarily driven by reduced repairs and maintenance spending at both our company-operated and commission class of trade locations due to realized ongoing efficiencies in our maintenance operations, offset by normal course increases in store labor costs. Operating expenses in our wholesale segment declined by $1.6 million or 19% for the quarter year-over-year due to declines in site level operating expenses and management fees, as our wholesale segment average site count declined 6% year-over-year. And specifically, our lessee dealer or controlled site count within this segment declined 23% year-over-year due to asset sales and to a lesser extent, conversions to our retail class of trade. Our G&A expenses declined 11% for the quarter year-over-year, primarily driven by lower legal fees and equity compensation expense. As noted last quarter, our G&A expense profile this quarter, excluding event-driven acquisition costs and unit price movements impacts to equity compensation is more indicative of our ongoing run rate in this area. We remain focused across the organization on efficient expense management at our locations, ensuring that we are investing in customer-facing areas that will drive the long-term health and sustainability of our sites and driving operating efficiencies in our above-store operations. Moving to the next slide. We spent a total of $6.7 million on capital expenditures during the third quarter with $4.8 million of that total being growth-related capital expenditures and $1.9 million of that being sustaining capital expenditures. The decline in sustaining capital expenditures versus the prior year is in line with our expectations, as we experienced a stabilization of our current class of trade site count as well as a reduction of our real estate controlled site count. Moving to our growth capital spending during the quarter. Our spend remained focused on our company-operated locations and included the completion of various projects to increase food offerings, both our own and QSRs as well as targeted fuel brand and backcourt refresh projects, supported by our wholesale fuel supplier partners. Our food-related growth investments have and will continue to contribute to our merchandise sales and margin results, as Charles discussed earlier. Turning to our balance sheet. The asset sale activities during the third quarter that Charles reviewed in his comments, meaningfully helped us reduce our credit facility balance by $21.5 million since the end of the second quarter of 2025, ending the quarter at a credit facility balance of $705.5 million. Our year-to-date asset sale activities have helped us to reduce our credit facility balance by $62 million year-to-date. The decrease in our balance, combined with the gains on sale generated from our asset sale activities, resulted in a decrease in our credit facility-defined leverage ratio to 3.56x compared to 4.36x as of December 31, 2024. This leverage ratio continues to provide additional meaningful savings on our credit facility interest expense, as we move forward. Our management team remains focused on the cash flow generation profile of our business, utilizing our normal course operations and our targeted real estate optimization efforts to manage our leverage ratio at approximately 4x on a credit facility-defined basis. Our asset sale activities during the quarter and reduced credit facility balance also helped improve our cash interest expense during the quarter, which decreased from $13.7 million in the third quarter of 2024 to $11.3 million in the third quarter of 2025. We also benefited from a lower average interest rate environment during the third quarter of 2025. Our existing interest rate swap portfolio continues to benefit us as well. At this time, more than 55% of our current credit facility balance is swapped to a fixed rate of approximately 3.4% blended, which remains an advantaged rate in the current rate environment. Our effective interest rate on the total capital credit facility at the end of the third quarter is 5.8%. In conclusion, as Charles noted, we had a solid third quarter. We successfully completed several asset sales, reducing our debt by more than $20 million and strengthening our balance sheet. These transactions also positioned our operating portfolio for long-term performance. We remain focused as a team on continuing to execute across the business and are looking forward to 2026, maintaining a strong balance sheet and generating value for our unitholders. With that, we will open it up for questions. Operator: [Operator Instructions] Unknown Executive: It doesn't appear we have any questions today. Should you have any questions later, please feel free to reach out to us. Again, thank you for joining us. Have a great day. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.
Operator: Good morning. My name is Dustin, and I will be your conference operator today. At this time, I would like to welcome everyone to Oscar Health's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I will now turn the conference over to Chris Potochar, Vice President of Treasury and Investor Relations. Please go ahead, sir. Chris Potochar: Good morning, everyone. Thank you for joining us for our third quarter 2025 earnings call. Mark Bertolini, Oscar Health's Chief Executive Officer; and Scott Blackley, Oscar's Chief Financial Officer, will host this morning's call. This call can also be accessed through our Investor Relations website at ir.hioscar.com. Full details of our results and additional management commentary are available in our earnings release, which can be found on our Investor Relations website at ir.hioscar.com. Any remarks that Oscar makes about the future constitute forward-looking statements within the meaning of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed in our annual report on Form 10-K for the period ended December 31, 2024, and the quarterly report on Form 10-Q for the period ended June 30, 2025, each as filed with the SEC and other filings with the SEC, including our quarterly report on Form 10-Q for the quarterly period ended September 30, 2025, to be filed with the SEC. Such forward-looking statements are based on current expectations as of today. Oscar anticipates that subsequent events and developments may cause estimates to change. While the company may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. The call will also refer to certain non-GAAP measures. A reconciliation of these measures to the most directly comparable GAAP measures can be found in the third quarter earnings press release available on the company's Investor Relations website at ir.hioscar.com. We have not provided a quantitative reconciliation of estimated full year 2025 adjusted EBITDA as described on this call to GAAP net income because Oscar is unable without making unreasonable efforts to calculate certain reconciling items with confidence. With that, I will turn the call over to our CEO, Mark Bertolini. Mark Bertolini: Good morning. Thank you, Chris, and thank you all for joining us. Today, Oscar announced third quarter results and reaffirmed updated 2025 guidance. We reported total revenue of approximately $3 billion, a 23% increase year-over-year. MLR increased approximately 380 basis points to 88.5% due to higher market morbidity, partially offset by favorable prior period development. Our SG&A expense ratio of 17.5% meaningfully improved by approximately 150 basis points year-over-year. Overall, Oscar reported a $129 million loss from operations and adjusted EBITDA loss of $101 million. Net loss for the third quarter was $137 million. We remain confident in our ability to expand margins and return to profitability in 2026. Scott will walk through our financials in details in a few moments. Before I get into our results, I want to underscore the long-term importance of the individual market. The individual market is the only source of affordable health coverage to 22 million Americans who power our economy. The majority of members are from the small businesses, service and farming sectors, which together generate nearly half of U.S. GDP. These hard-working people do not have access to employer coverage and rely on enhanced premium tax credits to fill the gap. For example, the average farmer making $60,000 a year now pays $75 a month for health insurance compared to $300 a month before the enhanced premium tax credits. That $225 is the difference between paying for health care or paying the bills. Limiting access to affordable coverage in the individual market undermines Main Street and rural America. This market is critical regardless of policy changes, and we are engaged with policymakers on both sides of the aisle to ensure Americans have access to the coverage they need. Now I will update you on current market dynamics. As we said last quarter, 2025 is a reset moment for the individual market. Overall risk adjustment data from Wakely in the third quarter show continued higher market morbidity, which we attribute to Medicaid lives entering the market and the initial impacts of program integrity efforts. Looking ahead, we see rational pricing in the 2026 open enrollment period. We also see the overall market to contract due to the expiration of enhanced premium tax credits and program integrity efforts. However, we remain optimistic Congress will reach a compromise on tax credits to address affordability issues many Americans will face without them. The Oscar team is well positioned to profitably grow share and improve margins. Our 2026 pricing strategy remained disciplined, balancing membership and profitability. For 2026, we resubmitted rate filings in states covering close to 99% of current membership. And our weighted average rate increase is approximately 28%. Our rate filings reflect elevated trend, significantly higher market morbidity in 2025, the expiration of enhanced premium tax credits and program integrity initiatives. Our teams are actively directing members to plans at affordable price points to ease this transition. We have a strong opportunity to capture share profitably as other carriers retreat or price themselves out of the market. Oscar ended the first nine months of 2025 with more than 2 million members, a 28% increase over last year. We are now in the first week of the 2026 enrollment period. The Oscar experience will be available in 20 states, including 2 new states, Alabama and Mississippi. We are also entering new markets and expect to grow share in existing markets in core states next year. Our total addressable market for plan year 2026 is approximately $12 million, up 500,000 year-over-year. Oscar offers consumers more choice in the individual market. We continue to diversify our product mix, evolving from condition-specific plans to plans tailored to meet different phases of life. Our long-standing clinical plans for members with diabetes, asthma, COPD and multiple chronic conditions remain strong performers in the book. Now our new product, HelloMeno, helps women take control of the menopause experience. Today, nearly 5.4 million women over the age of 45 are enrolled in the ACA, a rapidly growing demographic with limited support. Oscar is the first individual market carrier to offer this type of product in partnership with leading women's health clinics and menopause-certified clinicians across the U.S. We help members save up to $900 per year by getting them into the right plans with $0 benefits, early intervention programs and high-value treatments that improve outcomes at lower costs. Oscar also continues to shape the future of employer coverage through ICRA. Our pricing is competitive across our major markets compared to group plans. We expect to see continued conversion from small and midsized employers who are suffering from double-digit group rate increases. Our Hy-Vee Health with Oscar product is now live in Des Moines, Iowa for plan year 2026. This innovative plan is the first of its kind. The plan offers $0 concierge-type care at an affordable fixed price and in-store rewards for buying healthy food. We plan to expand this partnership in additional markets. Our momentum in ICRA reflects the growing demand among employers for a wider range of affordable and innovative benefits. Finally, Oscar is infusing an industry-first health AI agent, Oswell, into our entire product portfolio. Oswell is powered by OpenAI and helps members manage their health on demand. Unlike other AI tools, Oswell is connected to Oscar's cloud-native tech platform. It draws from claims, medical records, care guide notes and other member data for a personal experience. Members can better understand symptoms, common test results, medications and preapprovals tied to plan benefits. Owell also provides doctors with data to improve care paths and members with questions to ask their doctors so they are informed on their care. This is just the beginning of what we will do with leading AI models to redefine the health care experience. In summary, Oscar's highly innovative products, superior member experience and disciplined pricing set us up to grow market share. We remain front-footed and know how to run a successful company in dynamic markets. Oscar will continue to lead the individual market regardless of the outcome on enhanced premium tax credits. All of our attention and resources are focused on executing against our strategic plan. We are well positioned to expand margins and return to profitability in 2026. The ACA and ICRA have the potential to meet the health care needs of approximately 120 million working people. The individual market aligns with major macroeconomic workforce and consumer trends. More Americans work in the service economy than ever before. More businesses want affordable benefit options. More people want greater choice. Oscar is ahead of the demand, and we are creating the future of individual health care for all Americans. I want to thank the entire Oscar team for their hard work during our busiest time of the year. I am proud of how we consistently show up for our members, partners and the business community. I will now turn the call over to Scott. Scott? Richard Blackley: Thank you, Mark, and good morning, everyone. This morning, we reported our third quarter financial results and reaffirmed our full year guidance. 2025 has been a dynamic year for the ACA marketplace. We've observed higher average market morbidity attributable to strong ACA growth from Medicaid redeterminations and ACA program integrity efforts that were implemented after the completion of 2025 pricing. We have taken disciplined actions to manage costs this year and to position us to ensure we return to profitability next year. Turning now to third quarter results. Total revenue increased 23% year-over-year to approximately $3 billion, driven by higher membership. We ended the quarter with 2.1 million members, an increase of 28% year-over-year. Membership growth was driven by solid retention, above-market growth during open enrollment and SEP member additions. The third quarter medical loss ratio was 88.5%, an increase of approximately 380 basis points year-over-year. We received a risk adjustment report in the third quarter for claims through July, which showed a further increase in market morbidity across several states. The third quarter MLR was impacted by a $130 million increase to our risk adjustment payable for 2025, partially offset by $84 million of favorable prior period development, primarily related to claims run out from the prior year. As discussed during our second quarter earnings call, we observed a sequential decrease in utilization each month throughout the second quarter. This trend persisted into early 3Q before stabilizing to be more in line with our expectations. Overall year-to-date utilization is modestly above our expectations. By category, inpatient utilization remained elevated but moderated meaningfully throughout the first 9 months of the year. Outpatient and professional were slightly elevated, while pharmacy remained favorable. Switching to administrative costs. We continue to deliver strong improvements in the SG&A expense ratio. The third quarter SG&A expense ratio improved by approximately 150 basis points year-over-year to 17.5%. The year-over-year improvement was driven by fixed cost leverage, lower exchange fee rates and disciplined cost management, partially offset by the impact of higher risk adjustment payable as a percentage of premium. In the third quarter, the loss from operations was $129 million, a change of $81 million year-over-year, and the net loss was $137 million, an $83 million change year-over-year. The adjusted EBITDA loss was $101 million in the quarter, a change of $90 million year-over-year. Shifting to the balance sheet. We have taken opportunistic steps to strengthen our capital position and optimize our capital structure. During the third quarter, we completed a $410 million convertible notes offering due 2030. Net proceeds were $360 million, inclusive of the cost of a capped call transaction, which increased the effective conversion price to $37.46. In addition, subsequent to quarter end, we entered into an agreement to redeem the vast majority of our outstanding $305 million convertible senior notes for shares. We ended the third quarter with approximately $4.8 billion of cash and investments, including $541 million of cash and investments at the parent. As of September 30, 2025, our insurance subsidiaries had approximately $1.2 billion of capital and surplus, including $564 million of excess capital. Turning now to 2025 full year guidance. Based on our results through the first nine months of the year, we are reaffirming all of our guidance metrics. For total revenue, we now expect to be towards the low end of our guidance range of $12 billion to $12.2 billion, driven by the third quarter ACA Marketplace morbidity that increased by more than our prior estimates. Membership growth has been strong through the first nine months of 2026.For the fourth quarter, our outlook contemplates a sequential decline in membership, driven by more historical churn patterns as the continuous monthly SEP for those at or below 150% of federal property level ended in the beginning of September. Our outlook also assumes risk adjustment as a percentage of direct and assumed policy premiums is in the high mid-teens range. Shifting to the medical loss ratio. We continue to expect a full year MLR in the range of 86.0% to 87.0%. The full year MLR guidance reflects higher average market morbidity, year-to-date utilization patterns and continues to assume a modest increase in utilization in the fourth quarter as members may seek additional care ahead of anticipated coverage changes next year. On administrative expenses, we continue to expect an SG&A expense ratio in the range of 17.1% to 17.6%, driven by greater operating leverage and variable cost efficiencies. We expect a loss from operations in the range of $200 million to $300 million and an adjusted EBITDA loss of approximately $120 million less than the loss from operations. While the third quarter risk adjustment true-up is expected to drive total revenues towards the low end of our full year guidance range, favorable prior period and in-year claims development and administrative expense efficiencies substantially offset the impact. So net-net, our outlook for the loss from operations remains unchanged. Now I'll spend a moment on our planning assumptions for 2026. While it is too early to provide formal guidance, we have taken appropriate actions to ensure we can deliver meaningful margin expansion and return to profitability next year. Our 2026 pricing strategy balanced growing market share and improving profitability. As Mark mentioned, our weighted average rate increase is approximately 28% for 2026. This increase anticipates above-average trend and is significantly higher market morbidity driven by increased market morbidity in 2025, the expiration of enhanced premium tax credits and the current ACA program integrity initiatives. We believe our disciplined pricing strategy captures the changing market conditions we've observed this year and the expected changes next year. Based on a review of final rates, our competitive positioning is in line with our expectations, and we are confident in our ability to profitably grow market share next year. As previously mentioned, we also took actions to eliminate approximately $60 million in administrative costs for 2026. In closing, we remain committed to bringing consumers affordable, innovative products and building an even larger ACA market over the long term. 2025 is a reset for the ACA marketplace. We've taken necessary pricing and cost actions and are confident in our ability to meaningfully expand margins and return to profitability in 2026. With that, I will turn the call over to the operator for the Q&A portion of the call. Operator: [Operator Instructions] And we will take our first question from Michael Ha from Baird. Hua Ha: Regarding the September weekly report, I understand there's worsening market morbidity shifts. But curious, is there any indication in that report how much of that might have been from things like FTR rechecks and removal of duplicative members heading into fourth quarter? I'm curious to hear how you view the potential risk of there being maybe more market morbidity shifts in the December weekly report. So thoughts there would be great. Richard Blackley: Michael, thanks for the question. So the Wakely report that we received had market morbidity increases by about 1.5 points to 2 points across several of our markets. We think that the drivers of that increase are the same types of things that we discussed last quarter, obviously, to a lesser magnitude. As you think about that report captures claims through July. And so it wouldn't capture the impacts of FTR or dual enrollment churn that really happened in the third quarter. On those two topics, I would say that we've seen about 45% of the people who were part of CMS' list to us on FTR or dual enrollments with 45% of that list has churned. When we look at the nature of those members, they actually have higher risk than our average book. So if we -- if the whole industry had similar types of characteristics in their populations, that actually would be a tailwind to market morbidity. So we don't see any reason to change our expectations that market morbidity will stay consistent through the end of the year. Hua Ha: Great. And just one more question. So G&A, if I take a step back, has been such a bright spot in your fundamental story. I think it's shined a really powerful light on +Oscar as well. So I'm thinking ahead regarding your longer-term G&A target for '27, 16% I wanted to ask if you still feel confident on achieving this target even with the magnitude of expected member attrition over the next couple of years. So I'm curious on the target. And I guess, more broadly as well, how to think about decremental margins. Mark Bertolini: Thanks, Michael, Mark here. We actually believe we have more room in our SG&A as we go forward. The AI models we're creating, we've got well over two dozen models on the back end. We've just launched our first agentic. We have another one coming out of the lab. We have a lot of really good opportunity with AI to streamline our operating costs. And of course, the discipline we have on making sure that our variable costs, first and foremost, are fit to the size of our business. So if there is market shrinkage, then we believe that we have plenty of time to be able to adapt our variable costs to fit our cost structure going forward. Operator: Our next question comes from the line of Josh Raskin from Nephron Research Joshua Raskin: I was wondering, Scott, if you could just elaborate a little bit more on the underlying cost trends in the quarter and maybe any changes you saw from the first half? And within that, what areas drove that favorable development and seemed like a pretty sizable number for the prior year? And then I guess, I know it's super early, but any sense of that expected increase in utilization that you mentioned as we're entering fourth quarter? Are you seeing any of that as members get their new rates? Richard Blackley: Josh, let me go through those questions. So I'll start with the PPD, which was $84 million in the quarter. And that was -- about half of that was related actually to risk adjustment where we had some favorable development around some of our estimates for rebates. I know you wouldn't expect that we have rebates because we're a large payer, but we do have some markets where we do pay rebates, and we got some clarity on a few topics that allowed us to true that up. So that was about half of it. The remainder was favorable development from claims, and that just is, I think, encouraging for us that we continue to see both prior year development that's favorable and in-year development. So we feel like those are positives in terms of that we're appropriately reserving for the risk that we're seeing. And if I shift then to what's going on in utilization and trend, I would say that utilization continues to moderate year-over-year. it's still modestly elevated versus our pricing expectations. Inpatient remains elevated, continued to moderate into the third quarter. Outpatient professional, slightly elevated. I would say that we believe that some of the changes we're seeing in terms of shifts between categories is a result of some of the total cost of care initiatives that we're running, where we're really focused on driving appropriate site of care transitions. So not much there that we're seeing that gives us pause. And generally speaking, I think that we look at utilization softening throughout the year and approaching kind of where we expected in pricing to be a good thing. Joshua Raskin: Perfect. Perfect. That's helpful. And then is there some -- if there is some sort of compromise that extends the enhanced subsidies, what should we be looking for that would create a more stable reenrollment process? What mechanisms do you think would be helpful for consumers in getting their insurance for 2026? Mark Bertolini: Josh, I think a couple of points I would make. First, we have been very careful with our plan design and their strategies to create $0 goal plans, $0 bronze plans and have spent a lot of time with the broker community helping educate them on the types of products that they can move people to. And we're seeing good activity on that in the early innings of the open enrollment period. Secondly, if enhanced tax credits are extended, we don't think there will be any real meaningful way to change prices the longer it goes. And I think we're probably beyond that now, but we shall see. But I think there are a couple of things that could happen. One is that we have this minimum MLR in the ACA market. And then a minimum MLR would require us to rebate if the plans made "too much money" based on having lower MLRs. And we would see that as a positive thing for the community and for our members to get a rebate back from their plan as a result of having these enhanced tax credits continue. We don't know what the price effect is until we know what the plan is and quite frankly, how it's going to fit. But that's how we think about enhanced premium tax credits. Operator: Our next question comes from the line of Jessica Tassan from Piper Sandler. Jessica Tassan: I was wondering maybe if you could talk about the enrollment in 2025 in diabetes, asthma, COPD specific plans. Maybe just remind us of the increased risk adjustment visibility and favorability of MLR in these plans, if any, and then the extent to which these plans were expanded for 2026 and whether they've got better retention or different metal mix. Richard Blackley: Jess, thanks for the question. So the thing about these plans is that we create them to draw into the plans, people who are interested in managing their conditions, and it allows us to have really better-than-average engagement with those members, which helps us to manage costs for them and for us. So that's why we really think that these are both creative to help people manage their specific conditions. We continue to roll out new ones because we do see success with retention when we have people with these conditions. They have a high NPS on these plans. So it's still not a large portion of our membership, but it's an important part of our membership in terms of our ability to attract and retain members. Jessica Tassan: Got it. And then just maybe do you have any early thoughts on how Oscar's morbidity in 20 -- I know it's five days in, but how Oscar's morbidity in '26 might evolve relative to the market? Or maybe just anything in your pricing or product design or commercial strategy that you'd call out that would give you maybe more control over your morbidity relative to the market? Mark Bertolini: Well, on the first point, we have priced as if premium tax credits are gone. '25 impact of morbidity, '26 potential impacts on morbidity given the shrinkage of the market, which we think is anywhere between 20% and 30%. 20% is the lower end without a number of these things, 30% being the highest, but that has an impact on our morbidity and program integrity efforts as if they were implemented. And we stack those in our pricing. We did not look for any duplication. And so we believe we're well covered depending on whatever happens next year relative to the morbidity in the market. Anything to add on that, Scott? Richard Blackley: No. And I think it's too early to say much about '26 morbidity. I think that when I look at the core performance of the company this year and I strip out kind of what happened with the impacts of market morbidity shifting higher this year, we're really pleased with the underlying trends, right? We're seeing an MLR when I strip out kind of the impact of what was happening with market morbidity, the MLR -- underlying MLR is pretty consistent with the guidance that we gave at the beginning of the year in the low 81% range. And so when I step back from that and look at the dynamics in the company, our ability to influence what's going on with our medical expenses, we feel like we're really well positioned to continue to navigate this marketplace. And as Mark talked about, we feel like our pricing captures the risk. We feel like the company is getting ever better at delivering our services. So we feel really well positioned for '26. Operator: Our next question comes from the line of Scott Fidel from Goldman Sachs. Scott Fidel: First question, and I understand it's still very early into the OEP here. But could you maybe just sort of walk us through the initial intelligence and feedback that you're getting from all your channels? What -- how that may inform the -- how sort of enrollment may be or sign-ups may be tracking relative to the industry expectations and then the expectations, Mark, that you just mentioned around that down 20% to 30%. Obviously, very early here, but just curious on sort of the initial indicators that you're getting from the OEP. Mark Bertolini: Thanks, Scott. We have seen a lot of activity more than we thought we would see at this point in time. However, you have to look at the structure of bonus programs and the broker network and all the education we did, and we are not banking on anything based on what we've seen in the first five days, quite frankly, that we'll be willing to leverage off of and say we expect our enrollment to be x for 2026. And so we're pleased with the progress so far, but we're not banking any of it as a future perspective on what our enrollment will be -- in the beginning of the year. Richard Blackley: And Scott, I'd just add, Mark talked about this, but I think it's an important thing. We did a significant amount of preparation with our brokers, training, mapping members. So we went into open enrollment with a pretty sophisticated game plan about where do members who are going to lose subsidies map to. We've got -- brokers have all of the information about people who may lose subsidies. So should the enhanced premium tax credits get extended. We know who the members today are who would be impacted by that. The brokers know who they are. We would certainly be able to quickly outreach to them and try to bring them also into the marketplace. So the early days are certainly showing that the preparation and the work we did is proving successful. Mark Bertolini: And also, I would add that we had in November or late October, it was auto mapping on the plans that are leaving the market, and we received the share that we thought we would receive. Scott Fidel: Okay. Got it. And then for my follow-up question, curious to what extent just as you've gotten the latest Wakely data and has shown variation in morbidity and sort of your positioning around risk adjustment in different states. How much were you able to, I guess, sort of factor or inform your pricing and your positioning strategy for 2026? Just curious around how much that may have sort of fed into your go-to-market strategy for '26 to try to sort of operate against some of those changing morbidity dynamics? Richard Blackley: Yes. Well, as Mark said, we're expecting the market is going to contract by 20%, 30%. We actually -- our best estimate is towards the lower end of that range in terms of impact, but we price towards the high end of that range. So we think we've got some -- the potential for some buffer already in there. Based on the way that we built the pricing for '26, Mark went through that we didn't attempt to look for overlaps in the way we measure. We think that creates some natural cushion in terms of the ability to absorb the change that we've seen. So net-net, I think that we continue to believe that our '26 pricing is resilient against what we've seen so far and it positions us well to return to profitability and see margin expansion next year. Operator: Our next question comes from the line of Stephen Baxter from Wells Fargo. Stephen Baxter: I guess the first question would just be trying to dive into the competitive dynamics a little bit more for next year. It seems like maybe some of your large peers have rate increases that are at or maybe above your 28%, but then maybe some of the not-for-profits could be a little bit lower. Just to kind of boil it down, like is there any kind of metric you have where you kind of have an analysis of what percentage of your markets you're going to be in a low-cost position, either just in the silver market or maybe across all your markets and how that compares to 2025? And then I have a follow-up. Richard Blackley: Steve, so when we think about competitive position relative to last year, first of all, all these increases in prices, you've got to start with last year's price position where last year, we were only, I think, in 15% of our markets, we were the lowest or second lowest silver price plan. This year, that's moving up to 30%. We still think that, that's less than some of the other large competitors that we see in the marketplace. So while we're competitive, we're not as competitive as some others. When I think about that relative price position, we think we can grab share in several of these markets. We think that the average price increase nationally is around 26% based on research by the Kaiser Family Foundation. So we think that we've done a nice job of putting our pricing into the market in a way which is competitive, allows us to grow margin, but also is disciplined and allows us to protect ourselves as well. Mark Bertolini: And one more point, Steve, because we believe the enhanced tax -- we priced without the enhanced tax credits being in place. Our metal strategy is fundamentally different than where we were last year. While we still think we'll have a lot more -- we'll still have the majority of our people in silver plans, we have priced gold and bronze plans that fit certain profiles in certain markets based on our underlying provider networks that allow us to have differential pricing from our competitors that are hard to compare by looking at average rate increases. Stephen Baxter: Got it. That's very helpful. And then just two quick numbers follow-ups. I guess, first, the risk adjustment, as you spoke to, is now 17% of direct premiums year-to-date, just making sure that's the right way to think about the full year at this point. And then what is cost trend running at this year? And what are you assuming cost trend is next year? Richard Blackley: Yes. So Steve, I think that the 17% risk adjustment year-to-date is probably a reasonable estimate for the full year, plus or minus. And with respect to cost trend, I won't go further than to -- than I did in terms of my discussion of utilization and what we're seeing in that and kind of it's slightly above our pricing expectations for last year. We have for 2026, assumed a trend increase that is higher than what we've seen historically. And so we are expecting, at least in our pricing to see trend, and this is excluding the impacts of all the market morbidity shifts, but just core cost trend that would be higher than what we've seen in the past. Mark Bertolini: I think that last point is an important one because we stack these things and our morbidity includes a lot of these program efforts and the impact on the population as a result of how risk adjustment came out. So that's separate than the pure underlying trend of our relationships with providers. Operator: Our next question comes from the line of Jonathan Yong from UBS. Jonathan Yong: I guess under the premise of a possible extension of the enhanced subsidies and whatever it may or may not include, how are you thinking about operationalizing this? And what may or may not be included in G&A at this moment, if anything? And what kind of step-up would you need if it were to occur? Mark Bertolini: I think the SG&A piece is not relevant to the enhanced premium tax credits, it's really around growth. So we look at both our fixed cost leverage and our variable cost leverage. We manage the variable cost leverage very close to membership, and then we impact fixed cost leverage, we actually already have going into '26 and expectations for '27. And that's part of what we're doing with our AI capabilities. In the end result, how we're going to operationalize it, we think we're in a good place I mean we look at this every day. We actually met on it yesterday to go over how do we have to think about growth up or down based on our projections. And I think we have the right tools in place with BPOs, for example, and other capabilities that we can use to meet the needs of the people we have on board or to pull back if we need to. Jonathan Yong: Okay. Great. And then I know, again, it's early on the enrollment period. But in terms of the members that are kind of showing up, are these kind of the typical members that would naturally have a 0 -- effectively not be paying anything and kind of for the members that are losing their enhanced subsidies, are they trying to downgrade? Or are they just kind of leaving the market altogether? What are you kind of seeing and hearing with respect to that? Mark Bertolini: Way too early to tell. We don't have that level of detail yet. We will get it, but it's going to be long. Operator: Our next question comes from the line of Andrew Mok from Barclays. Andrew Mok: You mentioned that your competitive pricing was in line with expectations and that you expect to take market share next year. Can you help us understand that strategy a bit more? Why is taking market share the right strategy in 2026? And do you think that is more likely or less likely to hurt from an adverse selection standpoint? Mark Bertolini: Taking market share really means taking advantage of people who priced way out of the market. And I think there's a subtle difference here between the group market that I hope you all understand. Given the risk adjustment mechanism and the way it works, it's almost impossible or just not -- it's not worth underwriting the members in the network. It's about the network itself and underwriting that provider network. And so some of our competitors who have priced way out of the market or left the market, we're using commercial networks at commercial prices where we have been using narrow networks in every market. And in the individual purchasing decision, people at the local market have the opportunity to buy their network and the plan design that works for them versus having an employer offer them a broad area of network, which costs more and a benefit plan that doesn't meet anyone's needs specifically. And so for that reason, we believe that looking at taking share from people that are pricing at 30%, 40% higher, we have an opportunity to take that share, put them into our networks and our underwriting and make it work better and effectively for us. And that's how we price. We're pricing off of the underlying cost of the network because we get covered on the risk adjustment side. Richard Blackley: And I'd just reiterate something that Mark said earlier. We think this is -- what we see is evidence of a very rational marketplace, right? So it's -- we don't think that there's been anyone who's tried to do a land grab and price dramatically lower. We feel like we're right in the pack. So from an adverse selection perspective, that's not something that is at the top of our list of worries. Andrew Mok: Great. And if I could just follow up on membership. I think last quarter, you said that you expected membership to trend down in the back half of the year. It looks like 3Q membership was up about 90,000 members or 4.5% sequentially. So I just wanted to get more color on what's driving that change versus your expectation and the implications of that higher membership on 4Q MLR. Richard Blackley: Yes. I appreciate that question. So membership was stronger than what we had expected in the third quarter. A good portion of that was driven just by lower churn. And so that is a positive that helps, obviously, with the MLR dynamics. We did have SEP member additions as well, but that ended as of September in terms of the continuous SEP, as I said in my comments. So overall, we continue to expect MLR to drift up in the fourth quarter. You can obviously do the math. We give you the full year guidance of MLR, so you can figure out what the point estimate is there. But we build -- when we reviewed our guidance for the year, we looked at all of the trends that we're seeing. We're looking at the details of is there anything that caused us to believe that we needed to increase the full year guidance of MLR, including the SEP performance. And we just haven't seen anything in the details that makes us concerned and we're able to reaffirm our guidance. Mark Bertolini: And one more thing I'll add is that we are very supportive of the program integrity efforts and the things that happened this year in program integrity had less and less impact on us as an organization than others because we spend a lot of time validating as much as we can the membership that comes into our plan. And if we see what we see as potential fraud, we sideline those brokers and those members and evaluate whether or not it's appropriate to bring them on board. So given that, when we received our dual eligible information, it was low double-digit thousands, very low double-digit thousands versus the headline report put out by certain people in the press of 2.4 million people. And so the obvious impact to us was a lot less than we thought it was going to be because we had done the homework upfront. We think this is a key part of making sure risk adjustment works well is that everybody uses these same tools to make sure that the people we're bringing on board belong on board, not because somebody else was able to get commission. Operator: Our next question comes from the line of Craig Jones from Bank of America. Craig Jones: So a follow-up on the fraud comments there. There's been a lot of talk about the -- out of the current administration around the various ways to root it out. So if you were advising Congress on maybe what they could do with a negotiated deal on the enhanced subsidy extension, what would be some of the most effective tools that could be implemented for 2026, maybe during a special enrollment period alongside enhanced subsidy extension to help root out some of that fraud? Mark Bertolini: Again, we support all the program integrity efforts that were put forward this year. We were prepared and we have priced as if those were in place. We have kept that pricing in place because we expect some of them may come along through regulatory action by CMS throughout the year. We want to be prepared to handle that. Of course, we would prefer that the industry get the opportunity to work with CMS to do this within the pricing cycle so that we're having all of these impacts fit and that we aren't disadvantaging our members as a result, disadvantaging working Americans as a result of having to have these huge morbidity jumps because we did it in the middle of pricing. So if we could do it before we price and work together on it, we're more than happy to support the program integrity efforts put forward by CMS. Operator: Our next question comes from the line of Steven Couche from Jefferies. Steven Couche: Is there any way you can quantify what you believe your cost advantage is from your narrow network strategy versus peers? Mark Bertolini: Yes. Richard Blackley: Look, I think, obviously, we're not going to get into the details of our competitive positioning on that. And we think that many of the -- of our competitors do have particularly the more successful competitors have similar strategies around narrow networks. What's most important is really making sure that you have the right network, you have the right providers, you have the right systems in the markets where you're trying to grow. And we think that's one of the important reasons why we can have similar cost, but grow above the market average because we do spend a ton of time in making sure that we curate our markets and that we have the right set of doctors, the right set of hospital systems that are attractive in those markets. Steven Couche: Great. And then is there any way you can help us or share what your assumptions were for the impact of the program integrity measures because we've seen estimates anywhere from sort of a de minimis impact to something quite meaningful. And then are there specific program integrity measures that you think are going to have the most impact? Richard Blackley: Well, look, I don't think that we'll get into the specifics of that. We do think that the state program integrity provisions would have been in place, had an adverse market or an adverse impact on the total size of the market. So we built that into our expectations, as Mark talked about, for pricing, but we'll have to see how those things play out, but we are prepared in terms of the pricing and for '26 that they may come back into practice at some point during the year. Operator: There are no further questions. That concludes our question-and-answer session. That also concludes this call for today. Thank you all for joining. You may now disconnect.
Operator: Good afternoon, and welcome to the Kits Eyecare Third Quarter 2025 Financial Results Conference Call. This call is being recorded and available later today for replay. Your hosts today are Roger Hardy, Chief Executive Officer; Joseph Thompson, Chief Operating Officer; and Zhe Choo, Chief Financial Officer. Before we begin, I'm required to provide the following statements respecting forward-looking information, which is made on behalf of Kits and all of its representatives on this call. Certain statements made on this call will contain forward-looking information. These forward-looking statements generally can be identified by the use of words such as intend, believe, could, expect, estimate, forecast, may, would, and other similar meaning. This forward-looking information is based on management's opinions, estimates and assumptions in light of their experience and perception of historical trends, current conditions and expected future developments as well as the factors that they currently believe are appropriate and reasonable in the circumstances. Actual results could differ materially from a conclusion, forecast, expectation, belief or projection in the forward-looking information, and certain material factors and assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information. Management cautions investors not to rely on forward-looking information. Additional information about the material factors that could cause actual results to differ materially from the conclusion, forecast or projection in the forward-looking information and material factors or assumptions that were applied in drawing conclusion or making a forecast or projection as reflected in the forward-looking information are contained in Kits' filings with the Canadian provincial security regulators. During today's call, all figures are in Canadian dollars, unless otherwise stated. And with that, I'd like to turn the call over to Mr. Roger Hardy. Please go ahead. Roger Hardy: Good afternoon, everyone, and thank you for joining us today. When we started Kits, it was with deep conviction and enthusiasm. We've explored several categories and potential ventures, all with intriguing possibilities, but one clearly rose above the rest. We envisioned building a new breed of technology company, one that would serve billions of people around the world who rely on vision correction to function every day. Through countless conversations with vision-corrected customers, we uncovered a critical insight. The optical industry had grown complacent. It had forgotten the people it was meant to serve. At its core, the sector relied on a century-old model, overly complex, expensive and opaque. Duopoly dominating the space had lost sight of its purpose, enabling people to see, work and live fully. The addressable market was already immense, estimated north of $100 billion globally, but the true potential was even greater because nearly everyone everywhere will eventually need vision correction of some form. Prospect of transforming such a vital category was profoundly motivating. This was a chance to create something enduring to build a company that improves people's daily lives in a way that enriches how they live, work and connect. That ambition inspired our mission to make eye care easy. Today, we set out to serve the modern consumer digital-first, informed and empowered, someone who grew up with a phone in hand and expected frictionless experiences. We imagined an end-to-end platform controlling every essential component through vertical integration from customer acquisition and retention to manufacturing and fulfillment. It was an ambitious vision, especially starting from 0 back in 2018. From time to time, I find it valuable to revisit those original ideals and ask, do they still hold true? Are we executing in line with our mission to reinvent a century-old category? One of the things I love most about leading Kits, a public company, is the rhythm, the relentless 90-day sprint. After more than 2 decades of running public businesses, it's a cadence I and my family know well and deeply value. At Kits, we operate on a nimble operating system. Every quarter, the metaphorical cannon fires and the sprint begins anew, 90 calendar days, 60 business days to deliver results. Each quarter starts with a clear list of 5 priorities that our management team aligns on. Of course, there are many other initiatives, but these 5 are the nonnegotiables. Call me traditional, but I like to keep revenue and EBITDA at the top of that list. From there, our focus turns to the customer, how we can strengthen emotional connection, personalize engagement and listen authentically to feedback. We examine our product to ensure it delights because our customers have no patience for mediocrity. They want authenticity anchored in quality, selection and affordability. And finally, we set clear technology objectives to ensure we're operating on a premium stack at the leading edge of innovation. This quarterly cadence gives us a mirror, a moment to reflect, measure and hold ourselves accountable as we strive to deliver on the bigger, longer-term mission. I'm pleased today to update shareholders and our team on another strong quarter of performance. During our last earnings call, we guided Q3 revenue between $52 million and $54 million with a targeted adjusted EBITDA margin of 5% to 7%. Proud to report that we delivered record revenue of $52.4 million, up 25% year-over-year and 6% sequentially. This marks our 12th consecutive quarter of positive adjusted EBITDA, which rose to $2.9 million or 5.5% of revenue, up 79% year-over-year, and our net income reached $1.9 million or $0.06 per share. Gross margins expanded to 34.6%, up 170 basis points from last year, a seasonally strong performance. And we welcomed 99,000 new customers in the quarter. This quarter also marked a major milestone, surpassing 1 million active customers, a testament to both our reach and the trust we've earned. It's now our third consecutive quarter averaging 100,000 new customer additions. Year-to-date, new customer growth is up 37%, reflecting accelerated awareness and adoption. The Kits flywheel is spinning faster. New customers are driving growth today and recurring value tomorrow, returning at higher rates and expanding lifetime values. We have an exceptional product, unmatched selection, a beautiful website powered by state-of-the-art technology and the fastest fulfillment in optical, all underpinned by a culture committed to purposeful execution. We're now one of the fastest-growing eyewear brands or brands in North America, $200 million business with brand awareness concentrated in just one city, Vancouver. Candidly, that underscores the magnitude of the potential ahead, a uniquely attractive growth profile with asymmetric upside as we begin to replicate our Vancouver success in other cities across North America. A particular standout this quarter was the strength of our Canadian business, up more than 38% year-over-year, powered by strong repeat purchases and a robust new customer acquisition as we tempered our investment in the U.S. this quarter. Our Kits branded contact lenses grew an astounding 380% year-over-year with gross margins exceeding 50%. Other segments of our 50-50 clubs such as our Progressive and designer collections also posted impressive gains, each with margins near or above 50%. These categories are scaling rapidly and will become increasingly influential contributors to growth and profitability over the coming years. Our glasses segment remains a cornerstone growth engine. Glasses revenue increased 25% year-over-year, driven by both new customer additions and continued premium lens adoption. Our vertically integrated model gives us a structural advantage controlling quality, speed and cost to deliver premium products at accessible prices. This translates into higher customer satisfaction and superior margins over the long term. Repeat customers accounted for 62.4% of total revenue, contributing more than $32 million in the quarter, evidence of a deepening loyalty and growing engagement. And premium lenses grew 55% year-over-year and now represent 44% of revenue, reinforcing the power of our recurring compounding revenue model. We also continued our rhythm of innovation, launching 9 new collections and 77 models across 240 color ways, reinforcing our pillars of quality, selection and affordability. The standout was the oval edit, a strategic expansion capitalizing on the surging oval trend validated by the exceptional performance of our Soren frame, our top seller. We responded with agility, introducing 15 new styles across new colors, sunglasses and shape variations, including rectangular and sport additions. We also showcased the brand through our Gran Fondo activation, a proud moment seeing Kits on the podium and across the course, worn by individuals who, like us, are motivated by purpose and progress as they race to whistler on their bikes along the beautiful Sea to Sky Highway. True to our DNA, we kept testing and learning. As a nimble vertical retailer, we can pilot new ideas with minimal risk and remarkable speed. A small 4-frame capsule for children quickly demonstrated strong traction, validating another future expansion path. That speed of iteration powered by real-time customer data is what defines Kits as a forward-thinking brand. These capsules outperformed through organic and influencer channels, driving incremental traffic, engagement and repeat purchases. Looking ahead to Q4, we expect continued momentum with revenue in the range of $52 million to $54 million and adjusted EBITDA margins between 4% and 6%. We also look forward to introducing our new Chief Marketing Officer early in the new year. With that, I'll hand the call over to Joe and to Zhe. Joe? Joseph Thompson: Thanks, Roger. The Kits team has been hard at work in the quarter, building infrastructure to deliver results for years to come. Infrastructure that tracks carrier and delivery performance and allows us to systemically shift orders to the best carrier, providing faster delivery for customers. Our systems that optimize every layer of the customer journey from how customers move through the site to how orders move through our system, increasing convenience to customers and reducing bounce rates. As we invent, large language models are helping the team build these systems even faster and with less G&A investment required. And of course, building infrastructure around our 50-50 initiatives, our top-performing innovation delivering approximately 50% growth year-on-year and approximately 50% gross margin or higher. We were delighted to recently welcome Kits contact lenses to the 50-50 club that already includes initiatives like digital progressives, premium lens upgrades and more. And the team now feels we are building what may be the biggest of these initiatives yet with the beta launch of OpticianAI. As AI is moving commerce from search to conversation within agentic commerce, Kits is helping to lead the way in eye care. OpticianAI is our digital optician designed to make buying glasses easier and faster, replicate the guidance of an in-store optician and be accessible anywhere. Still in beta, the team has rapidly iterated the technology now on version 10. The most recent release, AI vision introduced major user experience improvements. Based on customers' unique attributes, they can now receive interactive and personalized recommendations as they explore new frames. Further optimizations to our virtual try-on are creating a step change in the consumer experience with the introduction of a dual try-on view that lets shoppers compare 2 frames side-by-side and the ability to adjust color ways within seconds. It's an experience that removes the friction of in-store shopping and offers a level of confidence and convenience unmatched in traditional brick-and-mortar retail. Still in early days of adoption, these enhancements are increasing conversion, lowering drop-off rates and delivering a shopping experience that feels both intelligent and human. Consumers are the heart and soul of Kits. And as customers use OpticianAI, they help shape an even better shopping experience for millions more customers in the future. We believe there's a lot more to come from this initiative as OpticianAI continues to evolve. That's a great segue to Zhe, our CFO, to share details on our Q3 financial performance. Zhe? Zhe Choo: Thanks, Joe. Following a strong first half, Q3 results reflect our continued ability to deliver consistent growth, supported by steady execution and meaningful contributions from both new and loyal customers. In Q3, we continued to see meaningful operating efficiencies. Fulfillment expense as a percentage of revenue improved to 10.2%, down 60 basis points year-over-year as our vertically integrated lab and distribution network deliver greater productivity at higher volumes. We fulfilled approximately 266,000 orders this quarter, highlighting the operational discipline and consistency of our team. Customer acquisition continued to drive our performance in the third quarter. We welcomed more than 99,000 new customers, contributing over 37% of revenue for the period. Even with this strong growth, we reduced marketing spend by 110 basis points quarter-over-quarter, bringing it down to 14.1% of revenue. This improvement reflects the growing strength of our omnichannel platform and increased recognition of the Kits brand. Importantly, despite a higher mix of new customers, average order value rose to $197, up from $190 last year, showing continued demand for higher basket sizes and premium lenses. As these new customers return for repeat purchases, we expect to see further gains in both average order value and lifetime value. General and admin expense also improved to 5.7% of revenue compared to 6.2% last year, reflecting disciplined overhead management even as the business scales. We achieved a gross margin of 34.6%, a 170 basis point improvement from 32.9% last year, while gross profit increased 32% to $18.1 million. These results show the strength of our integrated model and our ability to fine-tune pricing, product mix and promotions to attract new customers and keep them coming back. Turning to profitability. Adjusted EBITDA was $2.9 million, representing a 5.5% margin, an improvement of 170 basis points from last year. This marks our 12th consecutive quarter of positive adjusted EBITDA, highlighting our consistent execution and focus on profitable growth. Net income increased to $1.9 million compared to $0.1 million last year, a strong improvement year-over-year. We ended the quarter well capitalized with $19.7 million in cash, giving us a strong foundation to continue investing in growth while maintaining financial discipline. We have built a strong foundation for long-term growth, supported by continued innovation in digital eye care and disciplined execution across the business. As we move into the fourth quarter, we remain confident in our ability to deliver sustained profitable growth and create long-term value for our shareholders. I'll now turn the call over for questions. Operator: [Operator Instructions] Your first question comes from the line of Martin Landry from Stifel. Martin Landry: Congrats on your results. My first question, I'd like to -- if you could discuss how the quarter evolved. Some retailers have seen a strong start of the quarter in July, and they've seen the momentum abating a little bit in September. And I was wondering if you've seen a pattern like that evolve during the quarter. Roger Hardy: Yes. Thanks, Marty. For us, it was a fairly consistent quarter on the demand side. And I think we talked a bit about it at the prerelease, but we saw in September a number of others be highly promotional. In our own case, it was fairly business as usual. So we saw heavy promotion all around us, particularly in September. As you can see from the results, our margins improved. And it was fairly consistent. Probably the one side note would be that for us, the postal strike did come in late in the Q and did have some, although nominal effect, and we don't want to really make an excuse of it, but the post office shut down for the last couple of days of the quarter, and it obviously has some effect. But no real change in full demand on that side. Martin Landry: Okay. And then I heard in your prepared remarks that you talked about -- you've tempered your customer acquisition in the U.S. this quarter. Can you expand a little bit on that? What prompted you to do that? Roger Hardy: Yes. Sure, Marty. Candidly, we've been cautious with the U.S. throughout the last quarter. Lots of moving parts there, as we know, with the border and other, I'd just say, general some uncertainties. But we're -- our view is now kind of we're returning to a bullish outlook. We feel like it's stabilized, and we're getting ready to turn back on our efforts in the U.S. We were, I'd say, basically on the sidelines for a lot of the Q waiting to see how some of the regulatory and other things might develop. And fortunately, it's not in a position to have a material or an effect on us at this point. So we're looking forward to reigniting, I would say, the U.S. And as you know, wherever we invest and focus our attentions, we tend to see results. So maybe I'll see if Joe has anything else to comment there. Joseph Thompson: And I guess maybe last thing to note is we were really fortunate as we looked at the market. We now have 2 markets, 2 business lines, both doing -- all doing very well. And we felt we had plenty of room for growth in the Canadian market. And our glasses business continued to perform spectacularly well in Canada, growth north of -- well north of 50% on glasses in Canada in the quarter. And so I guess that's part of the reason why you're hearing so much confidence that we delivered a 25% growth in spite of a reduction of glasses investment in the U.S. market. Martin Landry: Okay. Okay. So I guess that explains a little bit. That's a good segue to my last question. I mean your contact lenses grew faster than glasses this quarter. It's, I think, a first in 2 years. And I think you probably have answered that question saying that you've slowed down the marketing on your acquisition -- customer acquisition for glasses in the U.S. Would that be the explanation? Joseph Thompson: That's the key driver, correct, Martin. I think Roger pointed this out very well a few minutes ago. But where we invested, we saw strong performance. So we focus on high LTV areas like Kits contact lenses, digital progressives was, again, a big driver, well, well over 50% growth quarter-on-quarter there and the overall Canadian market with revenue up 38%. And so that was really the driver. You've diagnosed it correctly. Operator: Your next question comes from the line of Luke Hannan from Canaccord. Luke Hannan: I wanted to dig in a little bit more to the Q4 outlook, and I think you've partly answered it in your responses already. But the growth -- revenue growth this quarter is around 25%. It's a little bit lighter than that, what you expect at the midpoint for Q4. I'm sure part of that is you're facing a strong comp. It likely also has to do with the marketing efforts. But specifically, what I wanted to ask about is there was a peer of yours that mentioned earlier today that they were seeing a slowdown in spending specifically amongst the younger cohorts. So I was just looking to confirm that, that's not what you're seeing in your business right now. Joseph Thompson: [Audio Gap] the Q4 guide and then the behavior that we're seeing from consumers. I think what you're hearing from us is continued high confidence in growth on both new customers and repeat, balanced with a strong dose of conservatism. Some of this conservatism, I think, comes from the fact that Q4 is increasingly backloaded with Black Friday, Cyber Monday. It's now such a dynamic period combined with year-end, which is always very strong for us and the ramp-up of returning to more glasses investment in the U.S. So we're as confident as ever in the business, but just maybe a little conservative. Why don't I just pause there. I'll come back to -- or maybe just to address the consumer question. Correct. We are seeing consistent strength on customer acquisition. We are not seeing some of the patterns that we have been hearing about in the market. On the key inputs, new customer growth strong, up 37% year-to-date, traffic up, average order value up about 4%, now just under $200. And I guess maybe one point on that, an observation over the last 6 to 9 months in this sector and others have really -- what we've been seeing is an increase in market retail pricing in the neighborhood of 10%, 20%, sometimes more and maybe a pullback on conversion or order levels for those that have. And as we look back on our business over the last year, we've really chosen to keep pricing consistent, in some cases, even lowering a few price points. And that's really proven unique and perhaps prevented us from seeing some impact. Roger Hardy: Yes. And Luke, I'd probably just echoing Joe's comments. I mean, the way we think about our business, consumer spending is about 70% of GDP in Canada and the U.S. We're in the nondiscretionary part of where consumers play. We show up with great value, as we said, affordability. And so the risk reward in our Kits business, we think, is compelling. And we're focused on driving a compelling return. So yes, we're heads down, continuing to execute on the opportunity, not seeing that softness that you referenced. Luke Hannan: Great. Roger, I also wanted to follow up. You did talk about the Canada Post strike as well. I think it impacted you for basically the last week of the quarter. Can you quantify, if at all? It sounds like it was immaterial, but is there, call it, $1 million, $2 million that you would have lost in revenue or that got shifted from Q3 into Q4? Roger Hardy: Yes. As I said, we're not -- we don't want to pull out a specific value. We -- it's a highly complex thing we do at Kits on most days. And so that just added one more component to it. But it definitely got our team activated and finding alternative ways to get the product out into customers' hands in a timely way. So it's not -- it obviously doesn't help when the post office goes on strike or when Trump announces a new regulation at the border that even the border agents aren't familiar with. And so that also takes a couple of days to trickle down. So there's always many moving parts. Our job here is to solve problems, not make excuses. So I was kind of pointing it out to say, hey, it was a factor. It blends into that quarter. And as Joe said, from our standpoint, we're going to keep being conservative as we look out into the next coming quarters. We're confident in growth in our business right now and going forward. The business has grown 29% so far this year. Canada growing 38%. So we're optimistic. When we look at investing time and energy in different markets in different sectors, we're getting returns. So our expectation is that will continue. And we're definitely not quarter-to-quarter as focused as you are, my apologies, Luke. But we're thinking -- we take the long view, and we're kind of thinking out about next year and the next 2 to 3 years and just building consistent, great, great business. So yes, no excuses. That's a long way of saying we're not making excuses, but we'd appreciate if the post office didn't go on any more strikes, we'll put it that way. Luke Hannan: Fair enough. Fair enough. I wanted to ask also about just Black Friday, Cyber Monday expectations. I was looking around on your site earlier. It looks like there's some promotions that you already have in place right now. Can you remind us, did you -- was it this early last year that you started your Black Friday, Cyber Monday promotions? And then what's your overall expectation on the levels of promotion in the channel? You did mention some other peers, it seems like have been more promotional towards the end of Q3. Has that persisted also thus far into Q4? Joseph Thompson: Yes. Thanks, Luke, for asking about it. This Black Friday, Cyber Monday period has really kind of become a whole season in itself. And so to answer your question, yes, it's consistent with last year. We do see more customers coming into the market earlier than ever. Here we are a couple of weeks before Black Friday. And so we've seen just an incredible start to the event that the team launched on Monday, and we're just -- we're super excited for these next 2 months are just so fun. You see more customers in the market, insurance kind of -- insurance premiums for a lot of customers run out at the end of December. Folks are looking for -- to refill before they go away on holidays. So it's a really fun time for our team and for our business. Luke Hannan: That's great. Last one, and then I'll pass the line, a quick one. The OpticianAI, what's the rough expectation when you expect to roll that out more broadly? Joseph Thompson: Yes. Sure, Luke. Yes. So Phase 1 was just testing the early engagement has been very strong. So it's -- the rollout begins and continues, I would say, it's in real time. Now on version 10, the team is moving into what I would say -- the way we capture it is Phase 2, which is extending the reach into more categories, including contact lenses and in more parts of the site, including search and a full checkout integration. And then maybe even post-order experience. Longer term, maybe Phase 3, you could envision this product to be a stand-alone experience. And really, we can hardly contain our excitement on the opportunity ahead of us here. We've got over 1 million active customers, vision-corrected active customers, and we have the opportunity to offer every one of them a personalized experience with this product in addition to the millions and millions more that will come onto the platform. So we're very excited. We shared a few initial data points, which were encouraging on conversion and satisfaction with the product. Really, this product is a trust builder for customers over the long term. So it's really an LTV enabler where customers can come in, ingest their prescription, have their face shape measured and have faster navigation through thousands and thousands of frames and a more personalized experience. Operator: Your next question comes from the line of Douglas Cooper from Beacon Securities. Doug Cooper: Just a couple of ones for me. Just on the glasses side of the business -- can you guys hear me okay? Roger Hardy: Yes, we've got you, Doug. Thank you. Doug Cooper: Just on the glasses side, revenue was -- where is my -- $7.1 million, I think it was just under $7.1 million. The quarter before was $7.186 million. So it was down a little bit sequentially. So I just wanted to dig in some of your thoughts there. Roger Hardy: Yes, sure, Doug. And candidly, as we discussed, we really were cautious in the quarter given some of the rumblings coming from south of the border. We did not want to make big investments in net new U.S. customers with some uncertainty around what would happen at the border, would there be changes, additional impacts, no impact and so on. And so I think, like I said, we were cautious. We're happy to see that the growth continued in Canada that as we invest, we see customers coming. And so I think that's essentially where it is. Our expectation is that as we invest in kind of the back half of this year or this Q and into next year, we'll have lots of different opportunities to continue to grow that business. Anything I missed there, Joe? Joseph Thompson: Maybe, Doug, just to emphasize, every quarter is a bit different. We had a very strong Q2 in terms of new customer adds. Q3 revenue was still up 25% year-on-year. And we saw significant growth on unit volume up over 40%. So within the Canadian business, growth was as strong as ever, actually, I think, amongst one of the strongest quarters we've ever had on glasses, both quarter-on-quarter and year-on-year. So where we invested, we saw returns, and now we're excited to lean back into the U.S. market. Doug Cooper: Okay. So of the 99,000 new customers, what percentage of those were Canadian? Roger Hardy: It's not something we break out, but -- so yes, we're not kind of at that level of detail at this point. Doug Cooper: Just... Roger Hardy: Go ahead, Doug. Doug Cooper: I was just going to say just moving on to the Q4 guidance, 4% to 6%, the midpoint would actually be a decline in EBITDA margin sequentially. Maybe just thoughts there. Joseph Thompson: Sure, Doug. I think just to emphasize, confidence has never been higher from us in our business, both -- and we're just -- we're balancing -- what we saw in Q3 was an opportunity to onboard more new customers than we anticipated. And so with a long-term view and incredible repeat rates, we took it. And so as opposed to kind of a quarter in, quarter out look at the business, we've just said, on a long-term basis, growing new customers by 37% year-to-date is going to bode very well for 2026, 2027 and beyond. And so -- and then combined with, as we talked earlier, just a really strong dose of conservatism, knowing so much of the quarter is still ahead of us with Black Friday, Cyber Monday and the end of year peak. So just know that we're just being conservative and -- but optimism is strong, particularly on our ability to add more new customers, which does come in at a slightly lower adjusted EBITDA impact driven by slightly higher marketing. Doug Cooper: Okay. So just a final one for me then just to continue on the profitability margins. We've talked in the past about target of double-digit EBITDA margin. What is your expectation now of the timing of that? Roger Hardy: Yes. It's like it's always been, Doug, slow and steady, consistent quarter-on-quarter, year-on-year progress. And as these high-margin pillars become larger parts of our business, as we continue to gain operating efficiency as word of mouth continues to fuel our growth, that's where we see ourselves getting to. We're just steady as the business goes. We're still looking out kind of a couple of years. Like I said, we've grown 29% so far this year. We're optimistic that we'll maintain that level of growth going forward, 25% to 30% is our internal target for next year. And there's a little seasonality. So we obviously pulled forward a few orders in early Q1 last year. There's lots of 1-year people who were able to buy and take advantage of annual orders. And I think that's a good learning. But our sense is that those people will be back early in this coming year, and we've learned a lot from that. So we're looking forward to continue that growth curve. Operator: Your next question comes from the line of Matt Koranda from ROTH Capital Partners. Joseph Gonzalez: It's Joseph on for Matt. Just want to see if you guys can answer. It's good to see the good -- great contact sales here year-over-year. Anything to unpack there just in terms of the consumer? Are you guys seeing any different buyer habits such as like shortened time windows instead of -- instead of customers going for those year packs going for like the 90-day or 30-day packs, anything on there to like attribute to the strength you see in 3Q? Joseph Thompson: Joseph, thanks for the question. We're not seeing a lot of deviation from historical patterns. We track average order value. That's continued to be strong and growing on contact lenses, and that was true again Q3 and year-to-date. We also track number of units per, and again, no change there, strong and growing. In terms of where have we seen some shifts within this very big and productive contact lens business, we mentioned our own brand of Kits contact lenses, which has performed very well, well ahead of our expectations and continues to grow. So I guess that would be one. And then just what we've probably -- you've heard us talk about in previous quarters is really a continued migration to high LTV opportunities like daily modality contact lenses, and that continues to perform very well. So no real shift. Joseph Gonzalez: And kind of just -- go ahead, Roger. Roger Hardy: Yes. I mean I think just to highlight Joe's point and our previous discussion around our Kits branded contacts, it's become an interesting little pillar like we like to say, a 50% growth and -- greater than 50% growth and 50% margins. And it's one of these things that could really -- in a business like ours where the contact lens business itself continues to be, as you said, it's loyal, it's recurring. It's a very healthy annuity stream. And if we can take those margins and start to blend them with our own product at 50% gross margin or higher, it makes a compelling case for the future of that contact lens business. So -- and it also gives us a little bit of brand lock-in. The reports from our customers when they switch out of one of the other products that's a legacy product into our own is that it's a very, very comfortable lens. The initial wear reports are excellent. And so people like the lens. They stay in the lens, they come back for the lens. We often see other people get into the contact lens business, not really understanding how important the initial wear comfort can be. And if you haven't spent the right amount of time or otherwise, you're going to have those customers coming back. So it can be challenging. But fortunately, the team here did all the work upfront, and it's growing at an impressive rate. So for me, that's kind of the key -- or one of the key parts of the contact lens business. And there remain lots of other interesting opportunities as we think about colors and other value adds that Kits can do from its own platform. Joseph Gonzalez: Got it. It's impressive to see and great to hear. And then just kind of my last question here. As you guys talked about the border procedural shifts in terms of the systems and everything that goes around there. Is that all behind us now in 3Q? Or should we expect that to continue into 4Q? Just what are your thoughts there? Roger Hardy: Yes, Joseph, I mean, great question. I think if anybody knows the answer to that, it's sometimes -- there have been a number of moving parts. I think the most important thing is that the Kits team here does complex things and does complex things pretty much on a daily basis, including taking an order for something with as many possibilities as our last calculation was 192 million possible variance when we make a pair of glasses. We start making it for the customer that orders minutes after they order, finish that order 30 minutes later and get it in the box to them the next day or 3 to 5 days. So the border is generally the least of our worries. So yes, we're not anticipating any changes, but the world is a dynamic place today. And so when facing a dynamic place, you're excited to come to work with a great group of people like we work with at Kits that love solving complex problems, that love serving customers, that get up fired up to make it happen every day. So that's the best way you can hope to address the unknowns, and that's kind of how I would think about it. Operator: Your next question comes from the line of Frederic Tremblay from Desjardins Capital Markets. Frederic Tremblay: Just maybe following up on that last question on the U.S. Just curious to get your thoughts on what specifically made you more comfortable to start reinvesting more heavily in the U.S. following the Q3 pause. Is there anything logistically or internally that evolved to spark that change? Joseph Thompson: Fred, thanks for the question. We -- I think maybe a couple of comments from our side. Every day, we get -- as -- I think as Roger said very well a few minutes ago, this team just gets better every day, every week on execution, and we learn more and more. And so what you see from us and you'll continue to see from us is a cautious start and then a relatively rapid scale up on everything that we do once we have confidence and once the data supports the decision. I think this is just another example of that for us. On one hand, we saw ample growth opportunities in the Canadian market, and we took it in the quarter from new customer acquisition, from a glasses growth, from an overall market growth at 38%. And we wanted to also learn more, which we did. And so the team now has that confidence. With regards to tariffs in general, no change to our thinking here. Every quarter, every month, the situation evolves, but it evolves for the whole category. And our view continues to be that if we have a lightweight infrastructure, if we stay lean, if we keep the layers out between raw material to customer, that offers us the ability to move fast and increase the value delta that we have to the market and offer customers continuous great value. Roger Hardy: Yes. And I'd probably just say last point on this is that over the last number of months, we -- I'm kind of reminded of Elon Musk in that kitchen sink or that sink, it's like everything in the kitchen sink has been thrown at kind of Canadian -- Canadian trade policy, and we've developed so many different contingency plans. At this point, we're quite comfortable that we can handle including the kitchen sink coming flying at us. We're quite ready. So it's really just a comfort that so many things have happened. We've handled them. And then we've got a contingency plan in place with the group here to tackle just about any problem. So yes, we look forward to reporting on that progress at the end of Q4. Frederic Tremblay: Yes. Great. No, that's great to hear. Maybe last one for me. We noticed in October that you had introduced a Canadian vision credit for Canadian customers, both new and existing, which was a bit of a change from the usual first pair free approach. So I just wanted maybe to get your thoughts on that promotion and any learnings or interesting feedback from that. Joseph Thompson: Sure, Fred. Yes. No, the toolkit continues to grow for the marketing team as they continue to lead with the product and the product experience. That's really where we're excited is more customers coming in, trying more frames and having more frames with Kits on them out in the market. And you've seen all kinds of initiatives that focus on emphasizing the product, the product experience, including the value, and this was another one that was productive in October. Roger Hardy: Yes. I mean I think you point out -- you make a great point that in terms of awareness, a company at our size is always really looking to get above the noise and find ways to reach new customers in an authentic way and form a connection with them. And that's part of what I talked about upfront is that we are trying to find out what resonates best for our customer, how can we create an emotional connection with them. We care about their vision. We want them to know it. And that's really what that campaign was designed around is bringing to life a compelling offering that -- for customers to give Kits a try. Who's Kits? Well, 99% of Canadians don't even know who Kits is. There's a small cohort in Vancouver that do. And like I touched on, we're -- north of $200 million business growing the way we are with word of mouth helping, but really only known well in Vancouver. So that's what that campaign was about, trying to share with others that our mission is to help improve their vision and improve their access to vision. And so yes, we tried to bring it to life there. And I'd say, like Joe said, the team is probably still evaluating how productive it was and whether it did resonate completely. And please feel free to ask next Q, and we'll have more feedback on it given that was a Q4 activity. Thank you. Operator: Your next question comes from the line of Gianluca Tucci from Haywood Securities. Gianluca Tucci: Just one question here. Could you walk us through how you're thinking about your marketing spend into next year, just given all the moving parts out there and at the business, what -- how should we be thinking about spend as a percentage of revenue next year, guys? Joseph Thompson: Gianluca, great to hear from you. Yes. So just probably, as you expect, more of the same from us, like with the product and product experience, maintain in the 13% to 15% range as we've done this year on a fiscal year basis and continuing to see strong traction, 37% new customer growth this year. We see no fade in that opportunity as we go into 2026. But let me just see, Roger, anything to add? Roger Hardy: No, I think that's it. Just consistent. That's one of the metrics we stay -- keep tightly controlled. And yes, we'll stick to Joe's guidance there of about 13% to 15% in that range. Operator: There are no further questions at this time. I will now turn the call over to Mr. Roger Hardy for closing remarks. Please go ahead. Roger Hardy: As we close out another record quarter, I want to recognize the incredible team behind these results. Every milestone from passing 1 million active customers to delivering our 12th consecutive quarter of profitability. These moments reflect the relentless focus and execution of our team. And while we're proud of what we've accomplished this quarter, what matters most is that we're setting up Kits to perform not just for the next few quarters, but for the years to come. We continue to build a business that's proving what's possible in technology, manufacturing and customer experience all come together. That integration is what sets Kits apart. Thank you to all our shareholders and customers for your continued confidence and support. Your belief in Kits allows us to keep investing in innovation and growth, allowing us to strive towards our mission of making eye care easy for everyone. Best chapters for Kits are still ahead. Thanks, everyone, for joining us today. We look forward to reporting on future quarters very soon. Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, everyone, and welcome to the Stabilis Solutions' Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Now at this time, I would like to turn the conference over to Mr. Andy Puhala, Chief Financial Officer. Mr. Puhala, please go ahead, sir. Andrew Puhala: Good morning, and welcome to Stabilis Solutions' Third Quarter 2025 Results Conference Call. I'm Andy Puhala, Senior Vice President and CFO of Stabilis, and joining me today is our Executive Chairman and Interim President and CEO, Casey Crenshaw. We issued a press release after the market closed yesterday detailing our third quarter operational and financial results. This release is publicly available in the Investor Relations section of our corporate website at stabilis-solutions.com. Before we begin, I'd like to remind everyone that today's conference call will contain forward-looking statements within the meaning of the Private Securities Reform Act of 1995 and other securities laws. These forward-looking statements are based on the company's expectations and beliefs as of today, November 6, 2025. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. The company undertakes no obligation to provide updates or revisions to the forward-looking statements made in today's call. Additional information concerning factors that could cause those differences is contained in our filings with the SEC and in the press release announcing our results. Investors are cautioned not to place undue reliance on any forward-looking statements. Further, please note that we may refer to certain non-GAAP financial information on today's call. You can find reconciliations of the non-GAAP financial measures to the most comparable GAAP measures in our earnings press release. Today's call is being recorded and will be available for replay. With that, I'll hand the call over to Casey Crenshaw for his remarks. J. Crenshaw: Thank you, Andy, and good morning to everyone joining us on the call. We executed according to plan in the third quarter, capitalizing on continued demand for our integrated last-mile LNG solutions across our markets. Third quarter volume increased by more than 20% year-over-year, driven by strong demand across our growing base of marine, aerospace and power generation customers. We continue to see healthy demand trends across these sectors, supported by increased commercial space flight activity, seasonally strong demand for distributed power and robust throughput from cruise activity in the late summer months. Commercially, our team remains highly engaged with both new and existing customers, particularly in the aerospace and marine markets. We also see growing opportunity in the power generation as domestic investment in new data center capacity increases the need for on-demand distributed power solutions. As announced in October, we secured the largest customer contract in the company's history, a 10-year marine bunkering contract for LNG, produced at our proposed 350,000 gallon per day LNG facility in Galveston, Texas. Subject to the finalization of project financing, we expect to break ground on the Galveston facility in the first quarter of 2026 and are targeting the facility to come on stream in late 2027. In parallel, we plan to construct a Jones Act compliant LNG bunkering vessel to serve customers in the Port of Galveston, Houston Ship Channel, and surrounding areas, consistent with a focus on building a vertically integrated marine bunkering solution in the local market, and this will serve as a template for what we seek to replicate in additional markets over time. Beyond this initial bunkering customer, who will represent approximately 40% of the planned offtake capacity at the Galveston facility, we're in late-stage negotiations with another marine bunkering customer for an additional 20% of our planned production capacity. We expect to have approximately 75% of the total capacity sold under long-term customer contracts by the time we reach final investment in early -- final investment decision in early 2026. In recent months, we've worked closely with our engineering and design partners to secure long lead-time items and develop detailed engineering designs for the LNG facility and the related bunkering vessel. Additionally, we are finalizing contracts for equipment, plant and vessel construction and related items such as pipeline access, putting us on track for the final investment decision in early 2026. Stabilis has engaged a leading investment bank to arrange the financing for this project. We have evaluated a variety of potential financing options and intend to prioritize a structure that maximizes value creation for all shareholders. At this time, we intend to pursue a joint-venture structure, supported by project level debt and equity from third-party investors. Through this structure, we intend to retain operational control of the project, positioning us to realize meaningful economic upside and long-term returns on our investment. We intend to share periodic updates with our shareholders as key project development milestones are achieved. This is a transformational moment in the history of our organization, and we're excited to take this next important step in our company's growth. In the meantime, we'll stay focused on day-to-day execution required to deliver profitable growth. This means continuing to expand commercial contracts across our vertical markets, continuing to improve operational excellence and staying disciplined around how and where we deploy capital as we seek to maximize value for our shareholders. With that, I'll turn the call over to Andy to review our financial performance in detail. Andrew Puhala: Thank you, Casey. As customary, I'll begin with a discussion of our third quarter performance, followed by an update on our balance sheet and liquidity. Third quarter revenue increased 15% year-over-year, driven by a 21% increase in LNG gallons sold and higher average commodity prices, partially offset by less favorable customer mix and lower rental and service revenues. At an end market level, revenues increased in our three target growth markets with aerospace revenues increasing by more than 88% compared to the same quarter last year, and power generation and marine revenues increasing by 31% and 32%, respectively. This strong performance was partially offset by the scheduled end of an industrial customer contract that concluded late last year. During the quarter, approximately 73% of total revenue was derived from aerospace, marine and power generation customers, up from 60% in the prior year quarter, reflecting the continued strength and diversification of demand across these high-growth markets. Adjusted EBITDA was $2.9 million during the quarter compared to $2.6 million last year. Adjusted EBITDA margin was 14.3%, down from 14.6% in the third quarter of last year. The decrease in our adjusted EBITDA margin primarily relates to the roll-off of the high-margin industrial project previously mentioned. Cash from operations totaled $2.4 million for the quarter. Liquidity at quarter end was $15.5 million, consisting of $10.3 million of cash and approximately $5.2 million of availability under our credit facilities. We ended the quarter with $9.5 million of total debt and lease obligations, resulting in a net positive cash position. Overall, our balance sheet remains strong and provides ample flexibility to support our ongoing operations. Capital expenditures totaled $3.9 million, primarily related to early engineering and design work for the Galveston LNG facility and related bunkering vessel. We expect investment to accelerate over the coming quarters as we progress toward construction and a final investment decision in early 2026. Once project FID is made, we expect all project funding requirements to be met through project-level financing. In the interim, we anticipate investing an additional $3 million to $5 million in CapEx on the project. This concludes our prepared remarks. Operator, please open the line for the Q&A session. Operator: [Operator Instructions] We'll go first this morning to Martin Malloy of Johnson Rice. Martin Malloy: Great to see all the progress you're making on the Galveston LNG project. My first question, just on the permitting side here. Are there any key permits that we should be watching for, for you all to receive regarding this project? J. Crenshaw: Well, first of all, thanks for joining, Martin. We appreciate you being on this morning. And yes, it's a good question on the Galveston project. There's a number of different permits that we track and work through. We already have the export license, it is already in our possession for any gallons that need to be exported. So that's kind of an already a benefit. And -- but all the normal permits are being worked, and they're already being in process and being worked in our project today. So they're being progressed. Andrew Puhala: Marty, just to add a little bit to what Casey said, I mean there's a number of permits, as you could imagine, for a facility like this. We've got a detailed list of them all and we're tracking them and know what we need to do there. The main one is probably our Texas Railroad Commission for the facility and then the Coast Guard for the bunkering operation. J. Crenshaw: And we're tracking them all and we don't think that, that changes our timeline. Martin Malloy: Okay. Terrific. Just for my follow-up question, it's great to see the growth also in the aerospace and the power side. And I was wondering if you could maybe talk about what you're seeing there in terms of end market demand and potential capacity expansion to meet that demand. I think you all have a second LNG train to double capacity George West, some of the long lead time equipment that's there. Any plans for that? That would be great if you could talk about that. J. Crenshaw: Why don't I start, and I'll let Andy come in with any color or detail around it. I mean I think I really agree with what you're saying is that not only is the marine super exciting as one of our big verticals, but the aerospace and the power generation is just really exciting right now. And you're just seeing additional -- on the space activity, you're seeing additional launches and the primary fuel being used is now LNG as it relates to how they're operating those vehicles. Our demand there is expected to be up. We expect it to be up for 2026 from what we've seen in the past. And how that offtake happens there versus the need for power generation fuel versus what the timing of the plant in Galveston comes online are all things that we're working on in conjunction right now. So lots of demand for both space, lots of the -- when I say, it's aerospace for rocket launches, lots of demand power generation as it relates to distributed power needs for data centers or grid redundancy, et cetera. And most of those jobs are bridge or backup, but some of the bridge and backup is 5-plus year type conversation. So they're even talking about potentially needing that asset deployed in different spots. So we're basically waiting to see what the most customer-centric locations for that additional train is and just waiting on that demand to firm on who's going to contract it to make sure that capital has contracted offtake against it. But we're still working on it, both in George West and in other locations. Operator: [Operator Instructions] We'll go next now to Bill Dezellem at Tieton Capital. William Dezellem: A couple of questions here to begin with relative to the new marine facility. You referenced here in late-stage discussions with a prospective customer that will represent 20% of the capacity. What industry is that customer in? J. Crenshaw: With the marine bunkering client, and so they're in the -- this is a cruise customer. William Dezellem: And then that leaves an additional 15%, if our math is correct, to reach your 70% capacity being committed prior to or at FID with -- so with that remaining 15%, how do you -- how does that look like that will develop? Is it a single customer that represents 15% or is it multiple? And what industries would you expect them to be in? J. Crenshaw: Yes, Bill. So let me just touch on it from a macro. I mean those are plus or minus goals of us having 75% of that offtake, firm, 10-year, good credit quality customers because that generates the best structure for Stabilis in the project. We hope to have an even higher utilization at that time, but that's our goal by the first quarter to go FID. And so that customer could be anywhere from more clients related to cruise. It could be clients related to container ships. It could also be a third-party trader that's in the bunkering space. So those are all three options on that. We expect it to be one or two, and it could be north of the projected volume that we put out there in that target of 75%. That's just what we wanted to kind of give you on what our goals was at the timing for FID. William Dezellem: So essentially, that last 20% is a bit more fluid at this point and -- but you have options that you're working on. J. Crenshaw: Yes. Look, we're under discussions with multiple customers, and I think with what we have, the first contract and the second one that we're really close on, I think we can move on the project. I think it makes it a better project to have the balance of it taking off and then offtake there. And we're talking to a number of people. We've got advantage. Remember, we've got advantage of natural gas. We're going to have advantaged product on the water with a really well-developed facility and Jones Act vessel, so we've got a cost advantage. And I think when you have a cost advantage and an advantage like that, I think, makes the selling part of it easier. William Dezellem: That's helpful, Casey. And then did you -- changing gears here, did you all win additional marine business here this quarter to have that up 30-some percent and space up 88% and power gen at 30%? J. Crenshaw: Look, we're doing numerous marine clients, not just cruise, but we've got some other areas that we're servicing, offshore supply vessels, et cetera. There was a lot more throughput due it to being the late summer months through some of our existing clients. And so kind of a combination of both is to answer your question. William Dezellem: Great. And that's helpful relative to the marine. And how about in space and power generation, those strong growth rates. Were those a function of new contracts? J. Crenshaw: Power generation was a function of temperature and the existing contracts we had. Those are always -- we have some new ones and some falling off, and we have a number of them coming off in the fourth quarter. But the -- in the space, we did pick up another strong aerospace client, which increased volumes and opportunity in the third quarter. William Dezellem: And does that client -- was that a one-off or a temporary? Or is that now repeatable for many quarters going forward? J. Crenshaw: It's repeatable for many quarters going forward. And it's one thing, we work extremely hard with those customers. And I would say, all three of these customer groups, marine, aerospace and distributed power, they're all super sensitive to what they need and how they need it. The space people are specifically -- because it's propellent fuel, they're specifically intense around that. So we expect it to be a long-term additional new client that we look forward to doing a lot of work with over a long period of time. William Dezellem: Great. And kind of trying to tie that all together, was there any sort of a strategy change to use more third-party gas or is the growth that we saw this quarter in third-party gas really a function of having won these contracts, and longer term, you'll figure out how the most optimal way to serve those clients? J. Crenshaw: Well, I'm going to start and then let Andy kind of finish it up. I mean we ran high utilization on both of the company-owned facilities this quarter. And I think the answer is yes to all of that. We try to optimize ours first, but it also depends on logistics and some of the spec of quality depending on what type of client and where, but we like and have always, Stabilis has been in business for -- since 2012, acquired Prometheus share of interest. They've been in business for over 20 years. So in the whole history of our company, acquiring Encana's gas [indiscernible], we use third-party supply. That's all as a way to build demand and then figure out if we can drop a facility in there to do it ourselves. So consistent with what we've done, what's not -- I think our operations team worked really hard to optimize our current manufacturer supply and then third-party supply this quarter. And I think we're pretty proud of that. It's an ongoing process, and they did a nice job this quarter, and Andy, anything to add to that? Andrew Puhala: No, I think you covered it. I mean we -- as you mentioned, we try to prioritize our own molecules, our utilization was good this quarter. We use third-party molecules to flex up and down depending on customer demand and location. So that's pretty much it. Operator: [Operator Instructions] We'll go next now to Spencer Lehman, private investor. Spencer Lehman: Great news here in the last few weeks. And a couple of questions, just maybe on the stock share structure. I've been with you for many years, and it's always been an interesting little company because there's 80% inside control and it's very thin. And that's been -- there's an advantage and a disadvantage to that. And I've always sort of -- when that subject has come up in the past, there's always been a suggestion that some day, of course, you'd come out with some full-blown, not an IPO, but like a secondary and raise some money. And I'm just wondering this new project in Galveston, is this the project that might initiate that kind of development because, of course, that would be a great way to also to raise the financing for the project? J. Crenshaw: Spencer, thank you for being on the call. We appreciate your long-term engagement with the company and holding of your positions. So first of all, thank you for that and your supportive questions and intellectual thoughts and challenges on different things that we're working on. So we appreciate that, first of all. Certainly, yes. I mean we need -- we're a public company because we're hoping to have growth and either be distributing capital to -- distributing dividends to shareholders or needing to grow and raise additional capital to do that growth. In the current structure that we've got proposed here, we believe we can do this project without a large dilution or any adjustment to the current shareholder base in the parent company, Stabilis. However, this is an opportunity once the project is FID'd to go communicate with the market and shareholders about our different growth plans, what our activity is and some of the next stages of growth and what we're doing there. At that point in time, I think we have the company available to use all tools at our disposal to grow the company and meet our mission of providing clean LNG solutions to our clients. And we've got three markets that are dynamic and growing right now. And we've been working on this company for the past 13 to 20 years, this is not an overnight success, but our markets are coming on really strong right now, which may give an opportunity to do something around the capital structure there. But we don't want to commit or make any guarantees or anything of that nature. We're really focused right now, Spencer, on the customers and on the revenue and earnings and on the current projects. And once that has clarity, then we've got, with Andy and our team will absolutely bring in people and advisers to make sure that we're optimizing this for all the shareholders to create the right return for the shareholders. It's a long answer to the question, but I wanted to touch on it for you. Spencer Lehman: Yes. And I certainly like the idea of no dilution or very little dilution except at much higher prices, of course. And it would be a way of raising money, but not here. The -- just a small question, though, when you came out with the announcement, I don't know if you noticed it, Andy, you might have noticed a few days afterwards, there was a 100,000 share block at $5 that came on. And I've never seen that. I'd been watching, been involved with the stock. I was just curious if you knew what that's all about and it has been there. It stays there every day. And it's been nibbled out a little bit, so it's down -- it's down to 94,000 now. But any idea what that's all about? Andrew Puhala: Spencer, we don't know who that block is, who's offering that. Spencer Lehman: Yes. Because there could be an institution or a fund or something. But is this -- it's a little bit of a cap right now on the price, but just curious. Well, anyway, great, hope everything works out, and thanks for keeping us informed. J. Crenshaw: Well, Spencer, we appreciate you being a long-term holder. We're a long-term holder. We believe that the company will over time rerate what the future value is seen with the company, and we'll have some turnover of some of the shareholders during that period of time. And everybody has different bases for different reasons. But we're believers in the long-term value of the company, we're holders right now. As Andy stated, I can't help to be really positive on the company, the future of the company, the outlook for the value. And so I'm always -- I'm super long, super believer in it. And -- but have a long view and believe that these projects and growth and customers will drive that value over time. And that's what we're super focused on here is to those. Spencer Lehman: And just a quick second part of that is you don't mention data centers too much, but is that included when you say power generation? Is that what you're... J. Crenshaw: Absolutely. We call about distributed power, what we're talking about is the increased demand on the grid and on how power is distributed to projects. And where the LNG is really working is when they want the power closer to the project or they can't get grid, they can't get pipe and LNG comes into bridge that natural gas power solution. So data centers or computing demand on power are driving a lot of the increased needs. And secondly, I just think the reshoring and the increased manufacturing in the United States is also adding some increased demand and draw on the grid. The grid has been really stable for a long time. It's not shown a ton of increase, but we think it is coming. And from what we're seeing, distributed power is a good solution on both timing and cost for these projects. Spencer Lehman: Okay. Yes, I think energy is a great place to be right now, so good. J. Crenshaw: We like it. Operator: [Operator Instructions] And gentlemen, it appears we have no further questions this morning. Mr. Puhala. I'd like to turn the conference back to you, sir, for any closing comments. Andrew Puhala: Well, thanks, Boe, for everyone who joined us today. I appreciate your time and your support of the company. We look forward to giving you updates on some of these exciting projects in the future. If you have any questions in the interim, please feel free to reach out to me or our Investor Relations contact number, and we'll be happy to talk to you. Thanks a lot, everybody. This concludes our call. You can now disconnect. J. Crenshaw: Thank you. Operator: Thank you, Mr. Puhala. Thank you, Mr. Crenshaw. Again, ladies and gentlemen, this will conclude the Stabilis Solutions' third quarter earnings conference. Again, thanks so much for joining us, everyone, and we wish you all a great day. Bye.