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Operator: Good afternoon, everyone, and thank you for joining today's Century Aluminum Company Third Quarter 2025 Earnings Conference Call. My name is Regan, and I'll be your moderator today. [Operator Instructions] I would now like to pass the conference over to our host, Ryan Crawford with Century Aluminum. Please proceed. Ryan Crawford: Thank you, operator. Good afternoon, everyone, and welcome to the third quarter conference call. I'm joined here today by Jesse Gary, Century's President and Chief Executive Officer; and Peter Trpkovski, Executive Vice President, Chief Financial Officer and Treasurer. After our prepared comments, we will take your questions. As a reminder, today's presentation is available on our website at www.centuryaluminum.com. We use our website as a means of disclosing material information about the company and for complying with Regulation FD. Turning to Slide 1. Please take a moment to review the cautionary statements with respect to forward-looking statements and non-GAAP financial measures in today's discussion. And with that, I'll hand the call to Jesse. Jesse Gary: Thanks, Ryan, and thanks to everyone for joining. I'll start today with a note on safety before turning to our Q3 operational performance, including our time line for resuming full production at Grundartangi. I'll then update you on some of our key strategic initiatives, including progress on the Mt. Holly expansion project, our Hawesville strategic review and our new U.S. smelter project before concluding with a discussion of the outstanding global market conditions that we are operating in today. Pete will then walk you through our Q3 results and our Q4 guide and provide an update on the receipt of our fiscal year 2024 45X payment from the government, which occurred shortly after quarter end. I'll then end the call with an update on our capital allocation plans. Safety is core to everything we do here at Century. Every so often, the company is faced with extraordinary events frequently outside of our control that give us an opportunity to live up to our words and demonstrate our commitment to these core safety values. As everyone knows, on October 28, Hurricane Melissa made landfall in Jamaica as one of the strongest hurricanes to ever make landfall in the Atlantic Basin. I'm proud to say that through the dedicated planning, hard work and readiness of our Jamaican team members, Jamalco weathered this catastrophic storm, protecting the refinery from any significant damage and most importantly, without suffering a single injury. Not only did the team secure the well-being of the facility and our employees, but then immediately began to provide assistance to the surrounding communities, providing potable water to local towns, villages and hospitals following the storm. We will continue to work with the government of Jamaica and our partners at Claredon Alumina Partners to identify areas of need and provide support where we can. So we are very proud of the team at Jamalco. I'm pleased to say that production has already restarted at the refinery, and we expect to resume full production over the next couple of weeks. We do not believe that the storm or its aftermath will have any material impact on our financial results. Turning to Page 3 and operations. As we announced on October 21, the Grundartangi smelter was forced to temporarily stop production in potline 2 following the failure of 2 of its electrical transformers over a 7-week period in September and October. Fortunately, the team at Grundartangi was able to execute a safe and orderly shutdown of the potline despite these failures, tapping down the pots without injuries and leaving the line in as good a shape as possible for restart. These transformer failures were very disappointing as both were well within their expected life. We are working with the designers and manufacturers of the transformers to better understand what caused these failures. The team at Grundartangi is wasting no time and has already begun preliminary preparations to restart production in Line 2. The time line for restart is dependent on how quickly replacement transformers can be manufactured, shipped and installed. Based on current estimates, we expect that it will take 11 to 12 months for this work to be completed. Of course, we are working hard to optimize and reduce the time line for restart on several fronts, including the potential to repair and reuse the failed transformers for some time period before the replacement transformers arrive. Although we are not yet certain this approach will be possible, we are working with the designer and manufacturer of these transformers to assess this path. If successful, the repair path could reduce the time line for restart by several months. We will continue to provide you with updates on restart timing on our next earnings call. Finally, we have submitted initial claims to our insurers and continue to expect that the losses arising from these events will be covered under our property and business interruption insurance policies. Turning to Mt. Holly. We are pleased to announce last month that we signed an extension to the Mt. Holly power agreement through 2031. In addition to supporting the current operations, the new agreement provides all of the necessary power for our previously announced restart of more than 50,000 metric tons per year of incremental production at Mt. Holly, which will return the plant to full production. The Mt. Holly restart project is making great progress with hiring and capital work already underway at the site. We continue to expect that we will begin to produce incremental units at the beginning of Q2 2026 and complete the restart by the end of June. Production of the additional units will gradually increase throughout the second quarter. Unrelated to the restart, we did suffer some instability in Mt. Holly production in Q3 that resulted in production from the plant falling below expectations by approximately 4,000 tonnes in Q3. Pete will provide you with more color on the impact on our Q3 results. This instability was fully resolved by mid-October, and the plant has been operating at normal production levels ever since. We do not expect any further production impact after October. Finally, at Sebree, we had another quarter of near record performance across a suite of operational and financial KPIs. The plant, our management team and our employees there are really performing at the top of their game, and it's great to see. Turning to our other strategic initiatives, starting with Hawesville. After our last call, we received a significant amount of additional interest in the site, including from new parties, which led us to extend the strategic review process. We are now proceeding with the final stages of those discussions with new and existing parties now. Suffice to say, there's been lots of excitement around the potential of the site. At the same time, rising aluminum prices and continued global shortages continue to bolster restart economics at the Hawesville site and for our new greenfield aluminum smelter project. Once built, the new smelter project will be amongst the most modern and efficient smelters in the world. It will double the size of the existing U.S. industry, creating over 1,000 full-time direct jobs and over 5,500 construction jobs. During the quarter, we advanced negotiations with potential power providers. Good progress in this regard means we are now focused on a single site and power provider for the new smelter. We have also had lots of interest from potential joint venture partners for the smelter and have started discussions with select high-quality counterparties. While these conversations are still at the early stages, we are encouraged with the interest levels we have had to date and now see some form of partnership as the most likely path forward with the project. Altogether, President Trump's policies have enabled a future where we could see U.S. production triple by the end of the decade. We here at Century are proud to do our part to make this future a reality and bring industrial jobs back to America. I'd like to thank President Trump for the significant actions that he and his administration have taken to restore American manufacturing and stand up for American workers. The Section 232 tariffs have truly enabled a new future for the U.S. aluminum industry. Just before I turn things over to Pete, I'd like to review the very strong market conditions that we are operating in today and that we see persisting well into 2026. As you can see on Page 4, Q3 saw aluminum prices rise across the complex as continued global demand growth paired with a persistently challenged supply side drove realized LME prices of $2,508 in the quarter and continue to drive spot aluminum prices to approximately $2,850 today. As you can see on Page 5, the world has a shortage of aluminum units today, driving further contraction of global inventories to new post-financial crisis lows and leaving the market sensitive to even the slightest supply disruptions or increase in demand. This is especially true in our 2 core markets in the U.S. and Europe. Regional premiums in the U.S. and Europe both strengthened in Q3 as the fundamentally strong U.S. economy and improving European industrial activity drove demand and caused premiums in both markets to rise, while raw demand in both markets was especially notable driven by the well-publicized power infrastructure build-out. Power and data infrastructure build-out should continue to drive additional aluminum demand as we move forward into 2026. Realized Midwest and European premiums averaged $1,425 and $193 per ton, respectively, in the quarter and have risen further in Q4 with Midwest premium spot prices at $1,950 and European duty paid premium spot prices at $320 today. As we start to conclude the 2026 sales season, we are seeing increased demand across our customer base for all of our U.S. billet products. As the largest producer of primary aluminum in the United States, Century stands ready to meet this demand. We now expect that we will see an approximately $0.05 year-over-year increase across our 2026 billet sales, which should generate an additional $30 million of 2026 EBITDA. Pete will now take you through our financial performance in more detail. Peter Trpkovski: Thank you, Jesse. Let's turn to Slide 7 and review our Q3 performance. On a consolidated basis, third quarter shipments totaled approximately 162,000 tonnes, a decrease from the prior quarter due to brief operational instability at Mt. Holly and the Grundartangi transformer failure. Net sales for the quarter were $632 million, a $4 million increase primarily due to higher realized Midwest premium, partially offset by lower shipments. For the quarter, we reported net income of $15 million or $0.15 per share. Our adjusted net income was $58 million or $0.56 per share, excluding exceptional items. Adjusted EBITDA was $101 million for the quarter, mainly driven by the increased Midwest premium price, partially offset by lower volumes and product premiums at Mt. Holly in the quarter. Moving on, we continue to make progress on improving our balance sheet during the quarter. Liquidity increased to $488 million, up $125 million quarter-over-quarter, and our cash balance stood at $151 million. The significant increase in liquidity and cash metrics reflects receipt of the proceeds from refinancing our senior notes, which was finalized in July. We recently used the proceeds to pay off the remainder of the Icelandic castthouse facility as intended. Net debt was $475 million, a slight increase from prior quarter due to a normal working capital build I will discuss later. As Jesse mentioned, we were pleased to receive our fiscal year 2024 45X payment of approximately $75 million from the IRS in October, which will help to significantly lower our net debt amount in Q4. Despite some lower-than-anticipated production output this quarter, our core financial performance remains strong and demonstrates the underlying strength of our business. Now let's turn to Page 8, and I'll provide a breakdown of adjusted EBITDA results from Q2 to Q3. Adjusted EBITDA for the third quarter increased $27 million to $101 million. Realized LME of $2,508 per ton was down $32 versus prior quarter, while realized U.S. Midwest premium of $1,425 per ton was up $575. The benefit from higher Midwest premium was slightly offset by lower realized European duty paid premium down $26 per ton to $193. Taken together, LME and regional premium pricing contributed an incremental $48 million compared with the prior quarter. Energy costs were higher, driven by a warmer-than-average end of summer in the U.S. and higher LME prices impacting our Icelandic power contracts that are linked to the spot metal price. Energy prices have returned to more normalized levels in October, but the Q3 headwind reduced adjusted EBITDA by $9 million. Alumina and our other key raw materials were approximately flat in the quarter, in line with our previously provided outlook. Continued pressure on the U.S. dollar compared to the Icelandic krona resulted in a quarter-over-quarter headwind that was offset by lower operating costs. However, our operating costs were slightly elevated compared to expectations as additional maintenance costs were required following the brief potline instability at Mt. Holly that Jesse mentioned earlier. Mt. Holly is back to full and stable production, but this event resulted in lower Q3 production, translating into approximately a $10 million headwind compared to our expectations. Now let's turn to Slide 9 for a look at cash flow. We began the quarter with $41 million in cash. In July, we successfully completed the refinancing of our $250 million senior secured 7.5% notes with new $400 million senior secured notes at an improved coupon. As we explained at the last call, the proceeds from this transaction were used to pay down the outstanding debt on the new Icelandic casthouse. This debt repayment occurred early in Q4 and will be reflected in our Q4 financials next call. Our priority to lower debt and achieve the $300 million net debt target remains unchanged. We funded $16 million of CapEx in the quarter that went towards ongoing investments at Jamalco as well as sustaining CapEx at the smelters. We paid $12 million in interest during the quarter that will decrease going forward as the recent refinancing transaction was completed at an improved coupon of 6.875%. We also paid down various credit facilities to end the period with minimal borrowings on our revolvers. We continue to accrue 45X tax credits in Q3. As of September 30, we had a receivable of $220 million related to full year 2023, 2024 and 2025 year-to-date U.S. production. As I noted earlier, in October, we were pleased to receive $75 million from the IRS from our Section 45X filing for fiscal year 2024. We continue to expect to receive the fiscal year 2023 credit in the coming months. Finally, we had a working capital build this quarter as timing of alumina shipments increased inventory levels and the higher price environment for LME and Midwest premium increased accounts receivable balances. We expect to improve our working capital as we approach year-end. We ended Q3 with $151 million in cash and strong liquidity in place to support our Mt. Holly expansion. The Restart project is on schedule and progressing well. We will begin to call out the cash outlays in future quarters as capital and operating expense dollars from the Mt. Holly project become more material. Now let's turn to Page 10 and look ahead to the next 90 days. At current realized prices, we expect Q4 adjusted EBITDA in the range of $170 million to $180 million. For Q4, the lagged LME of $2,705 per ton is expected to be up about $197 versus Q3 realized prices. The Q4 lagged U.S. Midwest premium of $1,775 per ton is up $350 versus Q3. The realized European duty paid premium is expected to be $275 per ton in Q4 or up about $82. Taken together, the lagged LME and delivery premium changes are expected to have an approximately $65 million increase to Q4 adjusted EBITDA when compared with Q3 levels. We expect similar energy price levels in Q4 as U.S. energy costs are forecasted flat to previous quarter and are expected to have no impact on quarter-over-quarter adjusted EBITDA. Coke, pitch and caustic prices have modest increases, but are partially offset by carbon emission allowances, resulting in a potential headwind of $0 to $5 million quarter-over-quarter impact. We expect our Q4 operating expense costs to improve by $0 to $5 million. Volume and mix should also improve by $10 million as Mt. Holly has returned to full pot complement following the brief instability in Q3. At Grundartangi, the Line 2 outage is expected to negatively impact shipments by 37,000 tons and EBITDA by $30 million in the fourth quarter. As Jesse said, we expect the financial impact of the Line 2 outage to be covered by our insurance policies. Of course, the insurance proceeds could lag the actual loss by a couple of quarters. We will normalize the timing of the insurance payments by adjusting EBITDA in the period where the financial impact occurred and adjusting out the receipt of the insurance proceeds in future quarters. We'll continue to call out the adjustments as exceptional items in the coming quarters, and we have already included this adjustment in our Q4 adjusted EBITDA outlook. We also include the estimated hedge and tax impacts to help model our business. We expect a $10 million to $15 million headwind from realized hedge settlements and $5 million tax expense, both flowing through our Q4 P&L and impacting adjusted net income and adjusted earnings per share. As a reminder, our appendix details the full hedge book and continues to show the vast majority of LME and regional premium volumes are exposed to market prices. Now I'll hand the call back to Jesse. Jesse Gary: Thanks, Pete. As we begin to look forward to 2026, the business is well positioned to generate significant cash flows over the balance of this year and throughout 2026. For instance, if you were to take our Q4 outlook and just update for spot metal prices, our expected adjusted EBITDA generation would increase by approximately $45 million to $220 million. The incremental Mt. Holly restart tonnes should further increase profitability starting in Q2 2026. In addition to strong EBITDA generation, we had $220 million in Section 45X receivables at the end of Q3, and we received our 2024 45X refund amount of $75 million in October. At these levels of EBITDA generation and the anticipated receipt of cash against our 45X receivables over the coming months, we are well positioned to reach our net debt target of $300 million early in 2026. We are already well above our liquidity targets. Per our capital allocation framework included in the appendix, once we meet our capital allocation targets, we will continue to first allocate capital to our sustaining capital projects and identified organic growth projects. A good example here is our Mt. Holly expansion project that should be complete by the end of Q2 2026. In line with our standard practice, we will provide updated guidance on sustaining and investment capital spending for 2026 on our February call. As we have cash flows beyond our capital needs, we will continue to be opportunistic but disciplined with M&A opportunities like our acquisition of Jamalco in 2023 and otherwise look to begin to return excess cash to our shareholders. As we approach our net debt target, we thought it would be useful to provide some further guidance on the types of capital returns that we would anticipate once we have met our targets. While we are not announcing any actions today, we have started to assess our options, including listening to shareholder feedback that we receive from time to time. This feedback has been overwhelmingly in favor of the share buyback program as a means of returning capital to shareholders. We expect to come back to you all with further details and announcements as we move into 2026, including the amount and timing of any potential share repurchase programs. Thanks to everyone for joining us today, and we look forward to taking your questions. Operator: [Operator Instructions] Our first question comes from the line of Nick Giles of B. Riley Securities. Fedor Shabalin: This is Fedor Shabalin Selin on Nick Giles. And thanks for detailed report. I wanted to start with Mt. Holly. So if we were to isolate the Mt. Holly restart, which is roughly 50,000-plus tonnes, is it kind of safe to assume that this could generate in excess of $60 million in EBITDA at spot prices? And on the CapEx side, how much of CapEx has been already spent to date? And when would we expect you to achieve full run rate? You mentioned it starting Q2 and finish restart by June, if I correct, 2026, does it assume 100% utilization at this time? Jesse Gary: Sure. Thanks for joining the call. This is Jesse. Yes. So we're, as I said, well on track with the Mt. Holly restart, and we started the initial hiring and started some of the initial capital spending. But CapEx spending to date has been relatively minimal. You'll see more of that come in, in Q1 and Q2. In total, as we said before, the total project should be somewhere in the neighborhood of $50 million project spend. In terms of the additional EBITDA that we generated from the project, so you'll start to have units coming on in Q2 and then should be at full run rate starting in Q3. Once it reaches full run rate at spot prices today, the additional volume should generate about $25 million in additional EBITDA per quarter. Fedor Shabalin: This is helpful. And it would be great to get some additional perspective on how you're thinking about capital allocation. You already mentioned this. So your liquidity and net debt are roughly even amounts above your stated targets. So you're kind of indirectly at your target in some sense. And at what point will we consider high capital returns? And would you prefer buybacks or dividends? And then on the M&A side, would downstream opportunities be on the table? Jesse Gary: Sure. So yes, as I mentioned, we have been -- given the significant cash flow that we have today and that we see generating going forward, especially when you consider the lagged payments of those 45X payments that are on our books, and just to note again, we did receive the first tranche of those 45X payments from 2024 fiscal year of $75 million in October. So you'll see that come through in our Q4 results. We do think that we will be in a position to reach those net debt targets in 2026. Once we do, we've spent a lot of time thinking about this, and we spent a lot of time talking with our shareholders, and there is a clear stated preference for buybacks. And so as we think about it today, that's the most likely form of capital return once we do reach those targets. Operator: Our next question comes from the line of Katja Jancic of BMO Capital Markets. Katja Jancic: Maybe starting on Iceland. Did you say the repairs will take 11 to 12 months, but there is potential for you to accelerate the restart of the potline? Jesse Gary: That's right, Katja. So we're proceeding on 2 paths. The first path is the full replacement of those transformers. And there, we'll have to wait for the new transformers to be manufactured and then shipped to Iceland and then installed and then restart, and that's in that 11- to 12-month time line that I gave. At the same time, we're investigating whether the damaged transformers can be repaired. And we're hopeful that, that will be the case, but we have additional work to do to prove that out. If we are able to follow repair path, we would still order the new transformers, but the repair transformers would allow us to bring production back online several months in advance of that 11- to 12-month time line for replacement. Katja Jancic: Okay. And then on the insurance side, so would insurance cover for if the potline stays down for 11, 12 months, will insurance cover fully those 11 to 12 months? Or are there any restrictions? Jesse Gary: Yes. Our expectations today is that our policy limits are high enough that they will cover both the property and business interruption costs of the outage up to and including that 11- to 12-month time line that I gave. Of course, we have deductibles, the deductibles on the policy of $15 million. But above that, we will -- we expect to fully recover the losses. Katja Jancic: Okay. Maybe shifting to Hawesville. When do you think given the extension of the review process, are you think -- is there any time line when you think we could get a final decision? Jesse Gary: No time line. As I said, we've had a really good process from the beginning. But over the course of Q3, we did have a new surge of interest. And so we decided to then extend that time line to allow that new interest to come in and do some due diligence on the site. It's very positive interest, I'll say. And so we want to give them time, and we're working with them to proceed sort of as quickly as possible, but it's difficult to give an exact time line at this point. Katja Jancic: And does the review still include a potential restart? Jesse Gary: Yes. As we've always said, our goal here as part of the strategic review process is to see what the interest is in the site and what the potential value of the site is. And then we'll compare that versus the economics of a restart, and we'll make the best decision for our stakeholders. Operator: Our next question comes from the line of John Tumazos from Independent Research. John Tumazos: Of course, it's always hard to predict costs and there's uncertainties in hedging. But given how good things are right now, can you lock in the $110 larger billet premium with contracts, so it's certain next year? Are you able to hedge the Midwest premium that was $0.87 the other day. There are futures. And would you increase your LME metal hedging? Jesse Gary: Thanks, John. No change to our overall hedging policy. So as we've said all along, the main portion of our hedging program, and you can see the details on Slide 17 of the presentation, is to offset market power price risk that we have at Sebree. And so as you see from that slide, we've got about 22% of the megawatts for Sebree hedged for fiscal year 2026. And then we'll generally sell a little bit of metal, both Midwest premium and LME against those power price hedges to lock in some margin for Sebree. And the amounts that you see in the appendix are about normal for that program going forward. Aside from this, we did enter into a little bit of Midwest premium hedging when we made the decision to do the Mt. Holly expansion project and to lock in those returns that we've laid out for you where we expect the cost of that project to be fully repaid by the end of 2026. But other than that, our expectation is to remain exposed to the metal price and to offer that exposure to our shareholders. Now John, you did mention billet. In the U.S., we operate on an annual contract for our billet sales. And so most -- the vast majority of our billet sales in 2026 will be locked in at those prices that I quoted earlier for full year 2026. We do tend to leave a little bit of billet exposed to market prices throughout the year to pick up some spot exposure, but the vast majority of that will be locked in at those premiums that I gave earlier. John Tumazos: Jesse, the different news networks were suggesting yesterday that some of the Supreme Court justices might rule against Trump's tariffs. And of course, the 50% aluminum is very helpful to Century. And then 9 of the 23 presidential elections, off-year elections, the President's party has lost 40 to the House of Representative seats since 1934 is playing with political statistics noodling. So there's a chance that things don't stay this well from a regulatory standpoint. Do you think this is a good time to sell the company? Jesse Gary: John, this one is pretty clear. The Supreme Court case relates to what are called the IEEPA tariffs or sometimes known as the Reciprocal tariffs only. They do not relate to the Section 232 tariffs, which are where the steel and aluminum tariffs are under. The Section 232 tariffs have already been upheld in court and will not be impacted by the Supreme Court case pending on the IEEPA tariffs. John Tumazos: So let's just say my thesis is wrong. Do you think this is a good time to sell the company anyway? Jesse Gary: No, John, the company is not for sale. We are very excited about our prospects. We're excited about the cash flow generation that were available to show our shareholders. We're excited about our growth opportunities at Mt. Holly with the positive strategic review process, with the greenfield project as well as the increasing demand we're seeing across the United States. So our focus is really we're going to continue to try to produce aluminum as profitably as possible, supply units into the U.S. and European markets and continue to execute on our strategic plan. Operator: We have a follow-up question from Nick Giles of B. Riley Securities. Fedor Shabalin: This is Fedor again. My question is kind of a continuation of John's topic. So the [indiscernible] have been indicating very, very tight domestic inventories, which has supported stronger Midwest pricing. So -- and if prices continue to strengthen, do you think that could influence the administration's decision to keep 232 in place with no exclusions? And then on the other side, if we saw a Canadian exclusion, for instance, how do you think about Midwest premium? I know that Canada is not a marginal [indiscernible] into the U.S., but I have to imagine there would be some downside risk. Jesse Gary: Fedor, I think it's important to step back and look at the purpose of the Section 232 tariffs, which was to increase U.S. domestic aluminum production to meet national security needs. And when we look at the program and the response of industry, it's really doing just that, and Century is proud to be doing its part. So just to name a few of those projects that are coming online, the Mt. Holly restart project that we're implementing and will be up by mid next year will, by itself, increase U.S. production by 10% from levels today. So that's a significant increase. And then we've announced our own greenfield project and one of our competitors has announced their own greenfield project and together, along with the Mt. Holly restart, that would triple U.S. aluminum production by 2030. So I think that the tariffs are working as intended. They're driving industry to reinvest in adding production here in the United States and adding American aluminum jobs here in the United States. So the program seems to be working. And I think the administration has been quite clear that they'll continue to do their part and keep the tariffs in place with no exemptions and no exceptions going forward. Fedor Shabalin: And promise, if you allow me to squeeze the last one. It was great to see new power agreement with Santee Cooper for Mt. Holly, where you have cost of service-based rates. And I wanted to ask about Sebree, where you're exposed to Indy Hub. What is the appetite to book incremental hedges for '26 and '27, especially given the expectations for increased electricity demand from data centers in this region? Jesse Gary: Yes, we also were very excited about the Mt. Holly contract. That's a very long extension for us, gives us very good line of sight into next decade and was one of the keys in enabling us to restart production there. So we're really excited about what's to come at Mt. Holly, very good smelter, very profitable in today's environment. At Sebree, likewise, the plant is operating excellent. We continue to invest in that plant. And we've been operating now under this market-based power contract for over a decade. And we've become very comfortable with the way it works. And we think over time, it's been the most cost-effective power contract actually that we have in our entire system. Now as I mentioned earlier, we do some risk mitigation with that, and we've generally been hedging those power prices about 20% to 30% of our exposure on an annual basis. And we think that's a pretty good percentage of the overall power risk for us to lay off and puts the smelter in a good place to continue to be profitable and operate well through the cycles. So we're comfortable with that hedging program at that level. Of course, we'll always be looking and opportunistic, but we expect to continue our hedging programs as we have in the past as we move forward. Operator: There are currently no questions at this time. So I'll pass it back over to management for any closing or further remarks. Jesse Gary: Thanks, everyone, for joining the call. At Century, we're really excited about the end to 2025 and what's to come in 2026, and we'll continue to execute to the best of our abilities. Thanks all. Look forward to talking to everyone in February. Operator: Thank you. That will conclude today's conference call. Thank you for your participation. You may now disconnect your lines.
Operator: Thank you for standing by. My name is Gary, and I will be your conference operator today. At this time, I would like to welcome everyone to the Miami International Holdings, Inc. Third Quarter Earnings Call. [Operator Instructions] Please note this event is being recorded. It is now my pleasure to turn the call over to Andy Nybo, Chief Communications Officer. You may begin your conference. Andy Nybo: Good afternoon, and thank you all for joining us today for MIAX's third quarter earnings conference call and our first earnings call as a public company. With us today are your host, Thomas P. Gallagher, Chairman and Chief Executive Officer; and Lance Emmons, Chief Financial Officer. We also have Douglas Schafer, Chief Information Officer; and Shelly Brown, Chief Strategy Officer on the call, who will participate in the Q&A session today. Everyone should have access to our earnings announcement, which was released prior to this call. We have also published a slide presentation to accompany the press release. In addition, this call is being webcast and an archived version will be available shortly after the call ends. All of these materials can be found on the Investor Relations section of our website at ir.miaxglobal.com. We want to remind everyone that part of our discussion today includes forward-looking statements, which are based on the expectations, estimates and projections regarding the company's future performance, anticipated events or trends and other matters that are not historical facts. The forward-looking statements in our discussion are subject to various assumptions, risks, uncertainties and other factors that are difficult to predict and which could cause actual results to differ materially from those expressed or implied in the forward-looking statements. These statements are not guarantees of future performance, and therefore, undue reliance should not be placed upon them. We refer all of you to our press releases and filings with the SEC for a more detailed discussion of the risks and uncertainties that could impact the future operating results, financial condition of MIAX. We undertake no obligation to update any forward-looking statements made in this announcement to reflect events or circumstances after today or to reflect new information or the occurrence of unanticipated events, except as required by law. During the call today, we will be referring to non-GAAP measures as defined and reconciled in our earnings materials. With that, I'd now like to turn the call over to Tom. Please go ahead, Tom. Thomas Gallagher: Thanks, Andy, and welcome to our third quarter 2025 earnings call. We're excited to have you join us for our first call as a public company and appreciate your interest in MIAX. Today, I will provide high-level third quarter results and a brief overview of MIAX, followed by Lance walking through our third quarter 2025 financial highlights, and then we'll open it up to your questions. For the third quarter, MIAX delivered strong results, growing net revenues 57% year-over-year to a record $109.5 million. These results were primarily driven by elevated industry options volumes and increased MIAX market share. Our market share in multi-listed options grew to a record 17.2% in the third quarter, up 24% from the prior year period. Furthermore, our successful IPO in August of this year represented a significant milestone that increased our access to capital markets and further enhanced our brand awareness. The proceeds from the offering allowed us to retire $140 million of debt and build a strong cash position. I'll now take a few minutes to walk through our value proposition and the factors supporting our long-term growth. MIAX is a technology-driven leader in building and operating regulated financial markets across multiple asset classes. Since our inception, we have built and launched 4 Options exchanges and 1 Equities exchange. We've also grown strategically through acquisitions. And since 2020, we've acquired 2 futures exchanges and clearing houses, 2 international exchanges and a futures commission merchant. This broad portfolio of licenses supports our growth initiatives and allows us to offer new products designed to meet the needs of a multitude of investor segments, both domestically and internationally. Our vision remains to cater to the needs of our customers and trading community and serve as the exchange of choice by delivering best-in-class technology, customer support, risk protections and reliability. A critical differentiator for MIAX is our commitment and focus on technology, which is the lifeblood of an exchange. Importantly, MIAX differentiates its technology by providing low latency, high throughput and industry-leading determinism, which serves as the foundation of our technology-first customer-centric approach to building innovative marketplaces. When we built our technology infrastructure, I'd like to say we built the church for Easter Sunday. Even when volume and quote traffic spikes in periods of extreme volatility such as the 2020 COVID outbreak or what was experienced in April of this year, we were ready and our technology performed without issue. In fact, these high volatility events reinforce our reputation for providing best-in-class technology. We understand the importance of continuing to invest in order to provide our members with high-performance technology to support their activity in today's rapidly evolving derivatives markets. Broadly, the options market is experiencing significant growth. Multi-listed options volumes are surging to record levels, with industry third quarter 2025 average daily volume of 56 million contracts, up 26% year-over-year. September industry ADV reached 61 million contracts while October ADV reached 67 million contracts. This growth has been driven by periods of elevated volatility in certain market sectors as well as continued strong demand from a range of market participants, especially for shorter exploration options products. While many industries and businesses are volatility adverse. For MIAX, volatility creates an increased need for risk management tools. As we look ahead, we continue to expect elevated volatility due to geopolitical tensions, uncertain trade policy and an evolving interest rate policy. Additionally, structural tailwinds, including increased retail participation which has begun extending into the futures markets and growing international investor demand are creating secular growth opportunities as we launch new futures products. Just as retail trading growth has fueled record options volume, expanding retail participation in futures represents another significant opportunity alongside our comprehensive product expansion pipeline. Our focus remains on offering technology designed to support the needs of our market makers by providing high throughput, low latency and highly deterministic technology with industry-leading risk protections, we allow our market makers to have greater confidence in their ability to properly manage their quotes and risk during volatile markets, offering those market makers the ability to quote more aggressively. For the retail investor, this means tighter and deeper markets, not just during normal trading, but also during times of volatility when liquidity is most in demand. In options, we see additional growth potential from a number of areas, including short-dated expirations for the most actively traded stocks, options listings on new IPOs and the use of options in structured product listings, all of which support higher industry volumes. Furthermore, we launched our new MIAX Sapphire trading floor in Miami in September. This state-of-the-art facility, which we built to address customer demand allows us to capture the additional volume opportunity in multi-listed options while bringing greater efficiencies to floor brokers and market makers. Miami has emerged as a major global financial center and is quickly becoming Wall Street South, and we're proud to have expanded our presence in our namesake City. We remain excited about the substantial growth opportunities in options as an asset class, driven by continued elevated global volatility issues that support the ongoing use of options for dynamic risk management. Moving to our growth initiatives. We continue to cultivate collaborative and strategic relationships across the industry that we are leveraging to introduce new and innovative proprietary products. In our Futures business, the launch of the new MIAX Futures Onyx trading platform at the end of June brings the MIAX technology advantage to this new asset class and offers MIAX the ability to list a range of new futures products. We plan to list futures on the Bloomberg 500 Index in collaboration with Bloomberg, starting in Q1 2026 with futures on the Bloomberg 100 Index to follow. Importantly, the new financial products will trade in a data center located in close proximity to U.S. equity markets, allowing our market participants to reduce potential latency in their trading strategies. Additionally, the Bloomberg 500 Index and Bloomberg 100 Index Futures products will clear at the Options Clearing Corporation, which is the central clearinghouse for all U.S. listed options. This provides our members with improved margin efficiencies in their equity derivative trading strategies. We believe these Bloomberg Index futures will provide the foundation for a broad portfolio of equity index derivatives we plan to offer on MIAX futures. Now moving to our Equities business. Our current focus is to maximize revenue by continuing to improve our capture rate and profitability. We continue to believe our presence in U.S. equity markets positions us to leverage a range of opportunities, including market data and adjacent assets. With the acquisition of the International Stock Exchange, or TISE, in Guernsey, we have expanded our ability to offer listing services to global debt issuers beyond what we currently provide through the Bermuda Stock Exchange. The TISE acquisition provides us with access to the European and U.K. markets and a valuable license in a respected regulatory jurisdiction. This helps accelerate our growth strategy by utilizing both BSX's and TISE's numerous international recognition and expertise in their respective products and markets. Now I'll turn over the call to Lance to provide details on our third quarter financial performance. Lance Emmons: Thanks, Tom, and good afternoon. As Tom mentioned, we had a strong quarter across our business. I will briefly discuss MIAX's revenue model before I jump into the financial details. We generate revenue from transaction and nontransaction fees. Our key performance drivers for transaction fees include industry trading volumes, market share and revenue per contract or share, which measures the average revenue we earn per contracts or shares traded. Beginning this month, we will publish RPC and capture rates on a 3-month rolling average basis on our website, in conjunction with our monthly volume press release. In terms of non-transaction fees, we generate revenue from access fees, which we charge to customers to connect to our exchanges. From market data, which we earned through direct subscriptions and through our participation in the U.S. pay plans and from listing fees in our International segment. For the third quarter, on a consolidated basis, total net revenue grew 57% year-over-year to $109 million. This was driven primarily by strong performance in our Options business. The third quarter also includes a full quarter contribution from the June 2025 acquisition of TISE, which contributed $4.7 million in revenue. Our adjusted EBITDA increased 157% year-over-year to $48 million for the quarter with an adjusted EBITDA margin of 44%, a significant improvement from the 27% margin in the prior year period. This performance demonstrates our ability to scale efficiently while also continuing to invest in our growth initiatives. Adjusted earnings significantly increased to $40 million compared to $8 million in the prior year period. Our adjusted operating expenses in the third quarter were $61.6 million compared to $51.1 million in the prior year period. The increase was primarily due to higher compensation benefits driven by planned increases in headcount to support our growth initiatives as well as the acquisition of TISE. Also contributing to the increase were investments in IT and communications costs due to the build-out of the MIAX Sapphire Exchange and the new technology platforms we rolled out for MIAX Futures and BSX. Moving to performance by segment. Our Options segment delivered strong results with net revenue of $94.5 million, up 55% year-over-year. Market share was 17.2%, up from 13.9% in the prior year period. This, along with elevated options industry volume led to MIAX average daily volume of 9.6 million contracts for the third quarter, representing a 56% increase year-over-year. Although we are still early in the fourth quarter, the momentum carried into October with our options ADV reaching 13.1 million contracts and our market share reaching 19.4%. Our Equities segment net revenue reached $4.4 million, up from $2.2 million in the prior year period, primarily due to improved capture rate as we continue to focus on maximizing total net revenues in this segment. Our Futures segment net revenue was $4.8 million compared to $5.3 million in the prior year period. Hard Red Spring Wheat revenues decreased during the third quarter as trading volumes were negatively impacted by participant migrations to our new MIAX Futures Onyx platform, as well as lower commodity market volatility. Our International segment net revenue was $5.5 million compared to $0.8 million in the prior year period, which was due to the acquisition of TISE in June of this year. The IPO enhanced our balance sheet. With a quarter end cash balance reaching $401 million and outstanding debt reduces $6.5 million following the payoff of our senior secured term loan. Additionally, our outstanding foot liabilities were terminated upon the IPO, further improving our balance sheet. In summary, we delivered strong financial results while investing in our technology platforms and expanding our product offerings. We believe that MIAX is well positioned to capitalize on the growing demand for innovative exchange solutions. With that, I will turn it back over to Tom. Thomas Gallagher: Thanks, Lance. We believe MIAX's differentiated technology, exceptional customer experience, track record of building innovative marketplaces and disciplined growth strategy positions us to deliver long-term shareholder value. To sum up, we now have in place a solid foundation to enable continued growth as the global technology-driven multi-asset class market leader that is anchored by 4 key pillars that I'd like to highlight next. First, we have now completed all of our purpose-built scalable technology platforms, which are differentiated by throughput, latency determinism and reliability. Second, we have a broad range of regulatory licenses, allowing us to operate across multiple asset classes and in multiple jurisdictions around the world. Third, we have secured a broad range of products that are diverse and expanding with multiple opportunities to launch new products across our exchanges. Fourth and most importantly, we have long-standing relationships with customers that we intend to leverage as we move into new asset classes together. These 4 pillars are technology, regulatory licenses, broad product range and relationships with our customers are real competitive advantages that we believe will continue to drive our performance. I'll now turn over the call back to Andy. Andy Nybo: Thank you, Tom. We will now open the call up for questions. Operator, first question please. Operator: [Operator Instructions] Our first question today comes from Michael Cyprys with Morgan Stanley. Michael Cyprys: Welcome to being a public company. Congratulations on your first quarter out of the gate here. I was just hoping to ask more of a bigger picture question. You mentioned just a moment ago around a lot of different licenses, aspirations for new products, asset classes, geographies. I was hoping you could unpack that a little bit more elaborate on your ambitions there. I think there may be some aspirations for crypto event contracts. So maybe you could help flesh out how you're thinking about new product opportunities, asset classes, geographies, you mentioned licenses. What are your ambitions and aspirations as you look out over the next 3 to 5 years? How might MIAX look compared to the MIAX today? Thomas Gallagher: Thanks, Michael, for that question. I think given where we are today, Michael, our primary focus is on the products we've already announced. We've got so many good things on our plate now in our primary businesses. That's going to remain my near-term focus in terms of opportunities. Having said that, if and when an opportunity presents itself that is compelling. Based on what we've built over the last 3 or 4 years, we have the technology infrastructure. We have the licenses and the various tools, so we could jump in, in areas such as economic or political or sports-related events-based contracts. But the near-term focus for us with the licenses that we have in both options and futures, is to exploit the opportunities that we've secured, including the opportunities as a result of the recent licensing of the B500 and the B100 from Bloomberg. Operator: The next question is from Ken Worthington with JPMorgan. Kenneth Worthington: I'll echo my congratulations. On the multi-listed market share, you rose to a new record during the quarter. We look at October. And as you mentioned, it had another step up again this past month. Can you talk about the launch of the Sapphire trading floor and help us better understand the dynamics that have driven the acceleration in market share gains that we've been seeing over the last quarter plus? Thomas Gallagher: Thanks, Ken, and I appreciate the kind words. I'm going to turn this one over to Shelly Brown. Shelly? Shelly Brown: Thank you, Ken, and thank you, Tom. So Options continue to be our most mature market segment, but we believe there's still room for additional growth. There are strong secular tailwinds in the industry, growing industry ADV, new optionable classes resulting from a robust IPO market and innovative products like short-dated equity options. That being said, we are very excited about the new Sapphire trading floor volume, but is a fractional portion of our recent market share growth. The Sapphire trading floor captured about 6.5% of the industry trading floor volume in October, our first full month of trading or about 0.35% of total multi-list volume. We are 1 of 6 trading floors, so we understand and believe there's lots of room to grow in that segment. We are not managing our current market conditions for the short term, but for the long term. We believe that there's going to be additional flow and there's plenty of room to grow. We're very happy with the trend for our market share. Operator: The next question is from Kyle Voigt with KBW. Kyle Voigt: Maybe just a question on single stock options. There have been some exchange filings in the past couple of quarters to offer additional expiries weekly for larger cap single stocks, I think, paving the way towards an eventual single-stock 0DTE type of launch. Can you just remind us what you see as the pathway to being able to offer single stock options with everyday expirations? And from a timing perspective, can you just kind of lay out a pathway in terms of how far away you think that ultimately will be? Thomas Gallagher: Yes. Thank you very much for that question, Kyle. It's certainly an area that we're well positioned for. So I'm going to turn it over to Shelly Brown, and maybe, Shelly, you could talk about the response here. Shelly Brown: Yes. Thank you for the question. With regards to 0DTE options, the timing for that depends on regulatory approvals, there's already an initiative with the commission, to list short-dated options initially just from Mondays -- ending Mondays and Wednesdays to the existing Fridays. Once these multi-list products are approved, we will certainly list them and all 4 of our options exchanges, meaning that they are multi-list options. Our exchange technology already supports rapid product innovation and launches such as this, and we're ready to support an expansion of the multi-listed options, 0DTEs and single stock options. Our system speed, throughput, and risk protections allow liquidity providers to offer tighter and deeper markets for these products. So we think we'll be able to gather an outsized market share. We do believe that the 0DTE actions in single stocks represent a significant growth opportunity across the industry, especially in the retail trading segment. But timing really depends on regulatory approval and market demand. Operator: The next question is from Jeff Schmitt with William Blair. Jeffrey Schmitt: A question about your October market share. It jumped quite a bit to 19.4%. Growth was obviously really strong. And just curious if you can maybe talk about what drove that sharp increase? And did you see a rise in complex trades at all during the month? Thomas Gallagher: Well, Jeff, thanks for that question. At the risk of overworking Shelly here. Shelly, do you want to just talk about the October market share gains? Thank you very much. Shelly Brown: The October gains were across the board. As you know, we have 4 options exchanges. We saw growth in all segments across those exchanges. There has been growth -- continued growth in complex orders. That's a focus for us due to capture, and we continue to be the second largest exchange in complex orders and continue to grow that segment. We've seen growth across all the different segments, including the price improvement auctions. I believe it comes back to the use of our technology. Operator: [Operator Instructions] The next question is from Chris Brendler with Rosenblatt. Christopher Brendler: Just wanted to drill down a second on seeing such strong market share gains and revenue per contract has been trending in an upward direction, ticked down a little bit this quarter, which I imagine is mixed. But is there any opportunity for you to lean into your success? I think like the market tailwinds are behind you and maybe extract a little more out of your revenue per contract in the options business? Or is it just naturally falling out of other successes you're having in the areas? I love to see if you get any more detail there? Thomas Gallagher: I really appreciate the question, Chris. I'm going to ask Lance to talk about the revenue per contract to the extent that he can. But I will say that as our market participants need to provide greater and greater liquidity to their retail customers, the investments we've made over the last 3 or 4 years in technology in terms of the latency, the throughput and the determinism, we really feel that we've differentiated ourselves and we're a partner that can help firms provide this liquidity to their retail customers. And because we can provide this assistance through the technology infrastructure, we're getting more and more volumes. Now in terms of your second part of your question. Lance? Lance Emmons: Yes, Chris. So yes, there's -- you know that there are some mix shifts between the second quarter and the third quarter. We haven't done any major fee changes other than we did do a change to the regulatory fee, a temporary reduction from September to December, which had a slight impact for the quarter. I'll also note that we continue to focus on, again, on maximizing revenue. So if there is business out there that is positive to us, even if it's a lower capture rate as long as it's positive, we will focus on it. And just also just to highlight again that beginning with today's monthly volume release, we are putting out the capture rates on a trailing basis. So I'll provide some additional transparency there. Operator: The next question is from Patrick O'Shaughnessy with Raymond James. Patrick O'Shaughnessy: As we are seeing more participation in the options space by retail investors, do you have a sense for how your market share might differ between retail versus institutional customers? Thomas Gallagher: Patrick, thank you very much for the question. Shelly, do you want to address that in terms of the retail versus institutional mix? Shelly Brown: Certainly. Thank you, and I appreciate the question, Patrick. The retail versus institutional mix, obviously, we can't drive the demand from the end user. We're here to respond to that demand. Our focus has always been on giving the market makers the ability to provide liquidity, provide deeper markets, tighter markets and the tighter markets are what draw that -- those orders from both the institutional market and the retail market to our exchange. So it's all about the customer experience. We continue to roll out new technology and improve our customer service to continue that offering the premium product to those customers. Operator: Our final question today is a follow-up from Michael Cyprys with Morgan Stanley. Michael Cyprys: Just wanted to ask about the expense outlook. I was hoping maybe you could unpack how you anticipate the pace of expense growth to trend from here, how that might evolve or flex with volumes and revenues? And then if you could maybe just elaborate on the stock-based comp in the quarter, I think it looked like maybe $29 million was more recurring. Maybe you can elaborate on that, how much we can expect on a go-forward basis? And any other broadly notables to speak of in the quarter? Thomas Gallagher: Yes. Thank you, Michael. Lance? Lance Emmons: Yes. I can cover that, Michael. So in terms of total expenses, I think as you look at the third quarter, we did -- first quarter as a public company, so a little uplift in terms of like D&O and board fees and things like that. So maybe a little bit more in the fourth quarter as you kind of get a full quarter effect into that. I think that what you've seen also in the quarter is a pretty high incremental margin as we've sort of really completed the build-out, as sort of mentioned, right, we finished the build-out of Sapphire, both the electronic and the floor. We finished the rollout of the Onyx Futures trading platform earlier sort of middle of this year. So we would expect to see sort of less expense growth going forward. But look, we're still growing the top line pretty heavily. So I think that should be a consideration as well. In terms of share-based comp, yes, certainly a lot of noise in the quarter, a lot of uneven expenses. There was a lot of RSAs that vested at the time of the IPO and some additionals that kind of accelerate or vest over the next 180 days following the -- or up until the expiration of the lockup. But on Slide 23 of our deck, we provided sort of a breakout of the share-based comp, and that includes sort of the restricted stock awards, the options and some -- a little bit of warrant expense and I would probably consider the option expense to be sort of more recurring. Now that may change form. But in terms of the dollar amount, I would consider that more a recurring type of expense only because, as I mentioned, the RSAs as a private company, we're a little lumpy, and a lot of them vested either at the time of the IPO or over the period of the lockup. So hopefully, that gives you some good color there. Operator: The next question is from Patrick Moley with Piper Sandler. Patrick Moley: I just had a broad one on options market growth. We've seen very strong strength over the last few years. So just wondering how you guys are thinking about the setup from here, and I apologize if this was addressed earlier, we jug on a few calls, but just the outlook. And then heading into next year, what are one of -- some of the major themes that you're kind of focused on or expect to play out in options? Thomas Gallagher: Patrick, thank you very much for the question. I'll start it, and then I'll ask Shelly to add to it. But -- we -- when you look historically at what's happened in our industry, back in 2012, we were doing 15 million contracts a day. And then we hit 54 million contracts a day last year, only to see ourselves in October at 67 million contracts today. I feel that the industry tailwinds, particularly the growing retail base of market participants bodes very well for continued growth in our Options segment. When you couple that with some of the new filings from some of our competitors with respect to short-dated options, I see continued growth opportunities. Yes, this is our more mature business segment, but we still think there's robust growth because of the industry tailwinds, the infrastructure that we've invested in and the very recent launch of the MIAX Sapphire trading floor. Maybe Shelly, you could fill in a little more details as we talk about the opportunities for our more mature business. Shelly Brown: Thank you, Tom, and thank you for the question, Patrick. The growth in retail, I believe, will continue. The experience they have by the offerings from the retail firms, the ability to trade basically for free will fuel further growth with the market rising, I think there's more exuberance in the marketplace. There's more ability for people to get involved in the marketplace and the short-dated options bring prices -- options that are priced lower and can -- the retail can reach easier. So we think that the retail experience will continue to expand going forward. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Tom Gallagher for any closing remarks. Thomas Gallagher: Thank you very much. Obviously, we're very excited to have just released our third quarter earnings, and we're very grateful for the support that our member-based community of our members in options, equities and now futures. We're very excited about the opportunities going forward. And we really feel good about having a fortress-type balance sheet now as a result of the IPO. So thank you for your time today, and we're looking forward to future calls as we move forward as a public company. Thank you, and have a nice evening. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, welcome to Turkish Airlines' Third Quarter 2025 Earnings Call. [Operator Instructions] Now I will leave the floor to our host. Sir, the floor is yours. Murat Seker: Thank you very much. Good afternoon, everyone, and thank you for joining us. During the third quarter, the airline industry's operating environment was shaped by a number of external and internal factors. Traveler confidence in North America weakened amid unpredictable immigration policies, while the competition across Europe intensified as carriers increased capacity to capture peak season demand. Persistent supply chain constraints in aircraft and engine manufacturing, combined with cross-border tensions continue to affect market conditions. In this context, Turkish Airlines remained agile and disciplined. Our third quarter results reflect our ability to adapt dynamically to rapid evolving market conditions while maintaining a firm focus on our long-term strategy. In the third quarter, we also underlined our commitment to sustainable shareholder returns with the second installment of our dividend payment amounting $110 million. Before moving to the financial results, I would like to highlight the major developments and achievements of the quarter. Most importantly, we took an important step towards preserving our growth trajectory by placing orders for 50 firm and 25 options for Boeing 787 aircraft. Deliveries are scheduled between '29 and '34. Once completed, they will significantly elevate our operational efficiency, flexibility and passenger comfort across our network. Similarly, we completed negotiations with Boeing regarding the purchase of a total of 150 737 MAX aircraft, consisting of 100 firm and 50 option orders. Currently, we are working on the details of the deal with the engine manufacturer, CFM International. These steps reflect our goal of operating in an entirely new generation fleet by 2035 in addition to our annual capacity growth target of 6% for the coming decade. During the last quarter, we launched flights to Seville in Spain and Port Sudan, while resuming operations to Aleppo in Syria and Misrata in Libya, rebuilding our presence in these important regional markets. Turkish Airlines continued to be recognized internationally for its achievements in both service and quality and aircraft financing capabilities. We received the World Class Award from APEX for the fifth consecutive year, along with best-in-class distinctions in both sustainability and food and beverage categories, reflecting our strong commitment to delivering an exceptional passenger experience. Moreover, at the Airline Economics Aviation Awards in London, we were recognized with 3 major titles: European Overall Deal of the Year for an Islamic finance lease in Swiss francs, European Supported Finance Deal of the Year for a Balthazar-guaranteed JOLCO financing and Sustainability Aviation Overall Deal of the Year for our sustainability-linked JOLCO financing. These achievements underscore the depth of our financial expertise and our ability to secure competitive diversified funding from global markets. Following these updates, I would like to briefly touch on the rationale behind our investment in Air Europa. Based in Madrid, Air Europa operates a fleet of 57 aircraft across 55 destinations, carrying more than 12 million passengers annually. As a leading carrier between Europe and Latin America, its strong regional presence and complementary network will further strengthen our role as a bridge connecting continents. This investment also aligns closely with our long-term strategy, enhancing our access to the fast-growing Latin American market and creating new opportunities for both passenger and cargo traffic between Spain and Turkiye. By linking these 2 major global tourism destinations, we will improve connectivity across Europe, Latin America, the Middle East and Asia, offering passengers greater options, new travel itineraries and smoother connections. The collaboration will also foster tourism flows between Turkiye and Spain, supporting both economies and deepening cultural exchange. Importantly, this partnership is structured as a minority investment, ensuring Air Europa maintains its independent identity while benefiting from Turkish Airlines operational expertise and global network. Now let's take a closer look at our results. In the third quarter, Turkish Airlines total passenger capacity rose by around 8% annually. We carried more than 27 million passengers to their destinations, reaching a record number in a single quarter and recorded a load factor of 85.6%. Growth was largely driven by robust demand in Asia and Africa. On the other hand, softer demand in North America, intensifying competition in Europe and the geopolitical situation in Middle East presented the headwinds. During the July-September period, total revenues increased by 5% year-on-year, reaching nearly $7 billion. Passenger revenues rose by 6%, benefiting from strong volume growth. Meanwhile, cargo revenues declined by 7% to around $850 million, mainly reflecting ongoing trade tensions and increased competition from sea freight. Despite the revenue growth, profitability was lower compared to last year, mainly due to sequentially higher jet crack spread, the second half wage adjustment and partly softer yields. As a result, EBITDAR stood at almost $2.1 billion with a margin of 29.6%, while net income realized -- was realized close to $1.4 billion. With the slowdown in cost inflation, our structural improvements will become more visible as we progress in our initiatives to improve flight productivity, accelerate organizational streamlining and advance more centralized back-office functions. On the revenue side, we are taking steps to strengthen our passenger mix with increased premium offerings while supporting ancillary revenue generation through our Miles&Smiles loyalty program, TK Holidays, along with our express cargo subsidiary, Widect. Looking ahead, our forward bookings indicate optimism, supported by buoyant demand across Asia and Africa in addition to swift recovery in the Middle East after the peace deal. As evidenced by our October traffic results, improvement was across the board. Compared to same month last year, our number of passengers was up materially by 19% load factor by 2 percentage points, yields by 1% and RASK by more than 3% despite substantial capacity increase. Cargo volume rose by 16%, 10 percentage points higher on a monthly basis, demonstrating a good start to high season. Together with easing cost pressures and supportive fuel prices, we anticipate an EBITDA growth in the last 3 months of the year. In closing, against the headwinds, our positive traffic trajectory is encouraging us as we approach '26, supported by continuous investment in our business, and capitalizing on new opportunities, we remain strongly confident in the potential of our long-term strategy and return targets. I will now pass the call over to Fatih Bey to elaborate on our results and provide additional insights. Mehmet Korkmaz: Thank you, Murat Bey, and good afternoon, everyone. In the third quarter of the year, we expanded our passenger capacity selectively considering aircraft delivery delays, GTF groundings and regional conflicts. Sequentially, capacity growth increased by 1 percentage point from the previous quarter, standing 43% above pre-pandemic levels, while European peers recovered only 9% during the same period. Despite of the busy summer air traffic, our on-time departure performance increased by almost 10 percentage points compared to the third quarter of last year. In the July-September period, international transfer traffic expanded faster than direct traffic. On short-haul routes, particularly within Europe, direct growth remained relatively subdued due to intensified competition. However, a closer look at figures shows a significant increase in direct traffic from Latin America and Asia to Turkiye, demonstrating the continued appeal of our network's global reach. Similar to the second quarter, over 80% of total sales were made through direct channels, reflecting the success of our new distribution platform, TKCONNECT. This shift not only supports profitability by reducing costs, but also enhances our ability to offer personalized products and promote ancillary services more effectively. Accordingly, these results in cost savings of $48 million in the first 9 months of the year. Details of our traffic results show that the Far East remained one of the strongest regions. Compared to the same period last year, almost 9% capacity increase combined with a more than 11% higher demand led to almost 2 percentage points in rising load factor, well above our budget and encouraging for the upcoming months. Demand in Japan stayed robust, supported by sustained travel appetite and ongoing Osaka expert. Starting from the fourth quarter, we plan to expand capacity to Tokyo Narita by 40%. China also stands out as a key -- another key growth market where we will gradually raise weekly frequencies from 21 to 32. Given the strength of demand, we do not expect any weakness in load factors in near term. Further capacity growth is also planned in Indonesia, Thailand and Vietnam in addition to the launch of scheduled flights to Phnom Penh in December. On the other hand, rising competition in Malaysia and Singapore may put some pressure on unit revenues. Africa delivered another quarter of strong performance. Following a substantial capacity expansion, demand remained highly resilient with particularly remarkable results from our newly launched Libya routes. Benghazi and Misrata performed above expectations and contributed to overall regional momentum. The recent capacity increase in China is also expected to support growing flows towards West Africa, enhancing our network connectivity across the continent. In the North America, the impact of U.S. policy changes continue to weigh on the ethnic travel demand. As peak travel season came to an end, we are now transferring part of the capacity towards Asia to better align with market dynamics. On the other hand, Latin America demand continues to perform well, particularly on rout to Panama and Argentina. In Europe, competition remained intense throughout the quarter as local carriers significantly expanded capacity and pursued aggressive pricing strategies. Capacity additions from low-cost carriers have also negatively impacted AJet unit revenues. Demand from key markets such as Germany, U.K. and Scandinavia was slightly weaker, while increasing transit traffic partially offset the slowdown in local demand. Consequently, we observed a slight slowdown in direct travel from Northern Europe to Turkiye. Demand to and from Middle East began to recover as tensions that had escalated in June started to ease. Following the peace agreement, bookings have accelerated noticeably, pointing to a swift normalization in the region. In the domestic market, yields declined by 7% due to base effect and change in passenger mix. Last year's low economic class availability prompted more passengers to trade up to business class. With this year's higher capacity, economy availability increased, which in turn reduced the business class share. During the July-September period, passenger revenues rose by 6%. Strong performance in ancillary and technical services also contributed positively to our growth. External technical revenues grew by more than 28%, reflecting continued demand for maintenance services as production bottlenecks persist and the utilization of older aircraft remains elevated. We expect this momentum to continue in the coming quarters given the limited availability of new aircraft deliveries. Conversely, cargo revenues followed a different pattern. Trade restrictions and tariff measures weighed on overall cargo flows, which led to a 7% lower revenue in the third quarter. Apart from trade tensions, additional capacity from new vessel deliveries as the order book-to-fleet ratio is at its highest point in more than 15 years and expectations of a reopening of Red Sea continue to pressure yields. In the third quarter, AJet carried more than 7 million passengers. Despite groundings related to GTF engine issues, capacity increased by around 23%. During the period, AJet continued expanding its international network from Ankara, adding capacity to markets such as Egypt, Sweden, Uzbekistan and Kyrgyzstan. New direct services to European cities, including Madrid and Barcelona strengthened Ankara's role as a regional hub, connecting Europe, the Middle East and Central Asia. This expansion remains central to Ajet's strategy of positioning itself as a competitive low-cost carrier with a strong presence beyond Turkiye's borders. By the end of September, active fleet recorded 80 aircraft. With additional deliveries planned for the remainder of the year, annual capacity is expected to rise around by 15%, accompanied by higher load factors. As in previous periods, revenue growth during the third quarter was mainly supported by passenger operations benefiting from capacity increase. Conversely, lower cargo revenues and softer yields in certain regions limited overall profitability. On the cost side, although Brent fuel prices remained favorable, higher crack spread, wages and weaker U.S. dollar negatively affected performance. Consequently, profit from main operations declined by around 21% to around $1.1 billion, while EBITDAR decreased by 12% year-over-year to almost $2.1 billion. In the third quarter, total cost per ASK increased by 2.8% year-over-year, mainly driven by higher personnel expenses following the midyear inflation adjustments. On the fuel side, even though average jet fuel prices were lower than last year, widening crack spread limited the overall benefit compared to the previous quarters. Meanwhile, strict control over advertisement spending and a higher share of direct sales and fewer wet-leased aircraft partially offset the cost pressures. Negatively, airport and air traffic-related unit costs increased by almost 12%, mainly due to revised fee schedules at major European hubs and stronger euro. Aircraft maintenance CASK also remained elevated, reflecting the ongoing GTF engine issue. Free cash flow generation remained healthy during -- in the third quarter, amounting to around $350 million. Accordingly, 12-month community free cash flow reached $1.6 billion. After debt service, liquidity rose by $200 million sequentially to almost $7.9 billion. On the other hand, net debt increased by $700 million compared to previous quarter, mainly due to new aircraft deliveries and the weaker U.S. dollar. Correspondingly, leverage recorded is 1.4x, well below the target range of 2 to 2.5x. As mentioned by Murat Bey earlier, while travel demand remains positive in the fourth quarter, the softness observed in North America during the summer led us to slightly revise down our revenue growth guidance by 1 percentage point to 5% to 6%. Since the beginning of this year, ex-fuel unit cost development followed our expectations. In the final quarter, we anticipate a notable improvement in cost performance driven by base effect. With that, we are on track to reach our unit cost guidance of a mid-single-digit annual increase. Taking these factors into account, we are maintaining our 22% to 24% EBITDA margin expectation for 2025. With this, we conclude our prepared remarks section of our earnings call. Now back to Maria for the investor questions. Operator: [Operator Instructions] Mehmet Korkmaz: Welcome back. Before we start the Q&A question, I would like to just briefly mention about a couple of actions that we took during the summer. Summer was a busy period not only for our operations, but also for our Investor Relations team. As part of our improving IR activities, we conducted a perception study to gather valuable feedback from you, our analysts and investors. In the coming period, we will be gradually implemented the suggestions offered to strengthen our engagement with you. And with this occasion, I would like to thank all of the participants for taking time to share their views. Now let's continue with the Q&A section of our call. Murat Bey, we got quite a few questions from our analysts and investors. Starting with, could you walk us through the main factors that shape the third quarter performance? Murat Seker: Sure. Thank you, Fatih. On the positive side, the first thing comes to mind is the strong demand we have been seeing in the Far East and Africa and then third wise, the domestic market. In the Far East, for example, RPK was up by double-digit 11%. In Africa, it was up by almost 20%. And the third-party revenue share of Turkish Technic, which currently is the third biggest MRO provider in Europe. The revenue from third party went up by 28% in this quarter. These were the positive developments, plus brand continuing to be lower than projected. And the structural tailwinds that Fatih also touched upon a little bit, the improvements on our distribution and sales costs as we started to use more of our direct channels, they were also helpful in the -- to the bottom line. On the negative side, the volatile geopolitical situation and unpredictable immigration policies and cargo yields being down by almost 16% year-over-year, the jet crack spread being up by 8% to 10% level, and the inflation adjustment on salaries, personnel expenses were the 3 big items that provided a negative development for this quarter's performance. Mehmet Korkmaz: Murat Bey, can you provide an update on the current status of the GTF groundings and how they are impacting your operations? We got this question from [indiscernible] and [ Kurt Hofton ]. Murat Seker: Well, I mean we know we have been in a very, very close coordination with Pratt & Whitney, who is trying to solve the problem in this speediest way. Still, we have quite a sizable number of aircraft that are grounded. Of the 100 GTF-powered neo aircraft we have in the fleet, today, 40 of them are parked. And this seems to be continuing around 40. It will go up to 50 come down a little bit, all throughout '26 as well. So there has been a major improvement. But this, of course, is a little related to the fact that we keep getting more GTF-powered neos to the fleet. So we keep using them so that our staff -- the capital utilization and aircraft utilization continues. Mehmet Korkmaz: Murat Bey, could you also provide insights into current passenger booking trends? October results were quite strong. And maybe region-wise, you may elaborate on the details. Murat Seker: Sure. Well, as I just said, Far East, Africa and domestic have done well so far. And looking into the future, this -- in the Far East, for example, we expect to have a 13% and then another like a 13% to 15% capacity growth in the next 2 quarters, including the fourth quarter of this year and the first quarter of next year. Overall, before getting the region-specific details, we are planning to put 10% to 11% ASK growth with a flattish yield in the last quarter of this year in overall our growth. Into the regions, I just mentioned Far East. Then after Far East, we will see a very significant growth in the Middle East. There is, of course, a lot of the base effect here. And then Africa is going to have about 13% to -- 12% to 13% capacity growth in the next 2 quarters. The forward reservations from November for the next 6 months look quite positive. We are expecting a busy winter travel seasons ahead of us, especially from December to April of next year, we see double-digit capacity growth month-over-month, and then we also see mid-single-digit yield growth going forward. Mehmet Korkmaz: The unit revenues in some regions has been weaker in recent months, particularly in North America. Have you made any adjustment in pricing or market share strategy? And do you consider to defer some aircraft deliveries to reduce capacity growth? Murat Seker: As we keep saying in almost every investor call, the diverse network we have is allowing us to channel the capacity between regions easily depending on the demand environment. While relative softness in North Africa -- North America, sorry, we have started to transfer that capacity to Asia at the beginning of the quarter where the demand has been much stronger. Additionally, we expanded the product segmentation in pricing to all international regions after implementing it in Americas and Europe. Also in Asia, we have done some tactical adjustments like increasing the capacity to Bali and exotic destination and getting a larger share of the segment traffic out of Philippines, for example. Mehmet Korkmaz: This is quite a popular question. We have been getting a lot of this from our investors. Some suggest that Turkiye is becoming a more expensive travel destination compared to its peers. Considering the third quarter performance, what is your view? How the demand looks like in the upcoming period? Murat Seker: Well, according to the tourism figures of the first 9 months, which was announced last week, number of visitors to Turkiye went up by 2% to 50 million, which actually aligns closely with the updated annual growth target of 4 million for 2025 from about 62.5 million to 65 million, which was the number announced at the beginning of this year. Moreover, over the last 5 years, tourists to Turkiye increased tremendously. When you compare the amount of tourists we had in 2024, compare that with the number in 2021, it is more than -- it has more than doubled. And just from -- it has even went up higher than its 29 (sic) [ 2019 ] level of about 20%. So when you look at this macro scale, number of tourists coming to Turkiye has been increasing dramatically. However, in particular in '25 -- in '24 to '25 we have been seeing some slowdown in the pace which we think is natural. So it cannot keep continuing 10%, 15% year-over-year. When you look at the third quarter, in particular, still number of tourists coming to Turkiye was up by almost 2%. And then it's -- as I said, it resonates well with our year-end target numbers. For Turkish Airlines, in the third quarter, we carried almost the same number of passengers to Turkiye compared to last year. So we don't see much of a deterioration or shrinkage in this segment. Although there might be some negative effects due to relative strength of Turkish lira, tourism members -- tourism numbers suggest the resiliency of this industry. Also, we have been seeing some change in the composition where the tourist is coming from. Latin America, and Far East has been growing rapidly, which yield higher ticket price and tourism income for the country. For example, we have recorded 7% increase in number of passengers traveling from Far East to Turkiye in the first 9 months of this year, especially after we opened our route to Australia. And in addition to that, to Japan, South Korea and Thailand were sending a significant number of tourists to Turkiye. Mehmet Korkmaz: Thank you, Murat Bey. Can you also share how premium cabin performance compared with the economy during the quarter because most of the peers also mentioned about the strength of the premium class. Murat Seker: Well, the network-wide, we actually have been observing stronger premium segment performance than the main -- the economy cabin. Passenger profile for the premium segment is much less sensitive, both the economic volatility and the low-cost competition. In the third quarter, premium segment revenue yield change was almost 11% -- sorry, 11 percentage points higher than the main cabin. In the second quarter of this year, the difference between premium and economic class was 5%. So in the summer months, the difference in the passenger yield went up by more than twice. As a result, premium resilience to competition has been showing itself. '25 is the record year for our premium class load factors. In terms of aircraft, wide-body performance has been much, much stronger. Demand is being driven by the flows mainly from the Asian countries like Japan, China, Vietnam and Hong Kong. Mehmet Korkmaz: How would you assess cargo performance last quarter? And what is the outlook for the remainder of the year? Murat Seker: Well, the -- by its nature, the third quarter is typically a soft season for air cargo. Nevertheless, Turkish Cargo demonstrated a strong tonnage performance, achieving an increase of more than 10% compared to the previous year. On the other hand, unit revenue performance was significantly negatively affected by tariff-related concerns and effect of these tariffs on trade flows, especially on Asia, North America axis. And to some extent, spillover effects of the conflict in Middle East region. However, the recent trade deal between the U.S. and China, along with the peace talks in Middle East could potentially improve the outlook as we enter the high season for cargo. Internally, though, our new cargo revenue management system, which went online recently, is expected to bring additional 2% to 3% revenue in 2025. We continue to expect close to flat cargo revenues with a high single-digit increase in volumes, which we hope to compensate most of this drop in the yields with higher load factors. Mehmet Korkmaz: Continuing with the cost questions, what are your expectations for fuel unit costs, on what assumptions? Can you also share your hedging ratios? And do you anticipate any changes in this ratio in near term? Murat Seker: Well, although the oil prices trend downward with slight volatility, jet fuel costs tend to stay high, which reduces the benefit attained from the low Brent price. We expect around 10% lower fuel cost year-over-year in '25 with the assumption that year over average is going to be around $68, $69 levels. Our current hedging ratios for '25 is around 50%. And for '26, it is around 23%, respectively, with a breakeven price of approximately [ $64.5 ]. We expect a minimal fuel hedge loss this year, less than $20 million. And we maintain a structured and scenario-based approach designed to remain effective under various market conditions. Mehmet Korkmaz: Murat Bey, could you also share your ex-fuel unit cost expectations for 2025? And are there any efficiency measures to be implemented? Murat Seker: Well, the ex-fuel CASK, as you saw in the presentation on the third quarter, it was quite high. We expect that to come down to mid-single digits lower than 5% -- lower than 4% levels year-over-year in '25. And the reason for this improvement on the top of 9-month results is, first, we see moderation in inflation, which is decreasing the pressure on the inflation adjusted costs. And we have paused hiring, except for capacity growth. This will enhance our operational leverage and generate greater efficiency. And we have been increasing the crew and aircraft utilization through both schedule optimization and improving our on-time performance. Capitalizing corporate-wide functions like -- and scaling down the international organization structure is another component of it. We have put significant KPI monitoring scheme to all of our subsidiaries and the expansion of our direct sales channel, TKCONNECT has been improving our distribution and sales costs. Further, we are implementing quite a few AI projects on customer support and for back-office automation, which is also bringing us some internal efficiencies. We expect these items on the personnel efficiency, on strongly monitored KPIs and on more utilization of the AI tools to bring ongoing efficiency gains for Turkish Airlines. Mehmet Korkmaz: Murat Bey, just to add a couple of things. Hanzade from JPMorgan also asked about why staff costs are increasing ahead of our initial expectations while agreements are fixed and seem to have favorable sport cost inflation this year? Hanzade, be honest, the Turkish lira depreciation was lower than our expectation. At the same time, Turkish lira inflation was higher than expectation. So there is a mix of between 2. So we saw around 2 percentage points of ex-fuel CASK headwind from that impact. And continuing with the guidance question, are there any changes to your guidance for the fourth quarter considering third quarter revenue and forward bookings? Murat Seker: For the whole year, we are keeping our profitability target the same, while lowering the revenue growth guidance by 1 percentage point to 5% to 6% increase. As you might recall, in the earlier calls, we were targeting 6% to 8% revenue growth. This mainly is due to the softer revenue performance of the third quarter. The fourth quarter EBITDAR will be closer to last year with 22% margin. And for the whole year, thus, our EBITDAR margin expectation is going to be again between 22% to 24% levels. Nominally -- and nominally, we should be slightly lower than last year's amount of $5.7 billion EBITDAR. Mehmet Korkmaz: As we approach the year-end, we are getting a frequent question about our 2026 guidance, maybe just in terms of capacity and margins. What are the moving parts? Murat Seker: So we're still working on the budget. There is a lot of mileage we need to take before we share our '26 expectations. But roughly speaking, on the capacity-wise, I can say that we'll keep the growth continuing. This year, in '25, ASK growth expectation was around 8%. And next year, we expect that to be around 9% levels. For TK, it will be around like 7%. AJet is getting a lot of new aircraft. So the growth -- ASK growth, capacity growth for AJet is going to be larger. And thus, we are expecting overall 9% capacity growth. One, of course, big uncertainty here is the fleet. Although we believe all the deferrals that were supposed to be deferred in this year are planned and scheduled from Boeing and Airbus side. So we don't expect any surprise. But if anything, that might be one critical issue that would change our projections. For the profit evolution, we are going to be guiding somewhere between 24% -- 22% to 24% EBITDA margin as in '25, ex-fuel cost pressure should have less negative impact on our bottom line due to the better domestic and global inflation outlook. Still though, as I mentioned, because we have not agreed with the union yet, there is a collective bargaining agreement to be discussed, which is going to be initiated within the next few months. So that could bring some uncertainty. But overall, helped with the inflationary -- lowering of the inflationary pressure, we believe 22% to 24% EBITDAR margin will be attainable. Mehmet Korkmaz: What is the latest projection for the fleet size by the end of 2025? And any guidance for 2026? Murat Seker: So for '25, assuming getting our aircraft deliveries on time for the remaining 2 months, we expect around 35 net entries this year. Overall, we will be getting about 70 aircraft. This is together with TK, AJet and Cargo, and there will be 34 aircraft exiting the fleet. With the updated aircraft delivery table, we increased our '25 year-end fleet expectation to somewhere between 525 to 530 aircrafts. In '26, we are expecting roughly 50 net aircraft additions to the fleet. For TK -- sorry, for TK, it will be about 26 new additions, 20 narrow-body, 6 wide-body. For AJet, about 50, but a big portion of it will be replacing the old aircrafts and then short-term lease aircrafts. And then we'll get a cargo aircraft as well. So overall, there will be roughly 80 entries and 30 exits. Mehmet Korkmaz: In various mediums and public disclosures, you announced a number of significant non-aircraft investments in line with your growth strategy. Is it possible to elaborate on those? Murat Seker: There are significant investment projects we are undertaking, which were postponed during the pandemic. Starting from 2023, mainly, we started to revisit those projects. We needed a new aircraft maintenance hangar, which we initiated in '23. We need an additional second phase of our cargo terminal, and we need a new catering building in Istanbul Airport. These will be the biggest -- these 3 will be the biggest investment, non-aircraft-related investments ahead of us, a new cargo terminal, a new catering building, a new maintenance hangar. And in addition to these 3, after our agreement with Rolls-Royce to maintain A350 engines, we are going to be starting very soon to build an engine overhaul facility in Sabiha Gökçen Airport -- in Istanbul Airport. These 4 will be the major investments. However, they are not the whole list. As we are expanding our flight academy, we are expanding our simulator center with adding new simulators, and we are building data centers for Turkish Airlines' own needs. Mehmet Korkmaz: Third quarter leverage exceeded the guidance. And what were the main reasons? And we will be able to reach year-end targets? And how should we think about the expected leverage and net debt level? Murat Seker: So we were guiding a leverage of somewhere between 1.1 to 1.3x. In the third quarter, we realized 1.4x leverage, which is a net significant deviation, but it still is higher than our expectation. The reasons for this change is we had to lease additional aircraft to compensate the GTF-related groundings, which was about 9 aircraft of a value of about $1 billion. Then as -- the second factor, as the U.S. dollar was devalued against euro, the U.S. dollar equivalent total debt of Turkish Airlines increased because we have a significant amount of euro-denominated aircraft financing. It also led to an increase in the leverage. And third, slightly lower EBITDA due to the relatively softness in the demand that we saw in third quarter was the factors for this slightly higher leverage. For the new guidance to the end of 2025, factoring the above items plus the cash outflow regarding to Air Europa's share buy, we will see that the net debt-to-EBITDA multiple could be somewhere between 1.6 to 1.8x for 2025. Mehmet Korkmaz: Can you also comment on AJet's performance? And when will you -- when will AJet announce their results separately from Turkish Airlines? What is the capacity increase in AJet at year-end? And one last question about this -- IPO plans. Murat Seker: Well, AJet carried 7 million passengers in the first 3 quarters -- in the third quarter and more than 17 million passengers in the first 9 months of this year. So despite of the aircraft groundings due to GTF engine issues, passenger capacity increased by 24% in the third quarter. So the demand has been really strong on AJet side. They also have been investing heavily to improve their on-time performance, which was about 5 percentage points higher than 2024, and it reached 76% level. The annual capacity growth expectation is around 15% and 3.5% points higher load factors. So these all show that [indiscernible] work for AJet is going well. However, their cost base, their fleet is still needs to settle and then needs to improve. We believe we still have some more time to be able to separately report AJet's financials, but we are planning to report their traffic early next year separate than Turkish Airlines. This strong revenue evolution and improvements in the fleet have -- are going to increase -- improve its bottom line. For this year, for 2025, we are anticipating their revenue to be above $1.5 billion. And about the IPO, at the moment, we don't have such a plan. We think AJet is on a good and strong track. Next year, more than 70% of their fleet is going to be new generation aircraft. And then they are increasing their net operation in Europe, CIS region and North Africa. So the network is developing their sales channels and then ancillary revenue capacity is increasing. So -- and we are not in a rush to IPO AJet. Once it's on a seamless -- it's on a strong path of sustainable growth, we might consider such an option, but it's not in our agenda at the moment. Mehmet Korkmaz: Are we interested in any other deal like Air Europa in the foreseeable future? Murat Seker: Well, we did a little bit of an introduction about why we chose Air Europa and why we went through such an investment. So on the big picture, of course, being such a big network carrier, we are always open in similar collaborations throughout the world, being in Europe, in Americas, in Asia, Africa or Middle East. As long as we see a valuable value addition proposition, and it doesn't need to be only through an equity acquisition. It can be through several other channels, too, like the airline JV we had with Thai Airways. So as long as the partnership complements and supports our operation and it creates synergies, we remain open to this kind of opportunities. Mehmet Korkmaz: Murat, we also got another question related to Air Europa. Are there any -- I'm going to answer that, just sake of time. Are there any potential risks related to regulatory or required operator approvals at this stage? Could you also share any insights on lease expense or true EBITDAR performance and net debt level? To be honest, at this moment, due to regulatory application process, we are not able to answer any of those questions. Continuing with the fleet size, you expect a significant expansion. How will we manage the capacity increase? Do you believe the market will grow enough to accommodate your future capacity? Should we consider an erosion in margins due to massive capacity expansion? Murat Seker: Well, currently, our flight network is spanning about 355 destinations across 130 countries. And we believe there is still potential of growth in the market. To put it into some perspective, our network currently is reaching over 90% of the world's population, GDP and trade volume. We see Istanbul as a very strategic location, which is sitting across major global passenger and trade corridors connecting Asia to Europe, Middle East to Africa, Asia to Americas. And each of -- each new route that we open and each new frequency we add exponentially increases our unmatched connectivity. The aviation is currently expected to grow around 4% annually over the next decade. So our guidance of around 6% annual growth is seeming to be reasonable. And we are not going to keep adding new destinations. A very significant portion of this growth is going to come through increasing frequency in the existing markets and getting deeper in our existing network. And by our -- in our 2033 strategy, we have already factored in a low single-digit decline in unit yields by taking the competitive pressure and market dynamics into account. Thus, a growth of 6% ASK growth and EBITDAR margin between 20% to 25% is -- we think is reasonable. Mehmet Korkmaz: You also got a number of questions regarding our Boeing orders. Could you update us on the recent Boeing order and deals? What is the expected delivery schedule? And also, we got additional online questions. For example, Hanzade is asking about, do you see any risks on Boeing orders given continued engine negotiations in case of a decision not to proceed, would you be able to meet your capacity targets? Murat Seker: So the Boeing order, I think the question is referring to the narrow-body side because the wide-body is already placed and the deliveries, as I said, are going to be between '29 to '34, '35. On the narrow-body side, actually, next week or within 2 weeks, there will be another face-to-face meeting. But no matter how the meeting goes, we don't see this as a big threat on Turkish Airlines growth projections because we have proven that when the -- we don't get a direct order from the both OEMs that missing capacity has been successfully fulfilled through operating leases. Last 5 years, in particular, we were -- we had a lot of deferrals in our orders from Boeing and Airbus, yet we could grow the fleet size by more than 150 aircraft between 2020 and 2025. So we don't think it's going to be a big threat. And in any case, even if we place the order today with Boeing, the first delivery of this narrow-body is going to start in 2029 or 2030. So it's still -- we are talking about too far into the future. And there are a lot of options being from the Airbus, being from the leasing companies in the market that can be considered. So keeping these options there, to Hanzade's question, we don't see a threat on our growth projections. But this doesn't mean that we are not going to be continuing to discussions with Boeing. It has been quite a long time together with the wide-body order book. We have started negotiations together on the wide and narrow-body front. It's 150 aircraft, narrow-body aircraft. And once we settle the few remaining issues with CFM, we believe we might also be in a position to announce this deal not too far in the future once the negotiations finalize and meet our demands. Mehmet Korkmaz: Considering recent results and the operating environment, will there be any update on the 2023 strategy? Do your expectations align with the recent results? Murat Seker: When you look at it more broadly, we introduced our strategy by 2023, and we are in 3 years now into the strategy. When you look at the bottom line, we are fully in alignment with our strategic profit targets. But when you break it down, you'll see that because of the delayed deliveries, we are a little below from our strategic targets on the revenue front. And because of the higher inflation than anticipated, there has been pressures on the cost side. But the demand, again, which was not factored in to be this strong, the stronger-than-anticipated demand in '23 and '24 alleviated these negative factors and allowed us to be able to achieve from our -- to achieve the profit targets. So we are not revising our 2033 targets, but we will make an adjustment in the -- hopefully, by the first quarter of 2026, we will make some adjustments on the strategy, mainly because now it is -- seems impossible that we will be able to achieve the fleet and -- as we were targeting in '26 and '27. So those numbers need to be adjusted. But the bottom line, we don't think a big change on the profit and profit margins. Mehmet Korkmaz: Could you also provide information about the contribution of technical segment to operational profitability? Murat Seker: So usually, our main purpose of Turkish Technic is to serve Turkish Airlines maintenance needs. And as in the world, aircrafts are getting older, their maintenance requirements are increasing and to keep the fleet in operation in the busy summer months becomes more and more important. And due to Turkish Technic's strong capabilities in maintaining a very wide range of aircraft, its geographic location, its capacity to maintain aircraft currently in 3 -- in 4 different airports is giving it a lot of opportunities for third parties. As a result of this, in the first 9 months of this year, their total revenue went up by 75% to almost $2 billion. And -- by 2033, we keep investing in our MRO capacity. It will go up from the existing level of around like 65 aircraft being that we can maintain simultaneously. This number is going to go up to about -- it's going to double like 120 aircraft by 2033. Mehmet Korkmaz: Murat, we have 2 more questions, and I can quickly address them if you allow me. First, is there any major operational impact on your North America operations currently due to the airport slowdowns caused by current shutdowns? Before joining the earnings call, I spoke with our flight operation control center, and they said that it is related to the U.S. domestic market. So no, we are not seeing any impact. And also, we got questions about October traffic results. Could it purely something about extending season? To be honest, we don't believe so with -- by transferring capacity from United States towards Asia, that allows us to feed our after new flights in Istanbul. So that also increased our connectivity. And as a result, we expect fourth quarter passenger results to be strong because of that connectivity improvement. And with this question, we conclude our earnings call. Thank you all for your participation, and we look forward to being with you next quarter. Operator: We would like to once again thank you all for the presentation. So ladies and gentlemen, this concludes today's conference call. Thank you for your participation.
Operator: Good day, ladies and gentlemen. Welcome to the ePlus Second Quarter Fiscal Year 2026 Earnings Conference Call. As a reminder, this conference call is being recorded. [Operator Instructions] I would now like to introduce your host for today's conference, Amanda Dupree, Associate General Counsel. You may begin. Amanda Dupree: Thank you for joining us today. On the call is Mark Marron, CEO and President; Darren Raiguel, COO and President of ePlus Technology; and Elaine Marion, CFO. I want to take a moment to remind you that the statements we make this afternoon that are not historical facts may be deemed to be forward-looking statements and are based on management's current plans, estimates and projections. Actual and anticipated future results may vary materially due to certain risks and uncertainties detailed in the earnings release we issued this afternoon and our periodic filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K, quarterly reports on Form 10-Q and in other documents that we file with the SEC. Any forward-looking statement speaks only as of the date of which the statement is made, and the company undertakes no responsibility to update any of these forward-looking statements in light of new information, future events or otherwise. In addition, we will use certain non-GAAP measures during the call. We have included a GAAP financial reconciliation in our earnings release, which is posted on the Investor Information section of our website at www.eplus.com. I'd now like to turn the call over to Mark Marron. Mark? Mark Marron: Thank you, Amanda. Good afternoon, everyone, and thank you for joining us today for our second quarter fiscal 2026 earnings call. This quarter represents a significant milestone for ePlus as we delivered the first quarter in our history with over $1 billion of gross billings, underscoring the momentum across our business and the strength of our diversified model. Our performance this quarter again reflects our unrelenting focus on delivering the products and services our customers require in today's market. We are seeing this growth not only in the quarter, but in our year-to-date results as well, with revenue up over 20% and total gross billings of almost $2 billion in the 6-month period. I want to highlight 4 key messages. First, as I mentioned, our record $1 billion in gross billings in the quarter underscores strong and broad-based demand across our portfolio, customer segments and verticals. Notably, most of the growth was organic with acquisitions accounting for only 10%. Second, our consolidated net sales for the quarter grew 23.4%, but adjusted EBITDA grew at a rate that is more than twice that of net sales as operating leverage continues to shine through. This was supported by increased demand for our products and services, underscoring the resilience in our strategy and internal automation initiatives. Third, we continue to invest and align our resources in higher-growth areas of AI, security and cloud to deliver value-added products and solutions, enabling us to both grow our customer base and increase sales to existing customers. And fourth, our balance sheet remains strong, closing the quarter with over $400 million in cash, giving us flexibility to continue investing organically and inorganically while returning capital to shareholders. Let me start with a brief overview of the quarter's financial results. As a reminder, we completed the sale of our domestic financing business on June 30, 2025, which is now accounted for as a discontinued operations. During the quarter, we had solid execution across the board, delivering strong financial results with most of the growth organic. Net sales increased 23.4% year-over-year with broad-based growth across products, professional services and managed services. Additionally, growth was across all customer sizes and industries with notable performance in the mid-market and enterprise segments. Lastly, we saw especially strong performance across almost every vertical, except state and local government, where budget constraints persisted. Let me talk about some additional drivers of this robust performance as it relates to fast-growing areas. Security continues to be a standout performer with gross billings of security products and services up 52% year-over-year, now representing 24% of trailing 12-month gross billings, up from 21% last year. Networking posted its second consecutive quarter of sequential growth, which we believe is being fueled by AI-driven infrastructure investments. And in Data Center and Cloud, net sales grew nearly 30% year-to-date, reflecting customer modernization initiatives tied to AI deployments. Shifting to profitability. Second quarter adjusted EBITDA increased 62% and the 6-month adjusted EBITDA was 40% higher than the same period of the prior year. The operating leverage reflects our strategic alignment of headcount towards high-growth focus areas of AI, data center and cloud, security and networking. We have also leveraged AI internally to provide faster incident resolution and closure, leading to a better customer experience. Although we have grown through automation, we have been able to maintain headcount in parts of our internal and external services teams over the last couple of years. These actions provide a solid platform to build upon. Now let's turn next to AI, an area that continues to accelerate across our customer base and within ePlus itself. Our recently released AI industry pulse poll revealed that nearly 3/4 of IT and business leaders now view AI primarily as a driver of revenue growth, surpassing cost savings and customer satisfaction. This marks a significant shift in how organizations approach AI from efficiency to expansion. At the same time, the survey showed that 81% of leaders are concerned about whether their infrastructure can support advanced AI applications, underscoring the opportunity for ePlus to help customers scale securely and effectively. During the quarter, we acquired Realwave, a cloud-based AI-powered software that integrates video, Internet of Things and sensor data to detect events, make decisions and trigger automated actions, expanding our ability to deliver real-time AI-driven insights to customers. Shifting to our balance sheet and capital allocation. We have a healthy balance sheet with over $400 million in cash, enabling disciplined capital allocation, both organically and through M&A that can fuel long-term growth. In summary, our second quarter results reflect continued progress across our segments. We remain focused on driving growth, optimizing margins and deploying capital to maximize shareholder value over time. I want to close by thanking all of our ePlus teammates for their efforts in delivering a strong quarter and first half for ePlus and our shareholders. I will now turn the call over to Elaine. Elaine? Elaine Marion: Thank you, Mark, and thank you, everyone, for joining us. I will review our financial performance in the second quarter of fiscal 2026. Continued momentum across our business led to another quarter of double-digit increases in our key financial metrics. Consolidated net sales totaled $608.8 million, up 23.4% year-over-year, driven by sustained demand across our focus areas of security, networking and cloud. As Mark mentioned, we continue to see demand across all customer sizes with particular strength in the mid-market and enterprise segments. As you may recall from our last earnings call, enterprise customers resumed purchasing in the first quarter following a period of product digestion, and we saw a continuation of this trend in the second quarter. Gross billings of $1.02 billion in the quarter represented a 26.5% increase in year-over-year with the majority of this growth being organic. This milestone underscores the strength of our diversified business model and our strategic focus on high-growth areas, including offerings that enable AI consumption. Product sales in the quarter totaled $485.1 million, up 24.5% from the prior year, led by robust demand in networking and security solutions, aided by increased AI adoption as well as growth in data center and cloud. Service revenue reached $123.8 million in the quarter, representing growth of 19.4% year-over-year. Professional Services grew 23.3%, led by the addition of Bailiwick in August of 2024, while managed services increased 13.5%, led by the strength in enhanced maintenance support and cloud offerings. Services remain a strategic focal point for ePlus, and we remain committed to add to our capabilities in this segment to build out our strong recurring revenue base over the long term. Taking a look at our customer verticals, Sales remained broad-based. Telecom, Media and Entertainment and SLED, our 2 largest verticals accounted for 27% and 14%, respectively, of net sales on a trailing 12-month basis. Health Care, Technology and Financial services represented 13%, 13% and 9%, respectively, with the remaining 24% divided among other end markets. Second quarter gross profit totaled $162.1 million, up 27.4% from the prior year quarter. This represents a consolidated gross margin of 26.6%, up 80 basis points from 25.8% last year, driven by increased product margins. Product gross margin expanded 160 basis points to 24.5%, reflecting a favorable mix as we sold a higher proportion of third-party maintenance and services in the quarter, which are recorded on a net basis. Professional Services' gross margin was 38.2% compared to 41.3% a year ago. This change was due to the acquisition of Bailiwick, which had lower gross margin than our legacy Professional Services. Managed Services gross margin was 29.5%, in line with the prior year quarter. Consolidated operating expenses increased 12.9% to $113.3 million, reflecting higher salaries and benefits, primarily from a full quarter of Bailiwick and additional variable compensation due to the increased gross profit generated in the quarter. Headcount from continuing operations at quarter end was 2,138, down 6% from the prior year quarter as we focus on roles in high-growth areas, including AI, cloud, security and networking. Operating income rose 80.9% to $48.8 million, significantly outpacing the increase in operating expenses, demonstrating meaningful operating leverage. Earnings before taxes increased to $54 million from $27.3 million in the prior year quarter. Other income was $5.2 million, which includes $4.5 million in interest income and foreign exchange gains of $700,000. Our effective tax rate for the quarter was 29.3% versus 27.5% in the second quarter of fiscal 2025. Consolidated net earnings from continuing operations were $38.2 million, above net earnings of $19.8 million in the prior year quarter, and net earnings from continuing operations per diluted share was $1.45 compared to $0.74 in the prior year quarter. Discontinued operations net loss was $3.3 million compared to net earnings of $11.5 million in last year's quarter. Diluted loss per share from discontinued operations was $0.13 compared with earnings per share of $0.43 last year. Non-GAAP diluted earnings per share for continuing operations was $1.53, up from $0.94 in the prior year. Our weighted average diluted share count was 26.4 million compared to $26.7 million in the second quarter of fiscal 2025. Adjusted EBITDA totaled $58.7 million, up 61.6% from $36.3 million a year ago. Adjusted EBITDA grew more than twice as fast as net sales, underscoring the operating leverage inherent in our business model. Moving to our results for the 6 months ended September 30, 2025. Consolidated net sales totaled $1.25 billion, up 21.1% from $1.03 billion in the first half of fiscal 2025, driven by an 18.8% increase in product sales and a 32% increase in services revenue. Year-to-date gross billings totaled $1.98 billion, an increase of 20.3% year-over-year. Consolidated gross profit for the first 6 months was $310.3 million, 22.1% above the $254.2 million in the first half of fiscal 2025. Gross margin expanded 20 basis points to 24.9%, led by an increase in product margins. Year-to-date consolidated net earnings from continuing operations were $65.3 million or $2.47 per diluted share compared to $44 million or $1.64 per diluted share in the first half of fiscal 2025. Discontinued operations net earnings for the first 6 months was $7.3 million versus $14.7 million in the first 6 months of fiscal 2025. Diluted EPS from discontinued operations was $0.28 compared to $0.55 in the comparable period last year. Non-GAAP earnings per share from continuing operations were $2.79, up 42.3% versus $1.96 in the prior year period. Turning to our balance sheet. Cash and cash equivalents at quarter end totaled $402.2 million, up from $389.4 million at the end of the last fiscal year. Our cash position remains robust, providing us with significant flexibility to continue investing in both organic and inorganic growth initiatives as we support our capital allocation strategy. Inventory at quarter end was $154.1 million, up from $120 million at the end of fiscal 2025. Inventory days outstanding were 15 days, slightly above 14 days in the prior sequential quarter and 12 days in the prior year. Despite the slight uptick of inventory days outstanding, our cash conversion improved to 30 days from 32 days in the prior year period. Our capital allocation strategy remains focused on 4 priorities: strategic acquisitions that complement our capabilities, organic investments in high-growth areas, quarterly dividends and opportunistic share repurchases. Consistent with these priorities, we repurchased 60,000 shares during the quarter after our stock repurchase plan authorization began on August 11, 2025. In addition, we are continuing to deliver shareholder value with the announcement of our second quarterly dividend of $0.25 per common share payable on December 17, 2025, to shareholders of record on November 25, 2025. In summary, we delivered strong second quarter and first half results, demonstrating superb execution by our employees, momentum in our business and the success of our strategic initiatives. Now I will turn the call back over to Mark. Mark? Mark Marron: Thank you, Elaine. The second quarter and year-to-date growth reflects momentum in the business and is aligned with our focus on high-growth areas. Underlying end market demand is healthy across much of the portfolio, and we continue to be pleased with our current positioning. Reflecting the strong financial performance to date and momentum we expect to continue, we are increasing our fiscal year 2026 net sales, gross profit and adjusted EBITDA guidance. Net sales growth over the prior fiscal year is now expected to grow at a rate in the mid-teens from fiscal year 2025's $2.01 billion from continuing operations. Gross profit is also expected to grow at a rate in the mid-teens from fiscal year 2025's $515.5 million from continuing operations. Adjusted EBITDA is expected to increase from fiscal year 2025's $140 million at approximately twice the rate of net sales growth for fiscal year 2026 as continuing operation results are expected to benefit from operating leverage. We also announced today our quarterly dividend of $0.25 per common share, which will be paid on December 17, 2025, to shareholders of record on November 25, 2025. Our solid cash balance positions us well to allocate capital to growth while returning capital to our shareholders. It was a significant quarter and first half for ePlus with double-digit growth across all key metrics. The sale of our domestic financing business has simplified our business model and allowed us to focus on being a pure technology player. It also gives us the financial flexibility to expand our footprint and customer base, both organically and through acquisitions while continuing to expand and enhance our solutions and service offerings. We are well positioned to build on our momentum, capitalize on new opportunities and deliver value to stakeholders over the long term. Thank you for joining us today. We will now open it up for questions. Operator: [Operator Instructions] Your first question comes from the line of Maggie Nolan with William Blair. Margaret Nolan: Congratulations on the results. I'm hoping that you can double-click for me on the strength in security. It was a pretty impressive numbers that you shared there. So what is driving the strength in that offering? Mark Marron: Well, a couple of different things, Maggie. So Security was up 56% in terms of gross billings. Overall trailing 12 months, it's up nicely as well. What we're starting to see is a lot of the AI initiatives with customers making investments, looking at data classification, data cleanliness and projects along those lines. And then just the normal network security and all the other things that we've done over time. We are starting to see an uptick in, I'll say, AI-related deals across compute, storage and security. And that's part of the reason we had a nice quarter in those areas. Networking, by the way, I know you didn't ask for it, but Networking was up nicely. So that also contributed nicely to the quarter. And if you remember, a few quarters back, it was actually down due to the supply chain issue with the digesting of product that Elaine talked about. That's actually starting to pick up as customers look to modernize their networks to be ready for AI. Margaret Nolan: Okay. Great. And maybe to round it out, can you talk a little bit about what you're seeing by customer end market as well? There seem to be some variability in strength and weakness across your different end markets. Mark Marron: Yes. In terms of -- well, let me touch on 2 things, make sure -- as it relates to the verticals, we had a strong quarter across almost every vertical. The only thing that was down was our state and local, which I think had to do with a lot of what's going on in the government and funding and things along those lines. Otherwise, all the verticals were up. And as it relates to our customer size segments, Maggie, the mid, the 500 to 10,000 and the 10,000 and above, which we consider to be enterprise was up real nice. So across, I'd say, all 3 of our segments, product, professional services, managed services, across all the verticals, except for the state and local in the SLED space, and then across all the different product areas, we were up significantly, except for collab -- collaboration, I should say. Operator: Your next question comes from the line of Gregory Burns with Sidoti & Company. Gregory Burns: It's good to see the AI starting to now translate into some order flow for you. Could you just talk about maybe how the pipeline looks? What gives you confidence in kind of the raised outlook for the year? Any kind of color you can give on preorder or demand activity and pipeline, how the pipeline is shaping up? Mark Marron: Yes, Greg. So a couple of different things. So as it relates first to the quarter, really proud of the team in terms of the execution, especially in a kind of an uncertain economic market with what's going on with the government shutdown, tariffs and inflation up or down, right? So team really did a nice job in the first half. We also -- as we talked about on previous calls, we do a nice job of tracking the pipeline and opportunities that are in there. We did have a couple of nice large deals that fell in Q2. But as you can see, based on our guidance, we're still very optimistic about the rest of this year. And I think that kind of shows in our guidance. Gregory Burns: Okay. And then the leverage, obviously coming through really nicely now. How should we think about leverage versus need to invest. Obviously, there's a lot of growth opportunities out there for you, particularly maybe now with AI becoming more of a meaningful driver. So how should we think about leverage and how much the margins could expand from, I guess, where you're guiding to for this year? Mark Marron: Yes. So 2 things there, Greg. One, I think you can expect operating leverage for a little period of time here. But as we've talked about on previous calls, we're a growth company. We're in -- after selling a finance, we're in a pretty strong, I'll say, cash position that we have a lot of flexibility in terms of how we can go grab market share, expand our footprint, our customer base, and that could be through organic hires, which we will be making to kind of build out our services and AI capabilities and also through acquisitions. So short term, I think you continue to see some operating leverage, but we're still going to be active in looking at where we can build out our footprint and customer base, both organically and inorganically. Operator: That is all the questions that we have. I would like to turn it back over to Mark Marron for closing remarks. Mark Marron: Okay. Thank you, operator. Everybody, thank you for joining us on the call today. Once again, we feel good about what the team put up this quarter and for the first half and want to thank you for joining us on this call. Take care, and have a great holiday season, if you can. Take care. Operator: This concludes today's conference. You may 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: 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: Thank you all for joining us this morning. Before I turn the call over, I need to advise that certain statements made during this call today may contain forward-looking information, and actual results could differ from the conclusions or projections in that forward-looking information, which include, but not limited to, statements with respect to the estimation of mineral reserves and resources, the timing and amounts of estimated future production, cost of production, capital expenditures, future metal prices, and the cost and timing of the development of new projects. For a complete discussion of the risks, uncertainties, and factors, which may lead to the actual financial results and performance being different from the estimate contained in the forward-looking statements, please refer to Allied Gold's press release issued last night announcing quarter 3, 2025, operating and financial results. I would like to remind everyone that this conference call is being recorded and will be available for replay later on today. Replay information and the presentation slides accompanying this conference call and webcast are available on Allied Gold's website at alliedgold.com. I will now turn the call over to Peter Marrone, Chairman and CEO. Peter Marrone: Operator, thank you very much. And ladies and gentlemen, let me begin this conference call by pointing to the quote at the bottom of the first slide of our presentation, and I would like to repeat that quote. Let's not react to speculative headlines and geopolitical matters. We continue to operate normally. We refer to Mali in particular, and particularly in light of recent headlines. Let me begin by talking about the people of the country. They are industrious, entrepreneurial, and overwhelmingly in the country across the population, there is support for mining. Similar to many countries, the politics, geopolitical circumstances go on. Mostly, they are stable, sometimes changes occur. But business goes on, and this is especially true for mining. Recent disruptions in fuel supply into the capital of the country, affect only the capital, and there are signs of improvement. Regional governments and internationally support has been offered. And national efforts to counter the factors that have disrupted the fuel supply have received local, regional, and international endorsement. Prolonged fuel shortages do risk civil unrest and other challenges. But so far, this has not occurred and fuel supplies have begun to enter the capital. While there has been unexpected government change in the country before, and this is true for many countries, it has not been the result of external forces, and that seems to be true now as well. And in those times of government change, I remind everyone that mines have continued to operate normally, production and cash flows were generated. We have no reason to believe that this is not true now, and we attribute that to the industrious and entrepreneurial nature of the people, who support business as usual regardless of political affiliation or affinity and regardless of localized conflicts. So with that then, our Q3 was certainly ordinary and normal course. We had solid production of just over 87,000 ounces that sets us up for a strong Q4. We had strong cash generation, just under $110 million of adjusted EBITDA and our operating cash flow of just under $200 million. We made significant progress on the Sadiola Phase 1 expansion and the Kurmuk development. Our all-in sustaining costs of $2,092 per ounce were down 11% as compared to the second quarter. As we had indicated with our second quarter conference call, we would expect, and we expect further reductions in Q4 with higher grades at Sadiola, particularly with the Phase 1 expansion completed over the course of the next few weeks into December. Operations are performing well, we're operating normally at Sadiola, and that carries strong momentum into the fourth quarter. At Agbaou production quarter-over-quarter from Q2 to Q3 was up 43%. We expect that sustained production to continue into Q4 and into next year. And at Bonikro, we're on plan, grades are where we expect them to be, recoveries and throughput improved. And again, we expect that that will continue into this quarter and the quarters to follow. We had adjusted EBITDA to conclude of $110 million, cash flow of just under $200 million and cash balances at the end of the third quarter of just over $262 million. What to expect then in Q4 and beyond? Sadiola and Bonikro will be notably higher. We indicated up to 40% higher in Q4 over Q3. We are almost halfway through the quarter, and we can see that production ramp-up progressing very well. Our Q4 costs are expected to improve. Momentum from that is expected to continue into the first quarter of next year and throughout the year. And we stand by the guidance of a production level for 2025 that is greater than 375,000 ounces, that sets us up for a consistent 100,000 ounces per quarter at improved costs, leading to improved financial performance and then Kurmuk kicks into production by the middle of the year. With that, ladies and gentlemen, let me pass the call to Johan, our Chief Operations Officer to go through our production in more detail. Johannes Stoltz: Good morning, Peter, and good morning, everybody. Thank you very much, Peter, for the headlines. I would like to start off with the -- on Slide 3, the operations, and starting off with Sadiola. The operations were stable and on plan. I was at Sadiola last week and operations are running normally. We're not seeing any logistic disruption and consumable inventories, including fuel remains at normal levels. The operation is running normally with noticeable improvements. Production is on track to meet the full year guidance with Q4 expected to be 40% higher than previous quarters. Phase 1 expansion remains on schedule for completion in December, enabling us to treat up to 60% fresh ore in the mill feed. Bonikro was on plan with higher grades, better throughput and recoveries. The stripping and maturity of Pushback 5 and Pushback 3 will provide us access to higher grades at lower cost in Q4. Agbaou production increased 43% quarter-on-quarter, as Peter also alluded to, and driven by higher grades and throughput and operational improvements. Overall, operations were on plan, positioning us higher production and lower unit cost in Q4. If we go to the next slide regarding the Sadiola Phase 1 expansion progress. The Phase 1 expansion remains on schedule and continued to advance through Q3 and into Q4. Mechanical installation of the new mill and crushing circuit is complete. The mobile pebble crusher is on site and ready for the December commencement. Engineering and pre-leach thickener is on its way to support higher fresh ore processing with Phase 1 nearing completion. We expect new commission circuit to be ready to receive ore late in the fourth quarter. At that point, Sadiola will be able to process up to 60% fresh ore through the plant, which will materially lift throughput rates, improved recoveries, and lowering processing costs. This expansion will bring additional flexibility into the operation and pave the way for lower cost and improved predictability. So in short, Phase 1 is on plan, commissioning begins in December, and it will set up structural setup change for Sadiola production and cost base. Moving over then to the Kurmuk progress. Kurmuk continues to advance on schedule. Engineering and the substantial complete and the site extension is well underway. The plant construction, including the mechanical erection, concrete works, and the key infrastructure such as water, the water dam is advancing. Logistics are active. Long lead equipment is on site. Initial ore supply has been established from both Ashashire and Dish Mountain. The plant capacity has been approved to the 6.4 million tonnes per year, which enhances the long-term production profile. Looking ahead, priorities to complete the mechanical and electrical infrastructure works, build up to the 3-month high-grade stockpiles, connect the power line, and advance to the pre-commissioning. Upcoming priorities include the completion of the construction, build the high-grade stockpiles, as alluded earlier, provide the line connection and for -- and the pre-commissioning. We maintain on track for first gold by mid-2026. And with this, I'd like to pass over to our Chief Exploration Officer, Don Dudek. Thank you. Don Dudek: Thanks, Johan, and good morning. Hello, everybody. One thing I want to emphasize for Sadiola, and it's something we tend to forget because of time. But this deposit has produced over 8 million ounces of gold, and we have 10 million ounces of mineral resources on the books. Because of the robustness of the system, we see the potential or we have an exploration goal to add another 3.5 million ounces of resources within the next 5 years. Including within that is about 1 million ounces of oxide inventory and resources. Our exploration strategy underpins our long-term production profile for this project and supports mine life extension at attractive returns. The oxide zones are located near infrastructure, and oxide boosts flexibility and profitability within our operations. Our drilling is focused on near-mine targets. And really, we're targeting those zones, which have higher-than-average grades, which again supports the long-term plan. And they also provide an optionality for production that will again service us over the long term. We have 19 years of mineral reserves, and we see this increasing over time, just again based on the robustness of the system. When you look at these systems in West Africa, a lot of the large gold zones, they really don't -- we haven't found the limits of them, and the limits are more defined by operation cost profile versus running out of mineralization. So that's something very important to keep in mind. In this last year, we've seen significant success at 4 different zones. And again, that was touched upon in the exploration news release. And these discoveries, as noted before, validate the scale and the scope and the potential of this mineralized system. Going forward, drilling will remain active into year-end, and continue through 2026 and beyond. We are prioritizing the targets with the highest potential, and again, with a focus on oxides. We're initiating new geophysical surveys over a 2.5 kilometer stretch of productive stratigraphy, that already has produced a couple of recent near-term gold deposits. This area has never been systematically tested. And as we march ahead with the drill, we keep on finding more mineralization. Our results from this work will be summarized in an updated mineral resource estimate in Q1 2026. And this update will capture new discoveries, oxide additions, and extensions. Furthermore, we plan exploration updates for Kurmuk in Ethiopia late this month, and for our project group in Cote d'Ivoire in early '26. With that, I'll pass things off to Jason to discuss the Q3 financial performance. Jason LeBlanc: Great. Thanks, Don. Good morning, everyone. In Q3, the business delivered another solid quarter of financial results. Adjusted net earnings were $0.29 per share and adjusted EBITDA came in at almost $110 million, reflecting strong operating performance and improving costs across the portfolio. We generated $182 million in net operating cash flow during the quarter and ended with a cash balance of $262 million, giving us strong liquidity into Q4 and as we finish up the construction of Phase 1 at Sadiola and at Kurmuk in Q2 next year. All-in sustaining costs were $2,092 per ounce, an improvement of 11% quarter-over-quarter despite higher royalties from gold price. So overall, Q3 delivered strong cash flow generation, improving costs and higher margins. More importantly, we're positioned for a stronger Q4 with a combination of increased production, lower unit costs and higher gold prices that will result in a step change in cash flow generation to end the year. As just mentioned, most imminently in Q4, we have our best production quarter of the year, driven by production increases at Sadiola and Bonikro in the range of up to 40% over Q3. At Sadiola, we wrap up the Phase 1 expansion and have the benefit of new oxide zones to complement higher-grade fresh ore that can now be processed through the new mill at a higher throughput rate than before. At Bonikro, our intensive stripping campaign over the last year is finishing up and the mine starts a higher-grade mining sequence with modest waste removal in Q4. But our improving performance doesn't end there. As we look to 2026, the operating and financial performance will transition to a higher sustainable platform with the completion of our development projects. Importantly, the predictability and operational flexibility of Sadiola and our Cote d'Ivoire complex improved prospectively. In Cote d'Ivoire, we moved to more direct ore extraction at higher grades with less waste movement. At Sadiola, we're able to primarily rely on the abundant higher-grade fresh ore reserves as primary plant feed for up to 60% of throughput. Oxides fill the balance of the mill compared with being the primary feed source in this and recent years. Furthermore, new oxide discoveries represent optionality to potentially increase production levels at Sadiola up to 230 ounces per year in the medium term. And finally, at Kurmuk, first gold is fast approaching. This will be a step change for Allied, adding a new long-life, low-cost asset that significantly increases group production and cash flow. Kurmuk is expected to be transformational to our portfolio and financial profile. On the chart here, you can see the production growth we're expecting in coming years. This will correspond to impressive top line growth in today's gold environment, the more impressive will be the leverage effect we see in EBITDA and cash flow generation, because of our fixed overhead and decreasing unit operating costs or AISC. With that, I'll hand things back to Peter for his wrap-up. Peter Marrone: Thank you very much, Jason. So in terms of -- just to conclude the presentation, upcoming milestones with our Sadiola exploration update, as Don mentioned, we have demonstrated value creation short term and long term, finding more oxides and expanding the already robust inventory of fresh ore. We have updates coming for our other mines. That includes an exploration update for Kurmuk in November and for the Cote d'Ivoire complex in January. Expect that we will have completed the Sadiola Phase 1 expansion late this year, literally over the course of a few weeks now. That has a huge impact on operational flexibility because of that abundance of fresh ore. We have an analyst and investor site visit at Kurmuk, which is expected early in Q1. We have the Sadiola Phase 2 expansion update, how we intend to progress to get to that 350,000 ounces to 400,000 ounces per year, which we plan to deliver in January next year. We have had a team in Mali and in Cote d'Ivoire last week on our reserves and resources to complete their work, so that we can provide an end of year reserve and resource update, including the impact of Oume on the Cote d'Ivoire complex. And of course, including in that is Kurmuk, which we expect in February. Our Q4 results, of course, are expected soon after the completion of the quarter, in late January or early February. We will provide an update on Agbaou and its reserves and resources, which we expect in the second quarter. We start Kurmuk operations in the middle of the year. I should say with respect to Agbaou that of course, the objective there is an extension of mine-life. Ladies and gentlemen, we've committed to improving improvements in block models and mine plans, our mining efforts, our processing, creating organizational effectiveness that begins with hiring senior local persons to manage our operations. All of that is now in place. We do not identify here the results of that, but those results include improving production and costs this quarter, the quarter that we are now in and into next year. New equipment, better utilization, better mine plans, confident operators, access to higher grade ore, enhanced mining access, and flexibility. And that positions us for a strong fourth quarter and an even stronger 2026 across all measures, including production, costs, and cash flow. Operator, perhaps at this point, we can open the call to questions. Operator: [Operator Instructions] And your first question comes from Carey MacRury from Canaccord Genuity. Carey MacRury: Hello, good morning, Peter and team, and congrats on the good quarter. I guess my first question is just on Sadiola Phase 2 -- Phase 2 -- or sorry, Phase 1 is almost complete. It sounds like you're adding more oxide. When realistically -- like how should we think about the timing of when you'd actually commit to Phase 2 in terms of putting a shovel on the ground? Peter Marrone: Yes. So let's begin with first principles, Carey. As I said a few moments ago, in -- either with our year-end results or in advance of that, so that would mean in January, we will provide an update on what we intend to do with Phase 2. We have a feasibility study for a new plant up to 10 million tonnes per year, and that gets us that production platform of 350,000 ounces to 400,000 ounces. That would idle the existing plant. We would commit to expenditure by the end of 2026, and we would be in production by late '28, early 2029. As I mentioned, that would also mean that we will have decommissioned the existing plant. But over the course of the last 15 months to 18 months, we've been looking at an alternative. It's something that we were very familiar with as a management in Yamana. We're looking at how can we take the existing plant, further modify it to increase its throughput, not to 10 million tonnes per year, but something in between the current level to 10 million. How do we improve recoveries so that we get to a similar production level in the range of 350,000 ounces per year, but with 2 improvements. The first is potentially less capital. And the second is better capital efficiency. In other words, we're not committing to that capital completely upfront. We're just about complete on that technical work. And with the completion of that technical work, we have Board meetings in December, and we expect then that in January at the latest with our fourth quarter results, we will provide you with our take on what is the best course for us, taking all factors into account, what is the best capital efficiency, delivers the best results and the greatest certainty. Carey MacRury: And then maybe just reserves and resource price is pretty low compared to -- we were sitting at $4,000 an ounce. I guess within your portfolio, are there any specific assets that really have better optionality at maybe not $4,000, but higher prices than reserves and resources? Peter Marrone: Yes. Really good question. And that one really applies to Agbaou. So part of the effort on Agbaou is a 3-part program that we've undertaken to improve mine life. And one of -- the first part of that is can we look at the pit design at a higher gold price. And we're looking at a $2,000 pit design. What does that do in -- and of course, the infill that follows from that and what does that do in terms of extending mine life. The other 2 components, of course, is a possible underground and regional exploration opportunity. We'll have more to say on that into next year, as I mentioned, but you should expect that for that asset, we will be using a $2,000 gold price for reserve estimation. We're reviewing what our peers are doing more generally to see what they have already done or what they're planning to do. So we are evaluating at this point, where I'm personally leaning, but we have to have lots of discussions with management is a $2,000 gold price for reserves across the board to complement what we're already doing at Agbaou and $2,300 for resources. Operator: And your next question comes from Justin Chan from SCP Resource Finance. Justin Chan: Congrats on the quarter. I'll consolidate. I have 2 -- instead of one question, a follow-up, I'll just -- if you wouldn't mind, I'll ask 2 separate questions. Just one is on -- just on the accounting. Is the 2 prepays that were mentioned at the end of September in the documentation, were those included in cash flow from ops, just to make sure my model is accounting for everything correctly. That's my first one. Peter Marrone: Yes, that's right, Justin. There weren't much… Justin Chan: Okay. Appreciate the color. Peter Marrone: Hey, look at maybe the EBITDA, they're not… Justin Chan: And then the second one is, I mean, there's a lot of headlines over the weekend, especially just on supply chains and fuel availability in Mali. I was just curious if you guys could give some color on maybe what you're seeing on the ground. Sometimes there's obviously a difference between what media says and what the actual operators are seeing? So yes, could you give us your perspective on the current operating situation? Peter Marrone: Yes. I tried to address that at the beginning, Justin. I think it would be wrong for us to talk about what is the geopolitics of one thing or another other than to say that, look, it's business as usual. There is a fuel disruption. There are many reasons for that fuel disruption in -- that it has affected the capital. Interestingly, as that -- the first of these articles was published on Friday of last week, we understand that roughly 200, 250 trucks filled with fuel came into the capital. And that's about a week supply, and that's typically the way that the capital runs. So the best that we can say at this point is that there is no disruption to fuel supply lines or other supply lines relating to the mines. There has been some disruption as a result of some insurgency activity in and around the capital. It does appear to us as if there is some alleviation of that. And I repeat what I said before, this is a business-as-usual situation. We in the country, those who are familiar with the country, those who are familiar with countries such as this have seen this sort of thing before. But at the end of the day, the best way that I can describe it is regardless of disruptions, business must go on and does go on, and that's what we expect here. Operator: And your next question comes from Mohamed Sidibe from National Bank Capital Markets. Mohamed Sidibe: Just maybe to start with the Q4 guide that you gave with Sadiola and Bonikro being potentially up to 40% higher. What would it take to see, I guess, both operations be closer to that 40% mark? What are the key drivers that we should look for Sadiola and Bonikro? Peter Marrone: I'll turn it to Johan in a moment, but bear with us, Mohammed. We are ahead of our expectations for the quarter so far. In the case of the Cote d'Ivoire, we're more than 5% ahead. In the case of Sadiola, just a few percentages ahead. But again, on a production platform, we expect to be greater than Q3. So I think you should expect that we will be able to meet the expectations of getting close to or at that 40%. Johan, I will summarize by saying that in the case of Sadiola, it is these oxide discoveries that were made earlier this year that you're bringing into production, going through the development process and bringing into production. But of course, by the end of the year, it's the Phase 1 expansion that completes and being able to process some of a greater percentage of fresh ore. And in the case of Cote d'Ivoire, all that effort that's been undertaken to date, including, for example, at Agbaou, where we had waste removal that was very significant in the second quarter that increases production. We're going to higher grades at Bonikro as a result of that waste removal. And that's what accounts for that higher level of production. Johan, did you want to supplement that with anything more specific? Johannes Stoltz: Peter, you've summarized most of it. I want to say that the hard work from the team started in January up to now, created flexibility within Sadiola. You've alluded to the oxide deposits and also the mill start-up that will enhance the throughput in Sadiola with higher recoveries. So more predictable, more flexibility was given into the Sadiola as well as into the CDI complex that enable us to move ore to and from between the various plants that set ourselves up to where we are currently. We're ahead of the Q4 numbers. As you alluded, we're halfway through the quarter already and a positive trend. The teams are doing well. The plans are coming together nicely. Looking forward to the end result, definitely very close to the 40% mark, if not slightly higher, Peter. Mohamed Sidibe: And then just if I can move on, maybe on exploration. I think you provided a pretty good update at Sadiola with a lot of outside potential on your exploration target there. But I wanted to maybe shift to Cote d'Ivoire and the visibility at Agbaou and Bonikro. I know there's an update that is coming, but how do you currently look at those 2 assets in terms of mine life remaining? And what do you envision them to ultimately be as a potential source of production for you guys? Peter Marrone: Again, at this point, we have not completed the work, but Oume contributes comfortably to Bonikro's increase in mine life. We publicly have said we want to get to at least 180,000 ounces per year from the complex. So roughly 50% from Bonikro and 50% coming from Agbaou. Oume contributes very meaningfully to that mine life extension. It looks as if we'll be above the 10 years for Bonikro. Agbaou is a bit more complex, because it's further behind in terms of the exploration effort. But with what we're doing, looking at and doing drilling into reachable through added reachable underground, what we're doing with the pit shell with a $2,000 gold assumption and what we're doing with the broader outside of the compensated area exploration effort, we'll begin to demonstrate. We won't get with that update next year. I don't believe that we'll get to 10 years of mine life for Agbaou, but we'll begin to demonstrate that it's more than the roughly 2 years of mine life that we currently carry. And we think significantly in excess of that. I believe in our MD&A with our second quarter, we indicated that we were looking at 4 years to 5 years of extension. That was our objective. We expect that the exploration results and the other efforts that we're undertaking for with technical services will demonstrate at least that. Finally, then, what's our objective? Our objective is at least 10 years of mine life at 180,000 ounces per year. But we're refining that objective. We're trying to get to 200,000 ounces per year at least that 10 years of mine life. With that, this becomes a meaningful asset, a very meaningful asset. It will not have the prominence. It does not have the Tier 1 status of Kurmuk and Sadiola, but it does -- it is meaningful. It does contribute to the share price. By my estimation, taking the existing mine life as we show it based on reserves and resources and getting to 10 years of mine life at 200,000 ounces per year, by my estimation, it adds somewhere between $8 and $10 per share. I think that's pretty significant. Mohamed Sidibe: And then I guess, finally, with -- you've strengthened your balance sheet with the forward sales agreement, the rates post quarter as well as the good cash flow from operations there. As you're heading into the completion at Kurmuk, better 2026 on free cash flow, the sector is getting, I guess, a little bit harder in terms of M&A. Could you maybe share your thoughts on further consolidation down in West Africa or M&A opportunities that you may be looking at from the acquisition side? Or is that more of a 2027 event and Kurmuk remains a main priority alongside Sadiola? Peter Marrone: What a question. So if we gone back a year ago, Mohammed, I would have said, of course, we should be looking at acquisitions, what are the opportunities in Africa, in other developing parts of the world, that's where we still think there's the best juice, where that we think the best value. But frankly, over the course of the last several quarters, we've had a bit of an epiphany. When we look at Kurmuk, that's a real prize. It's a Tier 1 asset. I repeat what I said before, it's a Tier 1 asset. And we're now looking at how we expand its throughput to match the size that we already carry for the SAG mill to that 6.4 million tonnes per year from the 6 million tonnes per year. That gets the production platform to over 300,000 ounces per year. And with all-in sustaining costs, as we've described them, that means that we're generating some impressively robust cash flows. From a production point of view, mine life point of view and from a cash flow point of view, it is a Tier 1 asset. And the same would be true for Sadiola. I can't think of very many mid-tier companies that are underpinned by 2 Tier 1 assets. And so that epiphany to which I referred is that we're going to keep our eyes on the prize this year. Keep your eyes on the prize. We don't think that there is anything that is as compelling as engaging in the completion of these efforts that we have inside the company that get us to that roughly 800,000 ounces of production beginning next year to 600,000 ounces and then a few years after that to that 800,000 ounces. We think that that is what delivers the best value for shareholders. We've become a real catch at that point as well, and that has not escaped us. Operator: And your next question comes from Ingrid Rico from Stifel. Ingrid Rico: I have, I guess, 2 follow-ups on Sadiola. And I appreciate the comments, Peter, on the progressive expansion options and how you guys are evaluating that? But I noticed in the press release, I think it was that you will be proceeding with a pre-leach thickener and you're going to be adding that in 2026. So I guess my question would be, one, on what sort of cost budget do you have for that? And two, what would it do with the recoveries or the improvement on the circuit by adding that thickener? Gerardo Fernandez: Hello, Ingrid. Its Gerardo. Yes. It's a small CapEx ticket. It's about $7 million to $8 million. What it does is allow us to manage the density better, so we can increase the proportion of fresh rock up to 90%. And depending on the flexibility from oxides also can lead to increased throughput. So the beauty of it is it works -- it's necessary for both scenarios, the full expansion or the progressive expansion. So we decided to go ahead and start engineering and start the construction next year, so we can see the benefits as soon as possible. Ingrid Rico: And then just, I guess, more near term and sort of the grade expectation that we could start to see as the Phase 1 expansion is completed and you're able to put more of the fresh ore in. Should we think of grades picking up Q4 and into 2026? And what sort of grades should we be looking for with that Phase 1 completed? Peter Marrone: Yes, we should -- you should expect to see the grade improves. Gerardo or Johan, do you want to address where we expect the grade to be? Gerardo Fernandez: Maybe I can comment long term. Ingrid, if you look at the inventory of fresh rock in Sadiola, that is in the range of 1.8 grams per tonne. Some areas are higher than that, some areas are lower, but that's the bulk of the -- or that's the average of the -- bulk of the reserves, which is the fresh rock. So long term, that's what we should be tracking towards. And in terms of oxide, there is an upside to connect with what Don was describing with the new opportunities to add moderate grade or high-grade oxides, which allowed the plant to increase capacity and recoveries. Maybe Johan can comment on the short term. Johannes Stoltz: Great question, and Gerardo, I think your numbers are spot on around the 1.7 grams to 1.8 grams a tonne. We do find these honeypots around the Sadiola property with higher oxide grades. But if we look at the average over the life of mine, it sits around [indiscernible]. Peter Marrone: And Ingrid, we're not complete the quarter yet. But if we go over the course of the last couple of weeks, so it's a meaningful part of the short term of the quarter. We are experiencing, because of some of those honeypots, as Johan described it, we are experiencing grades that are better than what we had planned. Ingrid Rico: And if I can squeeze just one last question on Kurmuk. And I appreciate that we're going to get that update on the exploration very soon. But just how should we think -- and maybe just some comments, if you can, on the infill drilling and how that's shaping up for grade reconciliation and looking into the grades as you start sort of commissioning and ramping up next year? Peter Marrone: Don is on the line. Don, did you want -- Don is remote. So if you're available, Don, did you want -- can you answer that? Don Dudek: Yes. So we're not doing a lot of infill drilling. We're mostly focusing on extending the resources down dip, down plunge, along strike. And so really trying to bulk out the reserve pits as we see them today. We are seeing continuations of the mineralized zones, and yet have not found the limits of the system. And then we're also looking for other optionality things. We've talked about [ Sekenke ] before, which is a 7-kilometer long gold and soil trend. We've been drilling at the south end of that for a good part of the year. And we have a few other targets that we're moving up the list. We've talked about this for Sadiola in terms of optionality. And again, newer close to surface discoveries will provide more optionality for Kurmuk going forward. So the update near the end of this month should -- we'll present all of that. Peter Marrone: Maybe to complement Don's comments and addressing your question, Don was referring to what we're doing now looking into the future, but we -- what was done in the past in 2024 and into the beginning of 2025 was to do confirmation drilling, especially around Dish, not much in Ashashire, but heavily in Dish. And that information has been modeled. We have ore exposure now with the mining at both deposits, and we're confirming the interpretation of the geology and the drilling is also confirming the grades and the mineralization as we had it in the plan. So it's very positive from that perspective on risk management and setting us in a good position to the -- start our operations next year. Ingrid Rico: So looking forward to that Kurmuk update later this month. Operator: [Operator Instructions] And your next question comes from Luke Bertozzi from CIBC. Luke Bertozzi: Just to follow-up on Ingrid's question on the pre-leach thickener at Sadiola. Can you give us any indication of when that pre-leach thickener could come online? Should we be expecting that to impact 2026 production? Peter Marrone: Yes. Look, towards the end of 2026, we haven't issued our guidance, so we cannot quantify how much the impact will be or disclose it. We have an idea, but bear with us when we issue guidance, we'll reflect it there. Jason LeBlanc: Luke, we've indicated that we see Sadiola in its current form before the second Phase partial or whole expansion being in a range of 200,000 ounces to 230,000 ounces per year. This is part of the plan to get that higher level of production. We'll have more to say on it as we complete some of the work to the end of this year when we give our guidance for the next year. Luke Bertozzi: The rest of my questions have been answered. So, I'll leave it there. Peter Marrone: Operator, are there any other questions? Operator: No, there are no further questions at this time. So I would now like to turn the call back over to Peter Marrone for the closing remarks. Please go ahead. Peter Marrone: Ladies and gentlemen, thank you very much for your participation on this call. We look forward to several of the milestones that we mentioned being provided. Any questions or comments, please do reach out to any of us. And we look forward to seeing many of you on -- in-person at our site visit at Kurmuk in January. Thank you very much.
Operator: Greetings, and welcome to HASI's Third Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Aaron Chew, the Senior Vice President of Investor Relations. Aaron Chew: Thank you, operator, and good afternoon to everyone joining us today for HASI's Third Quarter 2025 Conference Call. Earlier this afternoon, HASI distributed a press release reporting our third quarter 2025 results, a copy of which is available on our website, along with the slide presentation we will be referring to today. This conference call is being webcast live on the Investor Relations page of our website, where a replay will be available later today. Some of the comments made in this call are forward-looking statements, which are subject to risks and uncertainties described in the Risk Factors section of the company's Form 10-K and other filings with the SEC. Actual results may differ materially from those stated. Today's discussion also includes some non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is available in our earnings release and presentation. Joining us on the call today are Jeff Lipson, the company's President and CEO; as well as Chuck Melko, our Chief Financial Officer. And also available for Q&A are Susan Nickey, our Chief Client Officer; and Marc Pangburn, our Chief Revenue and Strategy Officer. To kick things off, I will turn it over to our President and CEO, Jeff Lipson. Jeff? Jeffrey Lipson: Thank you, Aaron, and thank you, everyone, for joining the call. Welcome to the HASI Q3 2025 Earnings Call. Before we discuss the prepared slides, I'd like to start the call today by reiterating 4 aspects of our business model and how they interact with recent market developments. One, the demand for energy continues to increase and virtually all forecasts expect this trend to continue. This demand will clearly result in greater supply, facilitating ongoing development by our clients, which in turn increases HASI's total addressable market. Therefore, the current underlying economic trends are a tailwind for our business. Additionally, if demand causes power curves to increase, our existing portfolio of investments will become increasingly more valuable. Two, the operating environment remains conducive to business-as-usual activities. Capital markets have experienced relatively low recent volatility, and our clients' pipelines continues to be active and growing. Therefore, the backdrop remains very supportive for expanding our investment volumes. Three, we continue to demonstrate that our business is able to achieve meaningful EPS growth in all interest rate environments. Since interest rates began to rise in 2022, we've been able to continue to grow our earnings with higher-yielding investments, prudent hedging strategies and opportunistic debt issuances. With 3 investment-grade ratings and our CCH1 co-investment vehicle, we have become even less exposed to changes in interest rates. If the yield curve steepens going forward, we do not expect any material impact on our profitability. And four, virtually all of our investment markets are currently providing attractive opportunities. Utility scale renewables and storage, distributed solar and storage, energy efficiency, renewable natural gas and transportation have all been active markets for us in 2025 and continue to be well represented in the pipeline. And we remain excited with the emergence of our pipeline of Next Frontier opportunities. In summary, these 4 items reinforce the framework of our successful business model, further evidenced by our outstanding results this quarter. We just completed the most profitable quarter in our history and closed the largest investment in our history as we continue to consistently achieve our goals and provide outstanding returns to our investors. Now let's turn to the slides, beginning on Slide 3 and highlight a few key metrics. Our adjusted earnings per share in Q3 was $0.80, the highest quarterly EPS we have ever reported. This result was driven by strong growth in all of our components of revenue, which Chuck will discuss in more detail. Adjusted recurring net investment income, the new financial measure we introduced last quarter is 27% higher year-to-date over last year. And our managed assets, which includes our portfolio as well as our partners' assets in CCH1 and the assets we have securitized off balance sheet, were up 15% year-over-year to $15 billion. And our year-to-date adjusted ROE also has experienced significant year-over-year growth, rising to 13.4%. We are reaffirming our guidance for 8% to 10% compound annual EPS growth through 2027 and noting that we expect to achieve roughly 10% adjusted EPS growth in 2025. As detailed on Slide 4, we continue to make progress in the key areas of value creation for our business: one, originating new investments; two, optimizing return on our existing assets; and three, managing our liabilities and lowering our cost of capital. First, in terms of new investments, as the box on the left indicates, both volumes and returns have been strong year-to-date. Not only did we close more than $650 million of new transactions in Q3 for a total of $1.5 billion through the first 3 quarters of 2025, but we closed on a $1.2 billion investment early in Q4 that has put us on a path to close more than $3 billion for the full year 2025, up more than 30% year-over-year. We will discuss this investment in greater detail later in the call. Importantly, it is not only volumes that have been elevated, but our returns as well, with new asset yield in Q3 greater than 10.5% for the sixth quarter in a row. Meanwhile, our pipeline remains above $6 billion, even after taking into account the large October transaction. Second, we do not simply create value originating investments, but also in how we optimize returns over the life of the investment. One example of this is the targeted asset rotation strategy we executed in 2024 through which we were able to monetize certain lower-yielding assets in our portfolio for a gain while generating cash that we were able to recycle into higher-yielding assets. In Q3 of this year, we refinanced the senior ABS debt within the SunStrong residential solar lease portfolio, resulting in significant paydown of our mezzanine debt investments and a meaningful cash distribution to the SunStrong equity owners, of which we are 50%. This distribution created significant earnings in the quarter as we began to monetize the increasingly valuable SunStrong platform. We have also maintained a strong risk return profile in our portfolio as evidenced by minimal annual realized loss rate of under 10 basis points. This low level of losses reinforces the predictability of our cash flow and our ability to effectively underwrite investment opportunities. And lastly, we maximize value in our business with our low-cost, diversified and efficient debt and capital platform. It's notable to highlight that even after refinancing a portion of our low-cost debt due in 2026 at today's higher market rates, the increase in our cost of debt was only 10 basis points at 5.9% in Q3. In addition, we opportunistically added $250 million in hedges in September that reduced the base rate risk for our next debt issuance. Turning to Slide 5. As I briefly mentioned a moment ago, we are excited to announce a new investment that closed in October but is significant enough to mention on our Q3 call. It is a $1.2 billion structured equity investment in a major component of what will be the largest clean energy infrastructure project in North America once completed in Q2 of next year. HASI's involvement in providing capital to this project is truly a milestone event for our company and a reflection of the transaction size we can now accommodate given our access to capital. Developed and managed by one of the world's largest developers and owners of clean energy and transmission infrastructure, the project has several components. Our specific investment is for 2.6 gigawatts of wind power supplied by the largest U.S. turbine manufacturer and backed by PPAs with a weighted average life of almost 15 years, including counterparties spanning energy majors, utilities, community electricity providers and universities. Consistent with our discussion last quarter, we are investing at a derisked stage as most of our funding will occur in the first half of 2026. The expected return on the investment is consistent with our typical return targets on recent utility scale investments. The total investment commitment is $1.2 billion. However, the net impact to HASI's balance sheet will be much lower due to the investment closing in CCH1, resulting in an initial proportional commitment of approximately $600 million. Subsequently, we may add back leverage to the investment, further reducing our long-term hold. As noted earlier, this is not included in our Q3 financials and will be considered a closed transaction in Q4 with the vast majority of funding expected in Q2 of 2026. Turning to Slide 6. Our pipeline remains above $6 billion, including a pro forma adjustment to remove the $1.2 billion project just discussed as other investment opportunities have replaced this amount in the pipeline. Our pipeline of new investments remains highly diversified with strong undercurrents of demand in each of our key end markets. Higher retail electricity rates are facilitating demand in our BTM asset classes, including not just rooftop solar, but importantly, energy efficiency as well. Meanwhile, residential solar leases are expected to gain market share from loans and cash sales following the expiration of the 25D ITC at year-end. And our business is largely focused on leases and serving this end market. In addition, the grid-connected end market is experiencing larger project sizes to accommodate the growth in U.S. power demand, clearly driven by data centers, but also domestic manufacturing and the expanding use cases of electrification in general. Likewise, demand underpinning our fuels, transport and nature end market remains strong with RNG facilities in construction or in development expected to double the current installed base in North America. And finally, our Next Frontier asset classes remain an exciting new opportunity. And with that, I will ask Chuck to discuss our financial results. Charles Melko: Thank you, Jeff. On Slide 7, we highlight our Q3 profitability. And as you can see, we had meaningful growth in many of our key metrics. Jeff already highlighted our record quarterly adjusted EPS of $0.80, and our year-to-date adjusted EPS is at $2.04, up 11% year-over-year. This growth is driven largely by our primary source of revenue, adjusted recurring net investment income, which grew year-over-year by 42% in the quarter and 27% year-to-date. We are growing the recurring earnings portion of our adjusted EPS, and our equity efficiency has also helped us increase our year-to-date adjusted ROE to 13.4% compared to 12.7% for the same period last year. This growth in our adjusted ROE is demonstrating the meaningful benefits from our CCH1 co-investment vehicle, which I will speak to in a few slides. One last point on our metrics. Our GAAP net investment income does not include the earnings from our equity investments. Therefore, the adjusted recurring NII will continue to be greater than our GAAP NII. Now that I have highlighted the key results for the quarter, some additional context is useful. Jeff mentioned our diversified business model earlier, and I will add that it is also versatile, where we can generate value in different ways, such as through recurring earnings from the underwritten returns on our investments and also optimization transactions where we capture additional value that is embedded in our portfolio, such as through project-level refinancing activities, which we saw this quarter. These optimization transactions may not occur every quarter, but we consistently identify these opportunities year after year. Now on to Slide 8. Through the first 3 quarters of this year, we have closed $1.5 billion of transactions, which is greater than the same period last year. And when incorporating the transaction that Jeff spoke to earlier, we are on track to meaningfully exceed last year's total closed transactions. While transaction closings on their own are not an indicator of profitable growth, if you take into account our ability to generate new balance sheet transaction yields at an attractive level above 10.5%, we're also setting the stage for continued growth in adjusted EPS and ROE. Even as interest rates and our own cost of debt have risen over the last couple of years, it is important to note that we have been able to maintain our margins through the increase in our new asset yields and our hedging program. We expect we will continue to maintain attractive margins as well in a declining interest rate environment given our approach to investment, funding and managing interest rate risk. Next on Slide 9, we are experiencing double-digit growth in our managed assets as well as our portfolio. They have grown 15% and 20%, respectively, from a year ago. This is the base of assets from which we generate our recurring income. As we have discussed previously, we are migrating to a business model that is less dependent on new equity issuance to generate earnings growth. And the factor in accomplishing this is our CCH1 co-investment vehicle. As of the end of Q3, CCH1 has completed funding of $1.2 billion of investments, leaving $1.4 billion of available capital for future investment with the potential to increase it to $1.8 billion with additional debt at the CCH1 level while keeping its leverage level below a debt-to-equity ratio of 0.5. Our portfolio yield is at 8.6%, up from 8.3% last quarter as we are starting to see the new asset investments with yields greater than 10.5% start to come through our portfolio. The portfolio yield is the largest contributor to the growth in our adjusted recurring net investment income that is illustrated on the next slide. On to Slide 10, we provide a buildup of our new financial measure that we introduced last quarter, adjusted recurring net investment income. We are now utilizing this metric in addition to our adjusted EPS to measure the profitability of our managed assets as a whole, inclusive of both the net investment income from our portfolio as well as the recurring fee income from the other assets we manage that are not on our balance sheet. Our year-to-date adjusted recurring net investment income of $269 million has grown 27%. This component of revenue is a consistent source of earnings generated from our existing managed assets. Turning to Slide 11. We highlight a few items that will contribute to managing our liquidity and liability structure and further reduce our cost of capital. Over the past couple of years, we have significantly broadened our sources of capital and between our bank facilities, commercial paper program and our investment-grade ratings, we have a capital platform that is well-positioned to fund our growth needs at an attractive cost. First to mention is a $250 million term loan that closed after quarter end that will provide another source of potential liquidity for the refinancing of our senior bonds due next year. As we reported last quarter, we retired a large portion of the upcoming maturity through a tender offer. With our current liquidity at $1.1 billion at the end of the quarter, this term loan and our access to the investment-grade debt market, we are well-positioned to retire the remaining notes outstanding. Next, in furtherance of our focus on managing our interest rate risk, we executed an additional $250 million of SOFR-based hedges related to anticipated debt issuances and now have hedged up to $1.4 billion of our future debt issuance. On to Slide 12. This slide is a good illustration of the changes we have made to the business over the past couple of years that is accelerating our growth and returns for shareholders. We have historically just provided the total adjusted ROE metric that is highlighted in the dark blue. And while it was steadily increasing over time, it is not painting the complete picture on where our business is headed. With the introduction of CCH1 last year and obtaining our investment-grade ratings, we have meaningfully changed the profile of our adjusted ROE for new transactions. It may take some time for the higher profitability from our incremental business to fully show up in our adjusted ROE given the previous transactions on our balance sheet. So we want to illustrate where our business is headed with the adjusted ROE from incremental business by period. As you can see with our current business model since the start of CCH1 early in 2024, our newer transactions are generating a higher adjusted ROE with year-to-date being 19.6%. We expect this trend to continue and even increase as CCH1 investments are funded from debt at CCH1. Over time, you will see our adjusted ROE increase to the higher ROE that we are generating from our new business. I will now turn the call back to Jeff for closing remarks. Jeffrey Lipson: Thanks, Chuck. Turning to Slide 13, we display our sustainability and impact highlights, noting our cumulative carbon count and water count numbers reflect the significant impact of our investment strategy. We also remain very proud of our recognition, our targeted advocacy activities and the generosity of the HASI Foundation. Concluding on Page 14. To summarize the themes of this call, we just completed the most profitable quarter in the company's history, and we expect our investment volumes to exceed last year's by more than 30%. Economic trends remain favorable to our continued profitable growth. This success is the result of a resilient business model that focuses on asset level investing with long-term programmatic partners. Our approach also relies on disciplined underwriting and reasonable assumptions, and the model is further enhanced by a diversified and prudent approach to obtaining access to attractive sources of capital. Combining all of these elements with a talented and dedicated team results in consistent success despite periodic market volatility. Thank you, as always, to our talented team for this outstanding quarter. Operator, please open the line for questions. Operator: [Operator Instructions] The first question comes from Jon Windham from UBS. Jonathan Windham: Great result, by the way. I'll be very specific. It sounds a lot like you're describing the SunZia project on Pattern Energy in New Mexico. Is there a reason you're not naming the project? That's sort of a quick question. And then any color you can talk about what sort of equity stake and the economics of it would be interesting. Jeffrey Lipson: Thanks, Jon. I appreciate the question. It is the SunZia project and as you described. And -- in terms of returns, I think we talked about it being consistent with returns on recent other transactions we've had in our grid-connected portfolio. So, I think that's probably the best way we could describe the return. And it is a preferred equity investment. So, it has some structure to it. It's not a common equity investment. Jonathan Windham: Right. This is similar to other wind investments you've made in the past, you sort of get paid first. That's on the equity stack. Jeffrey Lipson: Yes. That's correct. Operator: The next question comes from Chris Denginos from RBC. Christopher Dendrinos: Echoing Jon's comments on the solid quarter. I wanted to ask about the pipeline. And I think you mentioned $6 billion, so flat quarter-on-quarter, but you've got -- I guess, if you adjust in the $1.2 billion transaction in October, it'd be up significantly. So can you just maybe talk about the pipeline here? It looks like it's strengthened quite a bit quarter-on-quarter. And just curious what you're kind of seeing from that perspective, if there's any sort of demand pull forward going on as a result of? Jeffrey Lipson: Sure, Chris. I would say, as we discussed in the prepared remarks, we did replace the grid-connected pipeline, in particular, with enough new volume such that it didn't go down after this $1.2 billion transaction that we described. Beyond that, our pipeline disclosure is, of course, not precise. We say greater than $6 billion. So I know it's hard from the outside looking in to tell if it actually went up or down in the quarter. But it's certainly at above $6 billion at a level that we're comfortable we'll have enough to invest in, in 2026 to achieve our goals. And we're not seeing too much in the way of pull forward. I would describe what we're seeing as ordinary course. And as we talked about last quarter, folks executing on their pipeline, meaning our clients, everything they're working on now is grandfathered or safe harbor, but I don't really think this is the result of any kind of pull-through. Operator: The next question comes from Noah Kaye from Oppenheimer. Noah Kaye: I want to ask sort of a broader question around investments resulting from this announcement today, the $1.2 billion. We've historically thought about the business as making smaller investments spread across a large number of projects. This is a pretty big one. But of course, as you said, energy projects are getting bigger. You've talked about data centers as the Next Frontier asset class and they're getting just on the energy infrastructure, this type of investment. So, I guess, how should we think about this investment and what it signals for your appetite to take on larger single projects going forward? Jeffrey Lipson: Well, it's a good question, Noah. We've built the business on some small and modest-sized transactions over time, but we've always, at least after -- since 2020, supplemented that with some larger transactions as well. I think this transaction is a reflection in many ways of our access to capital through both being investment grade and our CCH1 relationship. The amount of capital we can bring to the table is more significant. So, we've become a player in these larger transactions. And when it makes sense, we'll do that. We're, of course, going to manage our risk accordingly. I talked about half of this being in CCH1 and some other pathways to a lower long-term hold level. So, we're certainly managing our risk. But in terms of your broader question of how we think about the business, I think you should think about the business as we're being active in both smaller transactions where we've historically found great value and continue to find opportunities, but also supplemented by some periodic larger transactions where it makes sense for us. And so, I think this is in many ways -- I use the word milestone, but it's we graduating into access to some of these larger transactions, which are going to be more frequent, as you mentioned, because of data centers and the grid-connected development focusing on larger projects. Noah Kaye: It is a milestone, and we want to recognize that. A housekeeping item, just the ABS, the SunStrong ABS refinancing. Can you kind of quantify what the benefit was to the quarter in that because the ROE expansion this quarter was pretty noticeable? Jeffrey Lipson: Sure. And I'm going to ask Chuck to do that. But before I do that, Noah, I'm going to clarify a little bit a few items around SunStrong. I expected us to get a question on it, and I don't want there to be any confusion about what this distribution was. So let me just answer that a little more broadly and say we often refer to SunStrong and folks talking about us refer to SunStrong in a singular capacity, but we actually own 50% of 2 separate entities. One of them is SunStrong Capital Holdings, which is an AssetCo that primarily owns solar leases, most of which have been securitized. And the distribution we received this quarter was the result of refinancing the ABS debt, which due to de-levering and the very strong performance of the underlying leases resulted in essentially a cash out refi. So, there was meaningful cash distribution to the equity owners. And going forward, as an equity owner in SunStrong Capital Holdings, we'll just get the normal distributions from the waterfall of the securitized assets. The refi was a bit of a onetime. Now separate from that, we own 50% of SunStrong Management or SSM, as we call it, which is truly an operating business that provides servicing to consumer and commercial loans and leases, including the legacy SunPower and Sunnova portfolios. Now SSM is an operating business. It has its own executive team. It's performing very well. It has a business plan, which includes ongoing growth in the platform and expansion ideas. And our accounting for our SSM investment is as an equity method investment that we hold at fair value. So to the extent the underlying value of SSM increases, that would positively impact HASI's earnings. So I just wanted to create that clarification of when we say SunStrong, what we actually mean. This distribution that we're talking about in the third quarter was from SunStrong Capital Holdings. So sorry for the deviation to your actual question, I'm going to defer to Chuck. Charles Melko: Noah, so our investment in SunStrong consisted of both mezzanine level loans as well as a small amount of equity. The total proceeds from the ABS that we received was around $240 million. And the composition of that was roughly about $200 million of it went to pay off our mezzanine loans. of which we're redeploying back into additional accretive investments. But then we also -- the other remaining $40 million was related to our equity, of which we did have some small investment, like I said. And of that $40 million that we received, roughly about $24 million of it was a gain in excess of our investment. So the impact to the quarter was $24 million. Operator: The next question comes from Davis Sunderland from Baird. Davis Sunderland: Congrats on an awesome quarter. Just one for me. I wanted to ask just how much the tax credit changes from Big Beautiful Bill have maybe impacted the types of investments you're seeing by asset class? And I guess the root of my question is just wondering if you've seen any opportunities in the last couple of months in discussions to step into a potential hole in the cap stack or any other ways that there have been puts or takes. Jeffrey Lipson: Sure. Thanks, Davis. I'm going to ask Susan to answer that one. Susan Nickey: I think at this point, with the extension of the tax credits for wind and solar, by and large, for 5 years with safe harbor and started construction and storage and some of the other credits that extend longer, I think we're still seeing the traditional combination of tax equity structures and transfer structures to dominate the market. So, we're still -- we still have this longer transition period before we expect to see a change in the capital stack to not include tax credits. Operator: The next question comes from Maheep Mandloi from Mizuho. John Hurley: Jack on for Maheep here. Congrats on the quarter. A lot of third-party ownership have talked about prepaid leases. Is that a kind of product that would interest you guys? And would you see similar yields as traditional leases? Jeffrey Lipson: Sure. Thanks, Jack. I'm going to ask Marc to answer that one. Marc T. Pangburn: Jack, that's something that we could certainly take a look at but haven't been presented any opportunities yet. So we'll have to defer on that until the future. Operator: The next question comes from Vikram Bagri from Citibank. Unknown Analyst: It's Ted on for Vik. Just looking at the principal collections, it looks like it was a larger quarter with about $382 million returns. Could you just give some insight into what the maturity profile and roll-off schedule of the existing portfolio looks like? Should we expect the pace of that to potentially increase as you approach the new wind investment? Charles Melko: Yes. This is Chuck. So, the $300 million number that you're seeing there, the biggest driver of why that's a little bit higher has to do with the SunStrong refinancing that I just mentioned. When I said that roughly about $200 million of the proceeds went to pay down the mezz loans that came through that line. So that was a little bit of an acceleration of normal amort profile that you'll see from our portfolio. But the way I generally think of it is that the lives of our assets, weighted average life is around 10 years or so. So you could expect looking at our portfolio that our amort in any given period will mirror that. Operator: [Operator Instructions] The next question comes from Mark Strouse from JPMorgan. Michael Fairbanks: This is Michael Fairbanks on for Mark. Just wondering if you could talk about how this large transaction and the $3 billion of volumes this year might impact the EPS growth algorithm in '26 and beyond. I know you reaffirmed the 8% to 10% range, but should we be thinking about a possible step-up in '26 from these volumes? Jeffrey Lipson: Thanks, Michael. Good question. Our cadence has consistently been to talk about guidance in February, and I think we're going to stick to that. So we're working diligently right now on our business plan with our Board. And I think we'll have more to say about '26 and '27 in February. Michael Fairbanks: Okay. Great. And then maybe just for a follow-up. It looks like SunZia was excluded from the greater than $6 billion pipeline, which makes sense. Just wondering if it was included in that number last quarter? Jeffrey Lipson: It was. It was in last quarter's pipeline. That's correct. Operator: The next question is a follow-up question from Chris Dendrinos from RBC. Christopher Dendrinos: I just wanted to follow up here. And I think you mentioned during your prepared remarks, the really low rate of bad debt. I think bp Lightsource or subsidiary had reported a default with one of their suppliers. And I'm curious, I think you all have worked with them in the past. Is there anything related to that, that would impact you all? Jeffrey Lipson: Thanks, Chris. No, there wouldn't be. We do work with bp Lightsource. But again, we're monetizing project cash flows. And the challenge that you discussed has no impact on the project in which we're invested. Operator: Thank you very much. There are no further questions at this time. Ladies and gentlemen, that does conclude today's conference for today. You may now disconnect your lines at this time, and thank you very much for your participation.
Operator: Good day, everyone, and welcome to the Leatt Corporation Third Quarter 2025 Results Conference Call. [Operator Instructions] Please note this call is being recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Michael Mason. Please go ahead. Michael Mason: Thanks, Nikki. Good morning, and welcome to the Leatt Corporation investor conference call to discuss the financial results for the third quarter 2025. The company issued a press release today, Thursday, November 6, 2025, at 8:00 a.m. Eastern and filed its report with the SEC. The press release is posted on Leatt's website at leatt-corp.com. This call is being broadcast live and may be accessed on the company's website. An audio replay of this call will be available for 7 days and may be accessed from North America by calling (844) 512-2921 or (412) 317-6671 for international callers. The replay pin number is 11160350. A replay of the webcast will be available immediately following this call and will continue for 7 days. Certain statements in this conference call may constitute forward-looking statements. Actual results could differ materially from those discussed in this call. Leatt Corporation does not undertake any obligation to update such statements made in this call. Please refer to the complete cautionary statement regarding forward-looking statements in today's press release dated November 6, 2025. The company will make a presentation on the quarterly results and then open the call to questions. I would now like to turn the call over to Mr. Sean MacDonald, CEO of Leatt Corporation. Good afternoon to you in Cape Town, Sean. Sean MacDonald: Good morning, and thank you, Mike, and thank you all for joining us today. The third quarter of 2025 was a solid quarter on a global basis. We achieved double-digit revenue growth for the fourth consecutive quarter and double-digit profitability. It was the fifth consecutive quarter of year-over-year growth following the post-COVID industry-wide revenue contraction and inventory overhang. Revenues for the quarter were $14.34 million, an 18% increase over last year's third quarter. Net income was $539,000, a 366% increase. International distributor sales increased by 17% as demand for our products and market conditions continue to improve. All of our product categories and our core head-to-toe markets, MOTO, MTB and ADV grew by double digits on a year-to-date basis compared to last year, which is especially encouraging. Our recent expansion into the ADV market with a range of products designed for off-road adventure riding has been exceptional, and we believe ADV is a growing and exciting market that represents an important growth opportunity for us. Gross profit as a percentage of sales continued to improve from 43% to 44% when compared to last year's third quarter as domestic trading conditions continue to improve despite some tariff uncertainty. Our U.S. MOTO and MTB sales teams are gaining momentum at the dealer level, and our supply chain team is managing shipping costs and logistics costs efficiently. We continue to build and refine the multichannel selling organization and consumer-facing brands and have added some promising new team members like our new Head of Brand, Marketing and Creative, Nick Larsen, who has a proven track record of building and driving iconic global brands. Continuing to build out a great team is a cornerstone of our future growth plans, and we are excited to have Nick as a key member of our team. For the first 9 months of 2025, our revenues increased by $13 million or 40% to $45.89 million. Net income for the 9 months increased by $4.56 million or 259% to $2.8 million. Cash flows generated from operations was $1.45 million as our liquidity continues to improve. All of our product category revenues have grown by double digits on a year-to-date basis. Body armor has grown by 30%, helmets by 60% other products, parts and accessories, including apparel, goggles and components by 49% and neck braces by 18%. We are confident that consumer direct sales will continue to be a highlight in terms of growth as brand momentum continues and consumer demand remains strong. For the third quarter of 2025, consumer direct sales increased by 61%. And over the first 9 months of 2025, sales increased by 37%. Our digital team continues to focus on building innovative digital platforms and consumer engagement strategies. Now I will turn to more details on sales of our product categories for the third quarter of 2025 compared to 2024. Sales of our flagship neck brace were $860,000, a 14% increase, primarily attributable to a 39% increase in the volume of neck braces sold when compared to the third quarter of 2024. Neck braces represented 6% of our total revenues for the quarter. Our body armor products are comprised of chest protectors, full upper body protectors, back protectors, knee braces, knee and elbow guards, off-road motorcycle boots and mountain biking shoes. Body armor revenues were $6.1 million, a 6% increase, primarily attributable to a 46% increase in revenues from the sales of footwear, including motorcycle boots and mountain biking shoes. Body armor sales represented 43% of our revenues for the quarter. Helmet sales were $3.33 million, an 11% increase, primarily attributable to strong ADV helmet sales. Our ADV helmets are designed for off-road adventure riding. Helmet sales represented 23% of our revenues for the third quarter. Our other products, parts and accessories category is comprised of goggles, hydration bags and apparel items, including jerseys, pants, shorts and jackets. Revenues were $4 million, a 53% increase, primarily attributable to a 49% increase in sales of MTB, ADV and motor apparel when compared to the third quarter of 2024. Other products, parts and accessories accounted for 28% of our revenues for the quarter. Now I will turn to our financial results in a bit more detail. Total revenues for the third quarter of 2025 were $14.34 million, up by 18% compared to $12.14 million for the third quarter of 2024. This increase in worldwide revenues is primarily attributable to a $360,000 increase in body armor sales, a $320,000 increase in helmet sales, a $1.41 million increase in other products, parts and accessory sales and $110,000 increase in neck brace sales. Income from operations for the third quarter was $630,000, up by 2,333% compared to $20,000 for the third quarter of 2024. Net income for the third quarter was $539,000 or $0.09 per basic and $0.08 per diluted share, up by 366% as compared to net income of $116,000 or $0.02 per basic and $0.02 per diluted share for the third quarter of 2024. Leatt continued to meet its working capital needs from cash on hand and internally generated cash flows from operations. And at September 30, 2025, the company had cash, cash equivalents and restricted cash of $12.39 million and a current ratio of 5:1. Looking forward, we remain very enthusiastic about our future. Although there are still some challenging geopolitical conditions globally and economic risks in the U.S. that may potentially impact inflation and demand, inventory continues to be digested. Our domestic sales are gaining strong traction. Participation remains strong and international ordering patterns continue to improve and deliver strong revenue growth. The consistent growth in all of our product categories is being driven by strong demand for Leatt products around the world. We expect this trend to continue. In conclusion, while we monitor the international trade situation, we are continuing to invest in Leatt as a global consumer-facing brand and to build out a strong and diversified global multichannel sales organization. All of us at Leatt's are energized by the growth of our product categories and our pipeline of cutting-edge products and categories for a much wider rider community. With a strong portfolio of innovative products in the market and in the pipeline, a return to profitability and a robust balance sheet to fuel brand and revenue growth, we remain confident that we are very well positioned for future growth and profitability. As always, I'd like to thank our entire Leatt family, our dedicated employees, business partners and team riders for their continued strong support. With that, I'd like to turn the call over for any questions. Operator? Operator: [Operator Instructions] We'll take our first question from Nick Fisher with Pilot Capital. Nick Fisher: First of all, just wanted to get some color on the plan for stock buybacks, what your framework is, et cetera. I see that you were able to purchase some shares here in the quarter. Sean MacDonald: Yes, correct. So we did manage to purchase some shares in the quarter. And I believe that will be open until the end of December. And we're going to continue, obviously, through our plan with the broker to try and buy back some shares within a range. Nick Fisher: Got you. Okay. I appreciate that. Obviously, marketing and sales has been a focus here. I was a little bit surprised to see advertising and marketing decrease in the quarter. Could you just talk a little bit about future plans and investments from that perspective, if you're able to? Sean MacDonald: No, absolutely. So I mean, marketing, sure, was down. A lot of that is primarily just for timing reasons and some cost efficiencies that we've had on the marketing side with video production and photographic production. Having brought Nick Larsen on board, he's a very focused and experienced marketing professional. And I'm expecting to get really great return on investment on all of our marketing activities moving forward. Things are going to be a lot more focused, a lot more driven in terms of creating more consumer demand, creating more brand awareness to a much wider rider audience. So you can expect a strong drive to add fuel to the marketing fire and to the brand fire to generate demand for Leatt products moving forward. Nick Fisher: I see. Got you. And then my last question is with regards to impact of inflation and tariffs and things like that. Are you able to comment on plans for price increases and the like? Sean MacDonald: Sure. So we have increased pricing marginally across the board, 8% to 10%, which is very much in line with industry norms at the moment. We've been following the competitive landscape very, very carefully. So we've managed to increase pricing without having too much of an impact on sales and inventory holdings at the dealer level. I think it's obviously expected that pricing will go up. I think from a general inflationary perspective, I think quite a lot of inflation has still been -- is still to filter through into the market. Just generally, I think a lot of consumers have been shielded by -- basically by companies up until now. So we are expecting to see inflation potentially increasing in the short to medium term. We don't expect it to have a huge impact on our margins or on our profitability or on our demand. I think if the tariffs remain relatively stable moving forward, I think we'll be in a strong position to have strong margins and also to retain strong demand. So I think hopefully, the impact of tariffs so far has been -- we're over the worst of it. And moving forward, things will continue to improve. Operator: We will move next with Christopher Muller, private investor. Christopher Muller: Just a few questions, if I may. First, with regards to the international distributor revenues, I believe you historically had some seasonality there with a stronger back half of the year, Q3 and Q4 benefiting from the initial stocking of next year's line. Looking at the modest sequential decline today in Q3, I'm trying to understand whether those orders were pushed more into Q4 this year or if those distributor order cycles have changed or whether that past seasonality is even applicable to the business today? Sean MacDonald: Yes. I mean I think you can expect a strong Q4 international distributor deliveries. A little bit of a timing impact there. I think some of the seasonality has moved slightly into Q4. I certainly am expecting, as I said, a strong distributor revenues in Q4, and that should all, of course, even out over the year. So when you look at the whole year, international distribution is going to be a strong part of the business as our distributors continue to restock with demand increasing. Christopher Muller: Okay. Very good. And then second, regarding the MTB components line, how is that performing relative to your expectations at last year's launch? Sean MacDonald: Yes, we're continuing to push there. I think exceeded our expectations in terms of the initial push. And we're busy right now refining a lot of those products and a lot of the supply chain around those products, which I think is going to help us to be able to meet the demand that is out there. So I think performing well, expecting further growth in the future as we continue to improve efficiencies around that product line. Christopher Muller: Okay. Very good. Regarding the share repurchase, could you maybe speak to the Board's decision-making that led to the $750,000 size? Was this dictated by market factors like the limited trading volume and float? Or was this just purely the Board's assessment of excess cash after your operational needs? Sean MacDonald: Yes. I think obviously, we had some -- we do have cash on our balance sheet, and I think there's no better investment in Leatt. We do believe that there's still a lot of value potential in the stock price. We just felt that this would be a great investment actually for the company at the moment, considering some of the plans that we have in the pipeline moving forward. So the decision was taken to give some of that cash for those shareholders out there that would like some kind of an exit with the limited liquidity and it really just made sense in terms of the optics right now for us to reinvest back into Leatt and into the shareholders. So that's really why we took the decision. We felt that it was a good valuation opportunity right now. Christopher Muller: Okay. Understood. And then finally for me, it seems like there's quite a wide range of outlooks and forecasts being issued by bicycle brands this year and really across the outdoor recreation space. You've been in a strong financial position to reinvest in recent years when others have been pulling back. So I'm just wondering, today, when you're thinking about product expansion, marketing spend, pricing discipline, how does the competitive environment feel today relative to recent years? Sean MacDonald: Yes. I mean I think on the bicycle side, it's -- I mean, I think it's still tough for many bicycle brands. But I do feel that there's a huge amount of opportunity. So we are continuing to invest in product development, in research and development for new exciting products and absolutely in marketing. I think there's a huge amount of potential for you to reach a much wider group. We still have market share in many, many categories that are still in its infancy and we are doing solid numbers. So my reading is that participation is still strong across the board in terms of riding. And I think that's really what we are focusing on. We do believe that, I mean, riding is the future and off-road riding, which is where our focus is, has been very strong for us, continues to be strong. MTB is recovering quite nicely. MOTO is our most established category and market, and that's also growing on a year-to-date basis. So that's great to see. And of course, ADV has been fantastic. We're quite diversified now, of course, with these 3 different markets, different demographics that we're selling to. And I think that diversification is a strength. And of course, with NCD coming back, I think that's going to really have a positive impact on our results moving forward, Chris. Operator: We will move next with Aaron Gelband with Warren Street Capital. Aaron Gelband: I had one question on the direct business. So big -- last quarter was pretty good with 35% year-on-year growth, and then we accelerated to 60% year-on-year growth. You talked a little bit about digital marketing initiatives. But can you just give a little more color on what's going on to drive that big acceleration? Is it sustainable? Is it concentrated in any specific products? Or is it just a result of the digital marketing campaign? Any color on that would be very helpful. Sean MacDonald: Sure. I mean there's a couple of reasons. I mean, particularly in Q3, we actually launched a new web platform. We're using a new platform now, which has got a lot of capabilities in terms of consumer engagement and creating brand awareness across the Internet, and that's been pretty strong for us. And also, I think a lot of this is about focus, Aaron. We have a new digital department that we set up at the beginning of the year, and they are driven by consumer direct business. And that means this is targeted marketing. It's very specialized. There's a blend between, of course, reaching end consumers with targeted online campaigns and e-mail campaigns. And also, of course, the website is also the home of the brand. So there's fantastic content on there now. So I think it's really about focus. The new digital team is doing really, really well, exceeding our expectations in terms of growth. I think moving forward, direct-to-consumer business is going to be a more important area of our business just in terms of growth and also just in terms of contribution to overall revenues. And I think I'm talking primarily in the U.S. and in South Africa, where we have direct online channels. And I think it's -- as I said, of course, there's the selling opportunity, but there's also the marketing opportunity. I think it creates a lot of brand equity when you can actually target consumers. And it's been exciting to see how the demand has continued to surge online. It's really exciting to be able to see the return on investment when you do, do marketing campaigns that are targeted and to see that filtering through to your revenue. So we've got some specialist skills on board, and we pulled that all together now into a strong digital team that's very focused on the direct-to-consumer business. Of course, it's not only about the website. It's also about having customer service in the back end that can satisfy the needs of consumers when you are used to being a distribution business and traditionally, we've been in distribution and selling, of course, to dealers who might have been online or brick-and-mortar. In order to move over to the consumer space, especially with consumers these days that have got very high expectations in terms of service levels, we've had to invest in customer service, and we have a full customer service department now in the U.S. and also in South Africa to take care of consumers' direct needs. So it's a growing area. It's a focus area for us. We've been putting a lot of energy into it, and it's great to see the increase in demand. And we do expect this to be an important area for us going forward where we are expecting double-digit growth. Aaron Gelband: I'd also assume that the gross margins are higher on that. If this becomes a much meaningful piece of the business, would you expect that to have a positive impact on the company gross margins? Sean MacDonald: Absolutely. When you're selling direct, your margins are better. There are costs involved, obviously, in terms of the marketing. And there's a blend in terms of the margins because you're selling full price items, but when you have Black Friday and those kinds of events, of course, it's also an opportunity to turn some of your inventory into cash if it's maybe a little bit slower moving. We don't have a lot of that. But if it is a bit slower moving, it's an opportunity because you have margin available. So for sure, it should have a positive impact on margins moving forward. Aaron Gelband: Got it. And then one more question on -- so overall performance of the company, 18% growth, I think we'd be happy with that if that continues for sure. But there was a big kind of deceleration, especially in international, which had grown 79%, 74%, and then it dropped off to 17%. And so I think -- and you've been very positive on your comments for international ordering patterns, both last quarter and this quarter. And so maybe just to parse your language a little bit. I mean, when you talk about good international ordering patterns, are you just talking in an absolute sense? I mean, a big deceleration from 74% to 17% would -- it seems inconsistent with kind of saying that the ordering pattern is continuing to improve. But maybe you can just give some color on that. And maybe that just ties into Chris' question about kind of the timing of shipments. Sean MacDonald: Yes, sure. I mean I think when I talk about ordering patterns continuing to improve, I'm talking about like on an annual basis. I'm not talking about a 3-month period of a particular quarter. So when I look at the ordering patterns in general, there's a real strong improvement. So if you look at it on a year-to-date basis, and we've had fantastic growth in terms of ordering patterns, and I do expect that to continue. A little bit of it is timing, as I said. I don't think that our current ordering patterns at 17% is really a reflection of where we're at on the international side. And I think it will be good to also discuss this maybe when we get to the end of Q4 and then we can look back on the year and we can make a real solid assessment because that will take into account all of the seasonality and all of the shipping timing differences. We'll be able to see how the international distribution business has grown on a year-to-date basis at 31 December. Aaron Gelband: Got it. That's helpful. And just to be clear in your response, you said the ordering pattern was up 17%, but you meant that the shipping. Sean MacDonald: Shipping, sorry. The shipping, correct. I meant -- yes, correct. I meant the shipping, correct. So the shipping, which is obviously driven by the orders that we got actually probably a few quarters ago. So absolutely, it's the shipping. Operator: And this concludes our Q&A session. I will now turn the call over to Sean MacDonald for closing remarks. Sean MacDonald: Thank you all for joining us today. We look forward to our next call to review the results of the 2025 fourth quarter. Operator: Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.
Operator: Hello, everyone, and welcome to the GoPro Third Quarter 2025 Earnings Call. My name is Charlie, and I'll be coordinating the call today. [Operator Instructions] I will now hand over to your host, Robin Stoecker, Director, Corporate Communications of GoPro, Inc. to begin. Robin, please go ahead. Robin Stoecker: Thank you, Charlie. Good afternoon, and welcome to GoPro's Third Quarter 2025 Earnings Conference Call. With me today are GoPro's CEO, Nicholas Woodman; and CFO and COO, Brian McGee. Today's agenda will include brief commentary from Nick and Brian, followed by Q&A. For detailed information about our third quarter as well as outlook, please read our Q3 earnings press release and management commentary, we posted to the Investor Relations section of GoPro's website. Before I pass the call to Nick, I'd like to remind everybody that our remarks today may include forward-looking statements. Forward-looking statements and all other statements that are not historical facts are not guarantees of future performance and are subject to a number of risks and uncertainties, which may cause actual results to differ materially. Additionally, any forward-looking statements made today are based on assumptions as of today. This means that results could change at any time, and we do not undertake any obligation to update these statements as a result of new information or future events. To better understand the risks and uncertainties that could cause actual results to differ from our commentary, we refer you to our most recent annual report on Form 10-K for the year ended December 31, 2024, which is on file with the Securities and Exchange Commission and other reports that we may file from time to time with the SEC. Today, we may discuss gross margin, operating expense, net profit and loss, adjusted EBITDA as well as basic and diluted net profit and loss per share in accordance with GAAP and on a non-GAAP basis. A reconciliation of GAAP to non-GAAP operating expenses can be found in the press release that was issued this afternoon, which is posted on the Investor Relations section of our website. Unless otherwise noted, all income statement-related numbers that are discussed in the management commentary and remarks made today other than revenue are non-GAAP. Now I'll turn the call over to GoPro's Founder and CEO, Nicholas Woodman. Nicholas Woodman: Thanks, Robin, and thanks, everybody, for joining us today. As Robin mentioned, Brian and I will share brief remarks before going into Q&A, and I want to encourage all on the call to read the detailed management commentary we posted on our Investor Relations website. The third quarter marked significant progress in our strategy to grow our business by developing our hardware and software offerings, and diversifying our hardware and software offerings. In Q3, we launched 3 new hardware products and several new software products that helped us exceed our Q3 revenue guidance. Our teams are executing with efficient precision, and we're excited to build on this momentum. As you'll hear from Brian, we believe we have turned an important corner, and we expect to return to unit revenue and profitability growth on a year-over-year basis this Q4 and for 2026. Our innovation machine is accelerating to increase our TAM beyond the 3 million unit action camera category. In Q3, we launched our highly anticipated MaX2 360-camera, our new ultra-compact LIT HERO camera and Fluid Pro AI, our new multi-camera compatible gimbal designed for creators that own multiple types of cameras and need one gimbal to meet their multi-camera stabilization needs. MaX2 360-camera opens up a new growth segment, which we estimate the TAM to be nearly 2 million units annually. We're excited to regain market share with the launch of our MaX2 360-camera, and we're fully further expanding our TAM with LIT HERO, with its playful aesthetic, ease of use and versatility, making it especially appealing to a younger demographic looking to capture and share moments on the go. Additionally, the low-light capable camera segment, which we estimate the TAM to be 2 million to 2.5 million units annually, represents a significant opportunity for GoPro as we do not currently participate in this market, but plan to. Our tech-enabled motorcycle helmets initiative is progressing and collaboration with AGV is already underway. Both teams are working closely to deliver innovative safety and performance features combined with the fun of effortlessly capturing immersive GoPro video while riding. We look forward to providing updates as development progresses. Starting with MAX2, what a game changer. Its industry-leading 360 technology combines with its True 8K video resolution to capture up to 21% more resolution than the competition. MAX2 also features convenient and durable twist-and-go replaceable lenses, making it easy to swap out a lens in the field without tools or calibration, an inconvenience inherent with competitive products. And we recently launched an innovative and expansive new line of 16 360-centric accessories and mounts that expand MAX2'S creative potential and versatility. Early customer feedback has been resoundingly positive with many praising MAX2'S superior image quality, ease of use and durability. And in September, GoPro won a 2025 Technology & Engineering Emmy Award in recognition of our innovative 360 technology, which is core to our 360 cameras and software. This is GoPro's third Emmy for innovations related to digital imaging and our first in the 360-technology category. We believe MAX2 will help grow share in the global 360-camera market. MAX2 is now available online and on shelf at retailers globally. We're also excited about a second new camera we launched in Q3, LIT HERO, an ultracompact lifestyle camera designed for "whatever, whenever" capture with its built-in photo and video light. LIT HERO opens up creative possibility in any setting, day or night, and delivers a fun retro-inspired look to the images it captures. And the third new hardware product we launched in Q3 is Fluid Pro AI, our advanced multi-camera, AI subject tracking gimbal designed for today's multi-camera content creators looking for a high-performance gimbal that meets their multi-camera needs. Fluid Pro AI is compatible with all GoPro cameras, smartphones and point-and-shoot cameras up to 400 grams, making it remarkably versatile for capturing smooth, professional-looking content while vlogging, capturing sports or documenting life's most meaningful moments. Fluid Pro AI represents an exciting opportunity for GoPro to participate in the global gimbal market. As we enter the holiday season, GoPro now offers a diversified line of 8 industry-leading camera SKUs that range from an MSRP of $199 to $649, more than 70 versatility expanding camera mounts and accessories and an industry-leading mobile app and subscription experience that adds enormous convenience and value to GoPro subscribers. And we're just getting started. We believe our current offerings serve as an incredible foundation to build on with the planned launch of several exciting new products in 2026 that we believe will result in revenue, profit and market share growth across our business. Turning to software. In Q3, we launched several new 360-related editing tools that make immersive 360 content creation easy for everyone. And we updated our Quik mobile app with several new 360 editing features, including AI-powered subject tracking, convenient POV and selfie modes and cloud-based 360 editing. These powerful new features significantly enhance the convenience and creative experience for MAX and MAX2 owners and GoPro subscribers. Our subscription model continues to exceed our expectations, contributing enormous value to both subscribers and our bottom line. We anticipate renewed subscriber and associated revenue growth in 2026, fueled by camera unit growth and the launch of new editing and content management features that we expect to significantly enhance convenience, capability and value. And we continue to see strong engagement from subscribers, opting into our AI training program, which will earn them 50% of the third-party licensing revenue we expect to generate on their behalf. GoPro subscribers have contributed more than 270,000 hours of video content during the AI training program's invitation-only outreach period, which began in July 2025. We are in discussion with several AI data licensees to address their demand for authentic real-world video content for AI model training. We believe this program represents a meaningful opportunity over time for both our subscribers and GoPro, and we look forward to sharing progress as the program continues to evolve. As Brian will detail, we've amended our Second Lien Credit Agreement to address volatility in tariff rates. Given our commitment and expectation to achieve the minimum $40 million in trailing 12-month adjusted EBITDA by year-end 2026, I'm personally backing our commitment with a $2 million equity infusion into the company. In summary, we're executing against our strategy, and we're seeing the results, improved product diversification via the launch of industry-leading hardware and software products and an expected return to unit revenue and profitability growth in Q4 2025. We expect to build on this momentum in 2026 with the launch of several new innovative and differentiated products and services that we believe will lead to consistent quarterly camera unit and revenue growth on a year-over-year basis and a swing from losses in recent years to solid adjusted EBITDA profitability in 2026. Many thanks to all of GoPro's incredibly talented, passionate and committed employees. Your execution is enabling us to realize our vision to the benefit of our customers and investors alike. Now I'll turn the call over to Brian to share some details on our financials and outlook. Brian McGee: Thanks, Nick. For the third quarter of 2025, revenue was $163 million and gross profit was 35.2%, in line with guidance. We achieved a second consecutive quarter of positive cash flow from operations of $12 million, a $14 million improvement year-over-year. Demand for our cameras as measured via sell-through was 5% better than we predicted. Channel inventory declined 30% from the prior year quarter and has reduced for 4 consecutive quarters as we prepare for the upcoming holiday quarter. As we look to the fourth quarter, our outlook is prefaced by highlighting by heightened uncertainty that exists due to volatility in tariff rates, consumer confidence, competition, component supply chain and global economic uncertainty. For the fourth quarter, we expect revenue growth at the midpoint of guidance of 10% to $220 million, non-GAAP net income per share of $0.03, plus or minus $0.02 and adjusted EBITDA positive $12 million compared to a prior year adjusted EBITDA loss of $14 million, a $26 million improvement. All of these expected improvements are due to the actions we took in 2024 to launch new products in the second half of 2025, reduce operating expenses, diversify our supply chain and drive product cost reductions, which were partially offset by higher tariffs. We estimate street ASP in the fourth quarter to be approximately $350, up slightly year-over-year. We expect unit sell-through to be down 18% year-over-year at the midpoint of guidance to 625,000 units and channel inventory to be nominally up sequentially. We continue to actively manage the balance sheet and expect to further reduce inventory sequentially in the fourth quarter. In addition, we expect to end the year with cash and cash equivalents in the range of $60 million to $65 million, along with an additional $50 million available under our ABL facility. We expect gross margin in the fourth quarter to be 32% at the midpoint of guidance, down compared to the prior year quarter of 35%, primarily due to tariffs. Excluding tariffs, gross margin in the fourth quarter 2025 would be approximately 37%. We expect fourth quarter 2025 operating expenses to be $63 million at the midpoint of our guidance range, a more than 25% reduction from the prior year quarter due to lower spending on wages from lower headcount, reduced marketing and lower engineering expenses. We expect shares outstanding to be approximately 177 million in the fourth quarter. As we look ahead to 2026, we expect the following: to grow units and revenue in 2026 based on both our existing lineup of products as well as new products and services expected to be introduced next year. Our expectation is to grow units and revenue each quarter in 2026 on a year-over-year basis. Full year 2026 operating expenses to be approximately $250 million, slightly down year-over-year to continue to offset approximately half of our expected tariff costs of $45 million in 2026 with modest price increases and continued supply chain diversification. Subscription ARPU growth of 5% and to end 2026, up 2% to 2.4 million subscribers. Our liquidity position to be more than adequate during 2026, and we expect to end 2026 with approximately $80 million in cash, plus or minus $5 million, along with an additional $50 million available under our ABL facility. To experience some margin pressure year-over-year due to tariffs and increasing component prices, which we expect to partially offset with improvements in supply chain. As detailed in the management commentary in our filing, we have amended our debt agreement due to changes in tariff rates. We expect adjusted EBITDA to be greater than $40 million in 2026, an improvement from losses of $18 million in 2025 and $72 million in 2024. In closing, we believe our strategy is working. We are in the midst of an innovation cycle with the continued launch of new products and services expected over the next several years. Combined with the initiatives we undertook in 2024 to reduce operating expenses and improve supply chain in 2025, we believe we will restore unit and revenue growth and deliver strong adjusted EBITDA of at least $40 million in 2026. Operator, we are now ready to take questions. Operator: [Operator Instructions] Our first question comes from Erik Woodring of Morgan Stanley. Erik Woodring: Nick, maybe if I just start on 4Q sell-through, I think it was saying that you expect sell-through to be down, I think it was 18% year-over-year. Can you just talk about kind of the puts and takes there? You launched 3 new cameras this year versus 2 last year. I think the timing of the launches this year was a little later than last year. So just why we're seeing sell-through down as opposed to others because there's no flagship camera. Just any detail you could help us understand there, please? Nicholas Woodman: Yes, you nailed it. I had to be a little hesitant. It's clear that we didn't launch a new flagship HERO camera this year in Q3 for Q4 sales. And what I can say is, that is strategic in preparation for 2026 launches. So a little bit of patience now, yields, we believe, significant upside in 2026. So it's a bit of -- we've got something special planned. So we appreciate market patience, investor patience, and we think that this decision is going to significantly help us grow units, revenue and profits in first half of 2026. And to give us a little more context, I have to be a little bit careful as it relates to competition, obviously, but we believe that by focusing on a bigger upgrade, we can have a more significant outcome than if we were to have launched a product in the third quarter of this year. Erik Woodring: Okay. All right. Super. Looking forward to that. And I was going to ask you a question on innovation. And so realizing you just made that comment, but I'd love if you could just talk where you think kind of the camera innovation can, needs or should go from here? Obviously, you got 360 into the market. That's great. You've launched a lifestyle camera. You have the gimbal system. You've talked about the motorcycle helmets. Again, without disclosing things that -- obviously, for competitive reasons, where do you think there are differentiated end markets or use cases that are compelling from here? Whatever you can share would be super helpful. Nicholas Woodman: It's clear that the opportunity for growth is in diversification and meeting more of the specific needs of the market, not through one SKU. Traditionally, the HERO camera, the product that GoPro was built on, was a bit of a Swiss Army knife that did it all for everybody. And that was terrific for a time. But as consumer and professional demands have grown and become more specialized, and we've seen the end customer want to not have a do-it-all Swiss Army knife as much as they want additional tools, multiple tools, multiple cameras that help them achieve more specifically the solution for whatever capture scenario they're solving for. So that's terrific for us because that can expand the TAM, help us relate GoPro to more end users and not burden any one product with the burden of doing everything for everyone. So what I would say is diversification, diversification, diversification. You're seeing that already in our product line, and you'll see that scale in 2026. And we believe that will result in TAM expansion, unit growth, subscriber growth and sustained profitability growth. Brian McGee: Yes. Nick, I think on top of that, GP3 processor is also market-leading in its capability and what we're able to do with that from an imaging and innovation perspective. So that's another area where we're leading with the product that will come out -- products that will come out with next year using that processor. Nicholas Woodman: Yes. What Brian just alluded to is 2026 will be the year of GP3. Our current cameras are based on a GP2 processor. And 2026 is the debut of our line of GP3-based processors that will take GoPro and the industry to the next level of performance. Erik Woodring: Okay. Super. And then maybe last one for me quickly, is just I appreciate all the color on 2026. I guess at a high level, kind of how are you -- or what are you assuming the world looks like in 2026? Obviously, there's a lot of uncertainty even as it just relates to like the holiday period coming up. So like what gives you the degree of confidence to kind of guide the way that you did? And how are you kind of embedding the world view in 2026 underlying that guidance? That's it for me. Nicholas Woodman: Yes, I'll start and then... Brian McGee: Go ahead. Nicholas Woodman: What I was just going to say -- to add to what I said about market demand for diversification, that's how we see consumers behaving today. That's -- all of our research shows that there's clearly an opportunity to diversify our product lineup to better meet the diversified needs of the market. That's what the road map delivers in 2026. And when you combine that diversification with the next-generation GP3 processor from GoPro, that is going to, we believe, make GoPro a market leader in all of the important categories that we're participating in. So the demand that we see for our products today, we see increasing as we enter this new era of performance and capability at GoPro next year. Brian, you can add to that. Brian McGee: Yes. I think on top of that, I'll add even in the fourth quarter of this year, which arguably is challenging with consumer and everything else that's going on, we remain on track for our sell-through and sell-in targets for the fourth quarter. So -- and now we have newer products in 2026 that are going to add to that. So that's pretty exciting as we look ahead actually to have both unit growth and revenue growth finally now in the fourth quarter as we have 2 new products or 3 new products in now -- this year and more coming next year. Nicholas Woodman: Yes. And just to be clear, the cadence of launching new products next year will be steadily throughout the year. So that's also something to look forward to as opposed to being so back-end loaded. Operator: Thank you. We have no further questions registered on today's call. So I'll hand back over to the management team for any further or final remarks. Nicholas Woodman: Thank you, operator, and thank you, everyone, for joining today's call. To summarize, we're executing well against our strategy to launch industry-leading hardware and software products with improved product diversification expected to restore unit revenue and profitability growth this fourth quarter and throughout 2026. Thank you, everyone. This is Team GoPro signing off. Operator: Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect.
Operator: Good day, everyone, and thank you for standing by. Welcome to the Quebecor Inc. financial results for the third quarter 2025 conference call. I would now like to introduce Hugues Simard, Chief Financial Officer of Quebecor Inc. Please go ahead. Hugues Simard: Ladies and gentlemen, welcome to this Quebecor conference call. My name is Hugues Simard. I'm the CFO. And joining me to discuss our financial and operating results for the third quarter of 2025 is Pierre Karl Peladeau, our President and Chief Executive Officer. Anyone unable to attend the conference call will be able to access the recorded version by logging on to the webcast available on Quebecor's website until January 5. As usual, I also want to inform you that certain statements made on the call today may be considered forward-looking, and we would refer you to the risk factors outlined in today's press release and reports filed by the corporation with the regulatory authorities. Let me now turn the floor to Pierre Karl. Pierre Péladeau: [Foreign Language] and good morning, everyone. So more than 15 years ago, recognizing a huge opportunity in Quebec and across Canada, Quebecor set out on a growth strategy based on wireless. First, launching as an MVNO, then building our own network and further acquiring Freedom Mobile. We have never wavered in our resolve or direction. We invested wisely and established ourselves as a better alternative to the big 3, a solid market disruptor with the best growth momentum and the strongest balance sheet in the Canadian telecom industry. As proof that our strategy is paying off, we continue to outperform our competitors, and I'm proud to report our strongest quarterly wireless service revenue growth since the acquisition of Freedom Mobile. As well as an impressive loading performance of 114,000 net addition in the quarter with more than 323,000 new lines year-over-year despite a generally softer market. Collectively, Videotron, Freedom and Fizz now have over 4,328,000 mobile active lines, a significant milestone achieved in quite a short time in a competitive market. Each of our 3 brands continue to improve its performance quarter after quarter, resonating more and more with Canadians across the country with innovative and affordable product and services. We have created a healthy competitive environment, giving Canadians more choice, lower prices and a better experience, all the while improving our profitability, growing cash flow and continuing to reduce our leverage to maintain the lowest ratio in the Canadian telecom industry. We will spare no effort as we press on with our strategy of sustainable, profitable wireless market share growth. I will now review our operational results, starting with our telecom segment. So our telecom segment continued to deliver strong operational and financial results both in wireless and broadband, reflecting the disciplined execution of our growth initiatives, the strength of our brand portfolio, and our commitment to provide innovative and reliable services to our customers. Our service revenues are up for a second consecutive quarter at 2%, fueled by a 6.4% increase in mobile and 1.1% in Internet. Our mobile service revenue grew by $27 million in the quarter, surpassing our Q2 performance and our best since we completed the integration cycle of Freedom Mobile results. This results from our adding 323,000 new net line over the last year despite the Canadian market affected by lower immigration levels and organic growth, but also from our effective pricing strategy with a balanced and cohesive positioning of our brand. Our consolidated mobile ARPU continued to improve its performance, recording its best since the acquisition of Freedom Mobile, which bodes well for the next few quarters despite a market that remains unpredictable and highly competitive, especially in Quebec where discounting is comparatively and, in our view, irrationally heavy. At this point, we expect current market conditions to continue through the upcoming holiday season's promotional period, but we intend to maintain our disciplined approach, focusing on the quality of our products while continuing to rapidly improve our network. Specifically, on ARPU, we are very pleased with our second sequential quarterly increase, reaching $0.35 and $0.05 compared to $0.34 and $0.76 last quarter, a $0.29 gained in the 3 months. Our year-over-year performance continued to improve with a $0.66 decrease this quarter compared to a drop of $2.30 in Q2 as compared to the same period last year. Our effective mitigation of the dilutive impact of the prepaid services of Fizz and Freedom was an important contributor. As you will have noticed, we adjusted our wireless subscriber base by 51,000 to eliminate 0 revenue accounts, which translated into an approximately $0.40 ARPU pickup. To be completely transparent and contrary to our competitors, we adjusted our ARPU numbers retroactively. With our ever-improving network quality and stellar customer service, more and more Canadians enjoy the richness and peace of mind of our plans, which continues to strengthen our market position and share. Freedom's marketing plans are honest and transparent without any fake employee purchase program, new customers only or B2B offers. We have been upfront with all Canadians since day 1, offering them better services at everyday best prices. Canadians have clearly embraced our approach as evidenced by our significant churn improvement, ARPU and market share growth. An internal survey even reveals that the global satisfaction score of Freedom customers approaches that of Videotron. We are very proud to have successfully transposed the key contributors of our great success in our own market to the other regions of Canada. In terms of new adds, as I alluded to at the beginning of my address, we delivered 114,000 new net lines to our mobile customer base in the third quarter, a strong growth considering the softer market this year. This performance is also attributable to our effective retention strategy, which kept our consolidated churn among top of the industry and thus helped to defend Videotron's solid market position in Quebec and to continue to improve Freedom performance. In wireline, our service revenues continue to improve as we recorded for a second consecutive quarter our lowest decline in year-over-year. Fueled by Internet revenue growth of $3.3 million and net additions of 10,500 in the quarter, these results are very encouraging as we are only still scratching the surface of the opportunity with new services like Freedom home Internet and Fizz TV. We are also counting on the expansion of our Helix technology-based Internet and television services in new territories where they will complement our wireless services already available. Since the end of the second quarter of 2025, Videotron has announced the expanded coverage of more than 180,000 new households in Drummondville, Magog, Rimouski, Saint-Hyacinthe, Trois-Rivieres, Salaberry-de-Valleyfield and Huntingdon, as well as in many cities in Saguenay–Lac Saint-Jean region. Customers will now be able to benefit from a full complement of telecommunication services in competitive packages. We intend to enter these new markets with a disciplined pricing strategy in line with our pricing elsewhere in Quebec, counting on state-of-the-art Helix solutions and our second to none client experience to make ourselves a strong contenders in this territory. In addition to our wireline footprint, we are also expanding our wireless coverage and services areas in the Haute-Mauricie region in partnership with Ecotel and with the support of the Quebec government. This will significantly improve mobile communications in this region of Quebec, making it possible for more than 10,000 residents to subscribe to Videotron mobile services and enhancing connectivity along several highways. Freedom Mobile is also continuing to increase its service coverage now in the Ontario region of Chatham-Kent, where the resident of this large and growing region can now access our fast and reliable wireless network. These expansions reflect our continued progress in delivering on our ongoing commitment to always give our customers more with state-of-the-art advanced technology. This is but one reason why Videotron was ranked as Quebecor's preferred telecommunication provider in a recent Leger survey. Videotron stands out for its remarkable results, confirming its position as an undisputed leader in customer service among telecommunication providers in Quebec, while being recognized as the most reliable and trustworthy telecommunication company in Quebec. Turning now to our Media segment. TVA Group generated EBITDA of $18.5 million in the third quarter of 2025, an increase of $6 million compared to the same period in 2024. This favorable variance is primarily attributable to the impact of streamlining initiatives undertaken over the past 2 years as well as certain favorable nonrecurring retroactive adjustments. These measures are helping, but are in no way sufficient, to mitigate the impact of the structural crisis threatening the sustainability of Quebec television industry, particularly due to the accelerated decline in advertising revenues compounded by the negative impact on the absence of foreign blockbusters in MELS' studios. Having acted recently and respondly over the years by implementing numerous measures and a number of major restructuring plans to address the crisis, TVA Group has done its part. It is high time for our government to take the necessary action on their end. After countless advocacy efforts, hearings and meetings with successive CRTC chairpersons, Canadian heritage ministers and Quebec culture ministers over the years, we can only repeat yet again that we urgently need real action and long-term solution to protect our industry. It was particularly disappointing that the federal government in its budget deposited this Tuesday completely ignored our industry and turned a blind eye to the crisis that is hitting television broadcasting so hard. There is no tax credit for television journalism, no tax incentive for advertising in Quebec and Canadian media, and no information about when the digital services tax already paid by private broadcaster will be refunded. Furthermore, CBC/Radio-Canada annual funding had been increased by $150 million without any requirement to eliminate advertising on its platform and to curb its unfair commercial competition with Canada private television broadcasters. Regrettably, this new government has missed an opportunity to support an industry facing ever-growing challenges and job losses at an alarming rate. Regarding the Quebec government, we reiterate that it must quickly introduce concrete measures to implement the recommendations in the report of its task force of the future of Quebec audiovisual industry filed in October 2025. I will now let Hugues review our detailed financial results. Hugues Simard: [Foreign Language] On a consolidated basis in the third quarter of 2025, Quebecor recorded revenues of $1.4 billion, up 1%, EBITDA of $628 million, up $34 million or 6%, resulting from improvements across all of the corporation's business segments. Cash flows from operating activities increased $36 million to $582 million or 7% compared to the same quarter last year. In our telecom segment, total revenues grew by 1% or $13 million, a first favorable variance since Q1 of last year when we completed the integration cycle of Freedom Mobile results. This positive delivery is largely attributable to our strongest mobile service revenue growth of 6.4% fueled by a significant customer growth, but also by the favorable improvement of our mobile ARPU in the last quarter, resulting from strategic market positioning of our multiple brands and our pricing strategies. This quarter, mobile revenues were offset by our lowest wireline services revenue declines in more than a year, resulting from our effective strategies and mitigating the impact of organic declines of these services. Combined with rigorous cost management initiatives, our EBITDA reached $602.5 million, increasing by $16.6 million or 2.8%, our highest EBITDA growth since Q1 2024. As a result, our EBITDA margin improved by 0.8%, ending at 49.5% compared to 48.7% in the same period last year. Telecom CapEx spending was up by $13 million in the quarter, regulating the timing difference explained in Q2 for wireless equipment deliveries required for our 5G and 5G-plus network expansions and subscriber equipment rentals. Even with that regulation, we still anticipate higher investment levels in the last quarter to stay on track with our objectives, mainly expanding and improving our mobile network. Accounting for these investments, our quarterly adjusted cash flows from operations increased $3 million or almost 1% due to our solid EBITDA growth. Our Media segment recorded revenues of $152 million or 2% decrease, an EBITDA of $23 million, a $9 million favorable variance compared to the same quarter last year. Our Sports and Entertainment segment revenues increased by 7% to $68 million, and EBITDA was up by 28% to $15 million. We reported a net income attributable to shareholders of $236 million in the quarter or $1.03 per share compared to a net income of $189 million or $0.81 per share reported in the same quarter last year. Adjusted net income, excluding unusual items and losses on valuation of financial instruments came in at $242 million or $1.05 per share compared to an adjusted net income of $192 million or $0.82 per share in the same quarter last year. For the first 9 months, Quebecor's revenues were down by 0.3% to $4.1 billion, and EBITDA was up by $4 million to $1.8 billion, partly impacted by a $44 million increase in stock-based compensation charges. Excluding this factor, EBITDA would have increased by $48 million or 3%. EBITDA from our telecom segment grew 2%, an improvement of $38 million over last year, excluding the impact of stock-based compensation. At the end of the quarter, Quebecor's net debt-to-EBITDA ratio decreased to 3.03x, still the lowest of all our telecom competitors in Canada. We remain committed to further deleveraging in the coming quarters and intend to continue operating in this low 3 range, consistent with our current financial strategy. Our balance sheet remains very strong with available liquidity of over $1 billion at the end of the third quarter. I would also like to highlight the success of our recent refinancing where Videotron issued $800 million of senior notes yielding 3.95%. This demand -- the high demand from investors, it was very strong with a book more than 3x oversubscribed, and we were able to negotiate very favorable conditions, most notably the lowest 7-year credit spread seen in the Canadian telecommunications sector, a convincing testament to the strength of our financial foundation, our disciplined management and our growth prospects. The net proceeds will be used for the redemption of our -- or Videotron's rather 5.125% senior notes maturing on April 15, 2027. During the first 9 months of the year, we also purchased and canceled 3.7 million Class B shares for a total investment of $140 million. We thank you for your attention, and we'll now open the lines for your questions. Operator: [Operator Instructions] First, we will hear from Maher Yaghi at Scotiabank bank. Maher Yaghi: [Foreign Language] I would like to first ask you the strong performance in wireless, you mentioned that it came from lower churn and also improved gross loading. Can you maybe dissect a little bit more what drove that strong performance in the quarter? Q3 usually is a strong quarter for Freedom, but how are you thinking about Q4 so far? And which markets -- which submarkets in wireless you still haven't been able to gain market share from that you think over time could provide you more growth down the line? Hugues Simard: Thanks, Maher. So in wireless, yes, I mean, as you said yourself, the Q3 and the back-to-school period is -- has historically been a very strong quarter for us. These are the target markets that we -- that particularly resonate well with us. And again, even though organically and in terms of immigration and all the things we've talked about, the market is a little softer, we've been able to maintain our performance. And why have we been able to maintain our performance? It is because we are increasingly resonating with other cohorts whereas the freedom of the past used to be very strong with first-time buyers and immigrants and people looking for a deal or the cheapest deal. We are now able to attract and retain customers that are willing to -- they want a bit more, that want better performance. We have an increasing number of 5G-plus customers because we have been expanding the access to 5G-plus to many more of our customers. Fizz is also continuing to perform increasingly well quarter after quarter, which should not be a surprise because you will remember us telling you that Fizz was created with a very specific objective -- with very specific objectives in mind, and that was to go after and to target the younger, more urban, more digital savvy generations, which are representing the future. And I think we are showing that we're better than our competitors at reaching out to these people, to these customers. In terms of going forward in the following quarters, I think you will see if you look back that we are very -- not stable, but very consistent in our penetration, in our growth. We are continuing to retain our customers more longer, so churn is down. Our ARPU is going up. So this is really the story in this one. Look at our wireless service revenues, $27 million more in the quarter, which flows down to margin with -- considering our very disciplined cost containment. That's basically how I would call the story of -- the wireless story of the quarter, which bodes, as we said in our -- as Pierre Karl said in his note, bodes very well for the historically competitive Q4, where we intend to continue to perform very well. Pierre Péladeau: That's a pretty good answer, ain't it? Maher Yaghi: It's a very good story for sure, very good story. Maybe just one… Pierre Péladeau: May I add just one thing, is -- well, we all know that when Freedom was under the previous ownership for whatever reason, I mean, historically, the weakness was the network, the quality of the network. And I think it's important to mention that we are investing in the network. And we've been always Videotron an enterprise culture, considering that we need to deliver the best product in our available customers. So we inherit a good brand and certainly also some very good people in this organization. But now I think that we've been doing what is appropriate to improve our product by investing in the network. We will continue to do so and we will continue to do it on a disciplined basis as we've been doing, obviously, in Quebec for the last about almost 15 years now. Maher Yaghi: Yes. And maybe just to touch on the improvement in the cable segment revenue growth rate with the pricing that you passed last December starting to really kick in. But I'm trying to gauge that with Karl's -- your prepared remarks. You specifically called out the very aggressive pricing competition happening in Montreal and Quebec in general on the combo plans, very low prices. Is it easy to pass another price increase this year like you did last year amidst the competition that we're seeing right now in the marketplace? Pierre Péladeau: Well, obviously, you can easily expect that you're going to have an answer for that. But I'll tell you, we're used to that. We've been always in the same kind of environment. So there is nothing new for us. And what we're doing to make sure that we're for this situation is by being as much as disciplined as possible, watching our core cost. And we've always been in that kind of business and we will continue to do so. Historically, pricing between Quebec and all the other areas in Canada for whatever product, it was the same for cable, it's the same for wireless had been lower. So is our competitor, our main competitor, the blue guys have been trying to get market share by having lower prices than elsewhere. They certainly, in the past, being able to benefit from a higher margin elsewhere. Are they using this to compete even more aggressively in Quebec? It's not impossible. But they can do whatever they want. At the end of the day, we're going to continue to be the preferred supplier of Quebecers for many reasons, one of which is that we're offering better customer service and our products are of higher quality. Operator: The next question will be from Stephanie Price at CIBC. Sam Schmidt: It's Sam Schmidt on for Stephanie Price. I wanted to ask a question about ARPU. The declines have been improving sequentially for the last few quarters. How do you think about the timeline to return to positive ARPU growth? And it was strong in this quarter. Any onetime items to call out there? Hugues Simard: I'm sorry, I missed your first name. You're replacing Stephanie, right? Sam Schmidt: Yes. Sorry, it's Sam Schmidt on for Stephanie Price. My first question was just around the ARPU declines that have been improving sequentially for the last few quarters and how you're thinking about a timeline to return to ARPU growth. Hugues Simard: Yes. It's -- you saw our performance. We're very confident. ARPU is turning the corner, and I would expect that corner to be very, very soon. Sam Schmidt: That's helpful. And then just one more for me on mobile equipment revenues. How are you thinking about device financing heading into Black Friday? Hugues Simard: With discipline, how would I say, continued disciplined, reasonable offers. We've said this in the past that Black Friday is a time of the year where we can easily go crazy and lose our shirt, as we say, on equipment device -- on equipment or device subsidies. And we certainly do not intend to do that and to continue to be, as I said, disciplined and reasonable in our equipment offers for the rest of the year. Operator: Next question will be from Matthew Griffiths at Bank of America. Matthew Griffiths: Just on churn, firstly, if I could. It seems as though across the industry, everyone is reporting churn being lower this quarter on a year-over-year basis. I was wondering if you had any comments about how much of your churn benefit in the quarter is just kind of that halo effect of industry churn falling. Or were there things that you were doing that you kind of can see that there's -- that would have been responsible on your side for reducing the churn? And then secondly, if you can make any comments on the kind of decision and how you evaluate the network expansion question. Specifically, you mentioned this quarter expanding the wireless network into the Chatham-Kent area. So if you could share kind of just how you evaluate it, how many more opportunities you see for this going forward, it would just be helpful on our side. Hugues Simard: Matt, thanks for your question, Matt. On churn first, probably a little bit of both, to be fair. Our churn, as you know, started from very high with Freedom, the highest in the industry by far, and is now fairly equal to the lowest of the industry. And that was mostly due to the improvements to our network, its performance, its coverage, its reliability, roaming packages, marketing agility, customer experience. I mean it's a -- who knows -- and bundling opportunities. There are so many factors that collectively contributed to this lowering or this decrease in our churn. Now that it has reached, as I said, a very competitive level, then obviously, it becomes naturally a little bit more affected or more influenced by maybe more market-related metrics. And it is our goal to maintain that churn through the various improvements. I mean we're nowhere done. I mean it's not as if we're at the end of the -- of our plan here in terms of improving everything that I've talked about and going after different cohorts, as we said earlier. And as our experience keeps getting better with our customers, we're very confident on the churn level that we have not only reached the industry's best, but that we will maintain the industry's best. Of course, there are the investments that Pierre Karl talked about that will continue. We're taking this very seriously. When we relaunched -- when we bought and relaunched Freedom, we said very clearly that we went about very diligently about fixing all the pain points and making sure that the experience was quickly very much better. And we still have work to do. This is a never-ending work, and we certainly intend to, as Pierre Karl said, continue to invest in our networks and also in our marketing agility to make sure that we continue to resonate with Canadian customers. As to the network expansion, this is the -- these decisions are made on a -- it's a bit of a -- how would I say, it's a bit of a balance between going after strong and interesting regions with -- and balancing it with the investments needed in these regions. So this is something we have a plan, and we're continuing to be very diligent and very disciplined about our network expansions going forward. Focusing on the MVNO areas where we're starting to resonate well, where we're building the business, you will remember us saying that we're not going to build and hope that people come. We will launch MVNOs and where it will make sense for us, we will prioritize network investments. And I think that's the good business way to do it, and that's still what we intend to continue to do. Operator: Next question will be from Jerome Dubreuil at Desjardins. Jerome Dubreuil: The first one is on the free cash algorithm. We were seeing a bit of EBITDA growth, but also CapEx increases. So I'm wondering if you're seeing a potential for free cash growth in the coming year or if value is going to be created more through deleveraging and buybacks. I appreciate there was the share-based comp situation this year. But essentially, will absolute EBITDA growth outpace CapEx growth in the next few years? Hugues Simard: Thanks Jerome, [Foreign Language]. I think you're seeing it in the numbers. We look at our performance in terms of generating margin, generating cash, which provides us with the opportunity to continue to invest in the network, which we had said we would. And from -- I think you will remember, again, us saying from the beginning of the year or even last year that we were going to maintain very strong, stable cash flow, even though we were intending to invest more in our network. So in terms of buybacks, as you know, we flexed in the past on this, and we will continue to do so. And dividends will be -- we will continue stay true to our dividend increase, reasonable increase that we've had in the past. We're still in the soft in the -- not in the soft, in the best spots that we announced between 30% and 50% of our payout. So we feel pretty comfortable with our continued capability to generate cash, very strong cash flows that then give us the leeway to continue to invest in the network and the -- eventually in the network builds. Jerome Dubreuil: I'm just going to push a little bit on the capital allocation point here. You said in the prepared remarks that you're probably happy with leverage in the low 3s. It seems like you're getting real close to destination here on the balance sheet side. So does that mean that we should be expecting a ramp-up in the buybacks probably? Or is that a fair assumption? Hugues Simard: It's not an unfair assumption, but I wouldn't necessarily agree to it now this morning. Pierre Péladeau: And Jerome, I think that we should say it's a prerogative of the Board of Directors. And look at the sequence previously where we've been changing our balance sheet policies. I guess that we should -- that would be a good example or a good illustration of what we can expect being the situation in the future. Operator: Next question will be from Vince Valentini at TD Cowen. Vince Valentini: Let me spin that free cash flow question just more specifically to the near term. Hugh, you've done $1.06 billion of free cash flow through the first 9 months of the year. In the fourth quarter of last year, you did over $300 million in free cash flow. Is there something material in terms of timing issues we should be thinking about for the fourth quarter? Or are you going to -- like, you're going to smash through $1.2 billion or $1.3 billion of free cash flow for the year? Hugues Simard: Vince, no, we've talked about this, I think, last quarter. There are some timing issues. Our CapEx did increase a little bit in Q3, as you've seen, but there still is some timing ahead of us -- timing issues ahead of us in terms of CapEx, which you should expect to be higher in Q4. So I wouldn't go all out in our expectations of us breaking the bank in terms of cash flow. It will be a very strong cash flow and we will more than deliver what we had said we would deliver, Vince. But yes, there definitely is going to be a catch-up in CapEx towards the end of the year -- between now and the end of the year, yes. Vince Valentini: But you would definitely expect to have positive free cash flow in the fourth quarter? Hugues Simard: For sure. For sure. Yes, yes. Vince Valentini: Okay. The second thing, your Internet adds were a bit better than I expected. Is this in Quebec in your core Videotron business? Or are you starting to see some benefit from Freedom Internet in the rest of the country using TPIA? Hugues Simard: Well, a little bit of both. It is in Quebec, but it is also in Freedom home Internet is performing well. Fizz Internet is performing well. So it's -- we are in a very competitive situation and an ever-increasing competitive situation in Quebec. But we've talked about the quality of our services and network. And so we've been performing well essentially everywhere in terms of broadband. Vince Valentini: Okay. And last one, I don't know if there's any materiality to this, but as you know, I'm a happy customer. These roaming SIM cards that you guys have and people on other carriers are allowed to use them when they're traveling, how are you counting those? Are they being counted as a subscriber in the third quarter sub adds? Hugues Simard: No, no. No, they're not -- if you've turned on that SIM card, as I know for a fact that you were finally successful in doing, Vince… Vince Valentini: Yes, I did. Hugues Simard: After some help, you are not counted as a subscriber, no. Vince Valentini: So that is actually -- it is obviously service revenue. So it's going to be helping your ARPU even more than just the underlying trends in the business going forward? Hugues Simard: Yes. That's correct. And by the way, it's high time that you do become a customer of Vince. We're counting on you. Vince Valentini: I'm waiting for your Black Friday offer. Pierre Péladeau: Thanks for your business, Vince. Operator: Next question will be from Aravinda Galappatthige at Canaccord Genuity. Aravinda Galappatthige: Just a couple of quick ones from me. Hugues, you mentioned that one of the reasons for the success of Freedom sub trends is because you're kind of going into other cohorts that the old Freedom did not. I mean should we translate that comment as suggesting speaking to sort of the prepaid-postpaid mix? Any comment around how that mix has changed as you sort of progressed with gains on the subscriber front? And then secondly, just a small follow-up. The wireless ARPU redefinition, can you just clarify what that was? Hugues Simard: As to your first question, Aravinda, postpaids and prepaids for us, we're continuing to perform well on both. We have -- we're a bit agnostic, to be honest, and have continued to work well. So on all the cohorts that I talked about, I think that was more of a general comment applying to both to both postpaid and prepaid -- not specifically a move from one to the other. But we -- to be quite transparent, we're continuing to perform well on postpaid. And your second question, sorry, I've forgotten was to do with what? Aravinda Galappatthige: The ARPU redefinition. I think it was a small definition change of $0.40. Hugues Simard: Yes. Yes, it's about $0.40. We've restated it. But as those were $0 accounts, you'll see that it's almost consistently $0.40 over the last so many quarters that we restated. Operator: Next question will be from Drew McReynolds at RBC. Drew McReynolds: So a couple for me. Maybe for you, Hugh, on the CapEx trajectory in telecom. It looks like you're running a little hotter than the initial kind of $650 million or so of CapEx. Just wondering, and I think your commentary from Q4 would say you come on above that. Is there any kind of change overall to the kind of medium-term trajectory on CapEx from your perspective? And then just tied to that, we are seeing a pretty efficient kind of cable CapEx intensity come down from -- with some of your cable peers. Just wondering your cable CapEx, how you expect that to trend again through the medium term? Hugues Simard: Thanks, Drew. So on medium-term CapEx, both wireless and wireline, we will -- as I said earlier, we will, in Q4, be a little bit higher. That doesn't necessarily change our midterm -- what we said about the midterm that we are -- and we've said this before, that we're in a -- we're continuing to invest, and we're continuing to improve and ultimately expand as well our networks. And as such, it will be -- you should expect a gradual CapEx increase over the medium term. Nothing -- again, gradual, nothing -- no CapEx wall. I have some of your colleagues unfortunately use the term in the past. I don't think there's anything to be worried about, but just very reasonable and very sensible investments in both of our wireline and wireless network going forward. So no change to our midterm CapEx trajectory. Drew McReynolds: Just in the MD&A, you alluded to some favorable kind of provisioning in Q3 within telecom. I'm assuming the 2.8% year-over-year telecom EBITDA growth ex the provisioning is still a reasonably good growth rate. Can you just comment on quantifying those provisional -- favorable provisions? Hugues Simard: I won't give you the number, obviously, Drew, but it's -- no, I think your statement is fair. There's no -- yes, there was some provision adjustments as we do in a number of quarters and almost all quarters and as everybody does, but it's not material enough to impede or to change the conclusion on our increase in profitability for the quarter. Drew McReynolds: Okay. No, that's great. And last one for me, just the usual fixed wireless impact in Quebec, just how that's kind of contributing to the competitive environment, if at all? And that's it for me. Hugues Simard: To be honest, nothing significant. It is -- and by that, don't misread us. We're not saying that this is something to be dismissed. As we said in the past, fixed wireless is -- we're not saying it's not a thing. It may very well become a thing. And we are certainly in our own shop, looking at opportunities for fixed wireless. But certainly, to your -- in answer to your question, so far the impact on us has been very limited in our home turf of Quebec. But we are definitely -- and we've got the teams already lined up to start reflecting on how we will turn that into an opportunity for us in our various markets outside of Quebec. Aravinda Galappatthige: And congrats on great wireless results. Operator: Our last question will be from Tim Casey at BMO. Tim Casey: Hugh, just one modeling question and a couple of others. Working capital is running very positive so far this year. Should we expect a reversal in Q4 or maybe into Q1 next year? And what's driving that? Is that cash management or is it just timing? Hugues Simard: Tim, no, you should -- the answer your question, there should not be -- I don't see any material difference in Q4 or Q1 of next year in terms of working capital. It is -- to be honest, it is something that we've been focusing on for the past year or so, 1.5 years, where we recognized -- I think sometimes you have to be -- you have to question yourself on various occasions. And we weren't as efficient in working -- in managing our working capital as we should have been in the past. And we've tightened up a lot of things and I think it's showing. But we certainly intend to continue to perform well on working cap. And I wouldn't expect -- I mean, there's no bump either way that you should expect in the next quarters. Tim Casey: Okay. Just 2 for me. On the 50,000 subs you removed out of the base, can you give us any color on why they were $0 subs? Was this an aggressive promotion from the relaunch of Freedom? Were they -- was it an enterprise deal? What was happening there that they were so poor ARPU? And second one, as you think about expanding out of footprint on wireline, do you expect to retain similar type economics maybe on a margin basis? I would -- or should we assume that it will be dilutive to ARPU on the wireline side? Hugues Simard: Tim, to your first question, the 50,000 or 51,000 were $0 accounts. It's basically people who had opened an account but never -- or had a SIM card, mostly from before the acquisition and who never really bought a package. So they -- we had them as an account, but they weren't active and they weren't generating any revenue. So we just took them out. In terms of our out-of-footprint wireline, we -- again, our intent is to remain very disciplined and very -- I think that was your question. If I'm not answering the right question, you can ask me. We certainly -- as we've said in our notes today, both Pierre Karl and I, we intend to -- whether it's out of footprint wireline or eventually fixed wireless, whatever, it is our intent to remain very disciplined. And I think if I may make the point right now, we have been and for quite some time, been very disciplined and very predictable in our approach. We say what we're going to do, and we do what we said we were going to do, which I don't think can be said for everybody in telecom in Canada. But we certainly, in terms of wireline, intend to continue to apply that philosophy, if I can call it that. Pierre Péladeau: So we would like to thank you all attending this conference call and expect the same for our next quarter that will be our year-end. So don't miss Hamilton game, the Alouettes against the Tiger-Cats on Saturday. Hugues Simard: And you should root for the Alouettes, right? Pierre Péladeau: Sure. Thank you very much and have a nice day. Hugues Simard: Thanks, everyone. Operator: Thank you. Ladies and gentlemen, this concludes the Quebecor Inc.'s financial results for the third quarter 2025 conference call. Thank you for your participation and have a good day.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the nLIGHT, Inc. Third Quarter 2025 Earnings Call. After today's prepared remarks, we'll host a question and answer session. [Operator Instructions] I will now hand the conference over to John Marchetti, VP, Corporate Development and Investor Relations. John, please go ahead. John Marchetti: Good afternoon, everyone. Thank you for joining us today to discuss nLIGHT's Third Quarter 2025 Earnings Results. I'm John Marchetti, nLIGHT's VP of Corporate Development and the Head of Investor Relations. With me on the call today are Scott Keeney, nLIGHT's Chairman and CEO; and Joe Corso, nLIGHT's CFO. Today's discussion will contain forward-looking statements, including financial projections and plans for our business, some of which are beyond our control, including the risks and uncertainties described from time to time in our SEC filings. Our results may differ materially from those projected on today's call, and we undertake no obligation to update publicly any forward-looking statement, except as required by law. During the call, we will be discussing certain non-GAAP financial measures. We have provided reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures in our earnings release and in our earnings presentation, both of which can be found on the Investor Relations section of our website. I will now turn the call over to nLIGHT's Chairman and CEO, Scott Keeney. Scott Keeney: Thank you, John. Q3 represented another solid quarter of execution for nLIGHT with total revenue at the high end of our guidance range and both gross margin and adjusted EBITDA beating our expectations. Third quarter revenue of $67 million grew 19% year-over-year and were once again driven by record aerospace and defense revenue of $46 million, with defense product sales growing more than 70% year-over-year. I am particularly pleased with the expansion of our product gross margin, which came in at a record 41% and increased from 29% in the same quarter a year ago. Our adjusted EBITDA was also above our expectations at more than $7 million in the quarter. The expansion in our gross margin and the subsequent growth in our adjusted EBITDA demonstrate the leverage that is inherent in our operating model. In Aerospace and Defense, we remain focused on 2 key markets: directed energy and laser sensing. And revenue from both markets outperformed our expectations in the quarter. In directed energy, we are uniquely positioned with our vertically integrated and industry-leading high-power laser technology, developed over the past 2 decades, and spanning the entire technology stack from chips to components to full laser systems and beam directors. All of which are designed and manufactured in the U.S., have generated revenue at nearly every level of vertical integration in the directed energy market, and we have established ourselves as one of the most comprehensive suppliers to the U.S. government, other prime contractors and foreign allies. During the third quarter, we continued to make solid progress on our HELSI-2 program. As a reminder, this is a $171 million program to develop a 1-megawatt high-energy laser with a completion date expected in 2026. The shipment of critical components towards the HELSI-2 program was a significant driver of our record defense product revenue in the quarter and is expected to be a substantial contributor to growth through the remainder of the year and into 2026. We continue to transition our latest generation of amplifier products into advanced production by leveraging nLIGHT's experienced manufacturing teams and implementing quality and control processes. This transition, while not without risk, is progressing well and is critical as we continue to optimize our amplifier production line for higher volumes. Our work on the Army's DE M-SHORAD, Short-Range Air Defense program is nearing completion, and we look forward to delivering this 50-kilowatt high-energy laser and beam director to our partner. Once delivery is completed, the system will begin field testing. Overall interest in U.S. directed energy programs remains high, particularly for counter-UAS applications, and we expect new contracts to be awarded in the coming quarters from different agencies as part of the President's Golden Dome executive order, which specifically highlights non-kinetic missile defense capabilities as an area for development. With a mandate to build these systems in the United States, we believe we are well positioned to benefit from these efforts over the coming years, and we are hopeful that the coming quarters will provide additional details on the scope and timing of these initiatives. We've also continued to have success in the international markets for directed energy. We began shipping to a new international customer last quarter, and we have a growing pipeline of new global opportunities as allied nations look to accelerate directed energy programs for cost-effective counter-UAS and other threats. Our laser sensing markets are also performing well. Our laser sensing products include missile guidance, proximity detection, range finding and countermeasures, and we have been incorporating in several significant and long-running defense programs, all of which are poised to grow in 2026. During the third quarter, we signed a new $50 million contract for an existing long-running missile program that incorporates one of our laser sensing products. nLIGHT has been a long-term supplier into this program, which our customer expects to remain a key priority associated with the nation's munitions restocking efforts. Our historical performance on these programs and our early success in multiple classified programs has increased both the number of prospects and the size of our sensing pipeline. In addition, further opportunities under Golden Dome initiatives have emerged and could also become significant contributors to our growth in 2026 and beyond. Commercial revenue was slightly ahead of our expectations at $21.2 million on a sequential increase in microfabrication sales and relatively flat results in our industrial markets. We have been pleased with the stability of our microfabrication markets year-to-date and have been encouraged by the growth in our advanced manufacturing products, where we see alignment with our aerospace and defense customers and our technology remains differentiated. Let me now turn the call over to Joe to discuss our third quarter financial results. Joseph Corso: Thank you, Scott. Our third quarter results were characterized by another quarter of strong execution. Healthy revenue growth, a favorable mix of business and continued execution from our manufacturing and operations teams drove meaningful upside to our gross margin. That upside, combined with operating expense discipline, resulted in significant improvement to profitability and cash flow, demonstrating the leverage that is inherent in our model. Total revenue in the third quarter was $66.7 million, an increase of 19%, compared to $56.1 million in the third quarter of 2024 and up 8%, compared to the second quarter of 2025. Aerospace and defense revenue was a record $45.6 million in the quarter, up 50% year-over-year and 12% sequentially. A&D growth was driven by record aerospace and defense products revenue, which grew 71% year-over-year and 32% compared to last quarter. Development revenue of $19.1 million grew 28% year-over-year as we continue to execute on multiple directed energy programs. The quarter-over-quarter decline of 8% was the result of several smaller programs having been completed in the prior quarter. We expect A&D revenue to continue to grow sequentially in the fourth quarter. Third quarter revenue from our commercial markets, which includes industrial and microfabrication, was modestly ahead of our expectations at $21.2 million, a decrease of 18% year-over-year, but up slightly compared to last quarter. Revenue from our microfabrication markets was in line with our expectations at $11.6 million, while revenue of $9.6 million from our industrial markets was slightly better than expected as an increase in demand for our additive manufacturing products offset continued declines in cutting and welding. While we are pleased with the overall stability that we saw in our commercial markets in the third quarter, we do not believe that the overall demand picture has significantly changed from what we described in prior quarters. Total gross margin in the third quarter was 31.1% compared to 22.4% in the third quarter of 2024 and 29.9% last quarter. Products gross margin in the second quarter was a record 41%, compared to 28.8% in the third quarter of 2024 and 38.5% last quarter. Third quarter products gross margin was positively impacted by a favorable customer and product mix driven by record revenue from our A&D markets and an overall increase in volume. Development gross margin was 6.4%, compared to 4.7% in the same quarter a year ago and 13.1% last quarter. The sequential decrease in development gross margin was largely the result of some smaller, higher-margin programs that finished in the prior quarter and did not contribute to the third quarter results. Going forward, we expect development gross margin to remain in the 8% range. GAAP operating expenses were $28.1 million in the third quarter, compared to $24.4 million in the third quarter of 2024 and $22.7 million in the second quarter of 2025. Included in our third quarter GAAP operating expenses were higher stock-based compensation expenses associated with previously announced performance shares and a restructuring charge of approximately $1.7 million as we further reduced our activities in China and in cutting and welding. Non-GAAP operating expenses were $17.5 million in the quarter, down from $18.3 million in the third quarter of 2024 and up from $16.8 million last quarter. We expect non-GAAP OpEx to remain in the $18 million range in the fourth quarter. GAAP net loss for the third quarter was $6.9 million or $0.14 per share compared to a net loss of $10.3 million or $0.21 per share in the same quarter a year ago and a loss of $3.6 million or $0.07 per share in the second quarter of 2025. On a non-GAAP basis, net income for the third quarter was $4.3 million or $0.08 per diluted share compared to a non-GAAP net loss of $3.7 million or $0.08 per share in the third quarter of 2024 and non-GAAP net income of $2.9 million or $0.06 per diluted share last quarter. Adjusted EBITDA for the third quarter was a positive $7.1 million, compared to a loss of approximately $1 million in the same quarter last year and a positive $5.6 million in the second quarter of 2025. We ended the third quarter with total cash, cash equivalents, restricted cash and investments of $116 million. We generated $5.2 million in cash flow from operations despite continuing to invest in working capital ahead of growth, and we were free cash flow positive in the quarter. Turning to guidance. Based on the information available today, we expect revenue for the fourth quarter of 2025 to be in the range of $72 million to $78 million. The midpoint of $75 million includes approximately $55 million of product revenue and $20 million of development revenue. We expect sequential growth in A&D in the fourth quarter, and we expect full year 2025 A&D revenue growth to exceed our prior outlook for A&D growth of at least 40% year-over-year. Overall gross margin in the fourth quarter is expected to be in the range of 27% to 32%, with products gross margin in the range of 34% to 39% and development gross margin of approximately 8%. As we've mentioned previously, as a vertically integrated manufacturing business, gross margin is largely dependent on production volumes and absorption of fixed manufacturing costs. Finally, we expect adjusted EBITDA for the fourth quarter of 2025 to be in the range of $6 million to $11 million. With that, I will turn over the call to operator for questions. Operator: Your first question comes from the line of Greg Palm with Craig-Hallum. Greg Palm: Congrats on the results. I was wondering, first, if you could just address HELSI-2, I mean, based on the results, the guide, I mean, is there a chance that you're pulling ahead the completion date here? I know you've talked about completion in 2026, but curious if that time line has changed at all just based on the volumes that you're able to complete. Scott Keeney: Greg, it's Scott here. Thanks for the question. No, we're on track is the bottom line. We will announce progress results when we are able to do so, but we're on track for 2026. Greg Palm: And then as it relates to product, so your guiding revenue up quite a bit sequentially, but gross margins down. I know you're coming off of a pretty tough compare, I guess, sequentially when you put up 40-plus percent product gross margins. But just can you give us a little bit more color what's going on? It doesn't sound like mix is going to change all that much? Joseph Corso: Yes. No, Greg, thanks for the question. As we've talked about in the past, you can have some pretty -- what seems like a pretty big swings from a gross margin perspective when you're still talking about revenues at the levels that we are at. Really not much in terms of Q3 to Q4 on the gross margin guide, probably 150 or 200 bps of it is related to actually freight and duties, right, as we've had the higher cost of materials that are going to -- we're now going to start to feel in Q4. And then the rest is really just mix within each of our end markets. The mix within defense, the mix within commercial can change in any given quarter. And then there's just a handful of other items that as we forecast in any given quarter that are there. But generally speaking, we're pleased that gross margin has expanded, and it remains really a function of 3 things: higher volume mix, where we are and then just overall how we're levering the factory. So we're pretty happy with where we were in Q3 and not much to think about for us in Q4. Operator: Your next question comes from the line of Ruben Roy with Stifel. Sahej Singh: This is Sahej Singh on for Ruben Roy. First off, congrats. You guys are past your breakeven point, which I think was $55 million to $60 million and turning profitable, so congrats on that. HELSI-2, I think if I do the math is, you said it earlier, $171 million contract with 3-year estimated time line. So annualized, that's about $57 million ceiling per year, which is about $14 million lower than what you're operating on, on a trailing 12-month basis within Aerospace and Defense products. So 2 questions there, and then I have a follow-up. It seems like a fixed firm price contract with the moves you're making on amplifiers. Can you give us some sense of how much incremental margin benefit you're seeing from that this quarter and expect to see maybe through the course of next year as you're ramping down on that contract? And the second part to this is as that contract ramps down, do you see sensing tied to Golden Dome and the classified programs and maybe international sales more than offset that HELSI-2 contract revenue loss, which I imagine will be probably starting second half of '26? Joseph Corso: So there's a lot there. So help me if I don't get it all right, I can follow up. I would say on the HELSI-2 contract, first, it's a good way to look at it, right, it's $171 million contract, but it's not going to be recognized linearly, right? So it's a cost-plus type contract. So it really depends on the type of activities that we are engaged in at any given period of time during that contract. So you shouldn't think about that linearly. Certainly, it is a big driver of the A&D products revenue that we have been generating and amplifiers are the key component that we are selling into that contract. Now more generally, as we think about products gross margin expansion, we've really focused on products that enable us to drive incremental gross margins of meaningfully north of 50%. And so amplifiers and other products that we are selling are meeting that today, and we expect that to continue to expand. I think the last part of your question just around the trajectory of HELSI-2 into 2026, you're absolutely right, right? At some point in the back half of 2026, we'll start to see the revenue that we're generating from HELSI-2, everything around HELSI-2, start to trail off. But we've got plenty of other programs, both in directed energy and in laser sensing that will make up for that reduction in the second half revenue. Sahej Singh: Very helpful. And then the second -- the follow-up I have is -- on DE M-SHORAD, which I guess is now ramping down, if I'm not wrong, and please correct me if I am, it's an R&D contract, which means it probably sits in advanced development. That said, advanced development seems to be ramping quite nicely also on a trailing 12-month basis. What's driving that growth? And I guess, to what degree should we look at that as a leading indicator for future sales on the A&D laser products, as you're mentioning into '26, '27, let's say? Joseph Corso: So you are correct that DE M-SHORAD is ramping down. So we are at the very end stages of delivering that product to the customer. So that's not really contributing meaningfully at all to revenue this quarter nor will it contribute to revenue going forward. The advanced development segment of our business includes all of the development revenue that we do, including HELSI-2 and other programs. And while not all of the programs that we are working on that are classified as advanced development go into -- will ultimately end up as programs of record, it is a good indicator that the activities that we have in directed energy and in laser sensing are putting us in a good position so that when those programs do transition or there are new programs, where there are opportunities to become program of records that we're well positioned to capture them. But you can't draw a line directly from our advanced development revenue to what long-term defense product revenue will be. Operator: Your next question comes from the line of Jim Ricchiuti from Needham & Co. James Ricchiuti: So the question I had is just relating to the previous question. If HELSI-2 does wind down in the second half of the year, you've talked about a pretty full pipeline. If you -- when would you have to see new orders come in, should be able to offset some of the hole that we could see from having completed HELSI-2. In other words, is it -- do you anticipate orders coming in, in the next couple of quarters that would allow you to fill a potential hole related to HELSI-2 in the back half of next year? Joseph Corso: Jim, based on what we are working on today, the hole is already filled. What is somewhat dependent upon timing of bookings and how quickly we can get to work on a handful of new programs will determine how much we grow in 2026. James Ricchiuti: Could you also maybe just clarify, I just maybe misheard. On the laser sensing contract that you alluded to, is this a follow-on piece of business? Scott Keeney: Yes is the short answer. It's an ongoing program of record that we have been supporting for over a decade. James Ricchiuti: So Scott, this basically just extends that. And then one final question. I know all of the questions have been around the A&D business, but it's interesting to see, I guess, what, a second quarter of sequential improvement in the microfabrication area. You're characterizing it as stabilizing. What is leading to some of the stabilization? Where is it coming from? Joseph Corso: Yes, it's coming from -- certainly, in microfabrication, that has always been a business that is difficult for us to predict. It's largely book and ship in the -- during the quarter, it's a really long tail of customers. And the last couple of quarters, we've seen some stabilization in that business. So it's difficult to point to 1 or even 2 things that are driving that business, but we're pleased to see stabilization there. Similarly, on the industrial side of our business, the quarters have been, frankly, a little bit better than we had expected, which is a welcome development for us. But what we'll say is our overall view of the commercial business as we go into 2026 is the same as we've been saying now for a couple of quarters, right? That business is expected to again decline in 2026. James Ricchiuti: And just with respect to microfabrication, the seasonality of that business tends to fall off a little bit in Q1. But the levels that we're seeing Q2, Q3, is that a reasonable level moving aside from the seasonality we might see in Q1? Joseph Corso: Yes. Jim, you're absolutely right. That is probably the most seasonal of our businesses. And in the last couple of quarters, we've seen that plus or minus $10 million of revenue. I think that a good range for us is probably $8 million to $12 million. We don't have better visibility than that. And obviously, China microfab business has declined precipitously over the last couple of years, and we've seen continued sequential declines in that business as well. Operator: Your next question comes from the line of Keith Housum with Northcoast Research. Keith Housum: Congratulations on a great quarter, guys. I think I heard you guys say the amplifier transition continues to progress. One, I guess, is that correct? And then once that's complete, how should we see that reflected in results? Will it make for more efficient and easier recognition of revenue? Or is it going to be lower cost? Or what's going to be the financial statement impact when the transition is complete? Joseph Corso: Well, I'm not sure the amplifier transition is not complete per se. I think what is going to be complete is the amplifiers that are delivered into one particular program, which is HELSI-2, and that will happen over the course of 2026. Generally speaking, we have a lot of programs into which we are delivering amplifiers domestically. And as we've said the last couple of quarters, there's also opportunities for us that we are working on with a host of allies internationally. So we expect our amplifier business to continue to grow. And so that is one of the reasons that you are starting to see some of the margin expansion is due to the fact that we are selling higher volumes of amplifiers. And at the same time, we're working hard to take what is a really difficult product that is pushing the limitations of physics and make it more manufacturable. So I think over time, you're going to see both revenue growth and margin expansion as we start to mature our ability to manufacture those amplifiers. Keith Housum: That's helpful. Appreciate it. Your restructuring charges in China cutting and welding, is that more to rightsize these businesses based on your expectations going forward? Or what's the reason behind that? Joseph Corso: Yes. No, that's exactly what it is, right? I mean we were operating in Shanghai for a very long time, not an easy transition to move assembly of our lasers from Shanghai to Fabrinet and to the U.S. And so there's lots of ongoing support activities that are required to do that. And so you're seeing some of that in that restructuring charge. And then there's also a bit of expectation that the cutting and welding business are going to continue to decline. And so we want to make sure that we are rightsizing our investments for our expectations of those markets going forward. Keith Housum: Appreciate it. And then I'm not sure if it's a true statement or not, but is there an opportunity for you guys in the counter-drone technology space? Scott Keeney: Sure. Yes, absolutely. That's one of the big applications for directed energy. Keith Housum: So we're still in relatively early innings in that area as well. But obviously, it gets a lot of press that we read today. Scott Keeney: Correct. And direct energy goes well beyond counter drones. Operator: [Operator Instructions] We have a follow-up question from Greg Palm with Craig-Hallum. Greg Palm: You said something that I thought was pretty important in terms of programs next year that could offset or that could make up the absence of HELSI-2. So I just want to make sure we're clear. Are those programs that have been booked? Or is that still in the pipeline? Joseph Corso: Those are programs that have been booked, Greg. Greg Palm: And then I'm just curious, can you talk a little bit about -- are those directed energy? Are those laser sensing? And I don't know if I missed it, but the 2 confidential laser sensing programs, one of them was supposed to go to LRIP by the end of this year. Is that still the case? Has that begun? And what's the status of the second one? Scott Keeney: Good. So let's see your first question is the work for '26 that is key that we're highlighting is in both directed energy and in sensing first. Let's see your second question was around. Greg Palm: Yes, the 2 major sensing programs that you -- the confidential ones that we've been talking about for the past, well, multiple quarters. Scott Keeney: Yes. The summary is they're both progressing. I want to be pretty sensitive to the specifics of the time line, but they're both progressing that supports the outlook that we're providing generally in the business. Greg Palm: But -- and then to be clear, going back to my first question, there are programs -- these are not the programs that are necessarily supposed to offset, it could help, but there's new additional programs that have been once booked, that is going to help offset that loss in HELSI-2 business. Joseph Corso: Yes, Greg, so let me parse it a little bit more finely for you. So there are programs that we are on today that are not HELSI-2 that we expect to continue to grow. There are new programs that we've won, right, that will plug the hole that we will see as HELSI-2 trails off. Those are both directed energy and laser sensing. And then there are other very high probability of win and go programs that we expect in 2026 that will drive growth in defense beyond what it is today. Hopefully, that helps. Operator: Your next question comes from the line of Brian Gesuale from Raymond James. Brian Gesuale: Really nice job on the quarter. I'd like to maybe talk a little bit when I've spent some time in D.C. the last few weeks, and it just seems like there's a lot of opportunities around directed energy. Could you maybe take -- give us the thoughts on the pipeline, both domestically and globally? And then maybe talk about your capacity because it seems like demand is pretty vibrant right now. Scott Keeney: Yes, that's right, Brian. I've been spending a lot of time in D.C. also. And I think there is a lot of new work that's going on. It's a little frustrating, obviously, with the details around the shutdown on some of the details. But at the senior level, we are seeing very good engagement across all levels, whether it be from Pentagon to the services and really across the breadth of direct energy from the lower power systems through the higher power systems. So we are seeing continued progress in the U.S. programs and that is supported, it's reinforced by also some of the international programs. I think over the last quarter, we've seen news out of Israel of the demonstrations of the success of Iron Beam out of the U.K. We've seen success out of Dragonfire, and there have been other international efforts that both are opportunities for us as we engage internationally, but they also have played a role in reinforcing what's going on in the U.S. So high level, yes, direct energy remains a very important area for us in addition to sensing. Brian Gesuale: Fantastic. Is there any thoughts on the urgency with some of the things that are happening in Europe? Do you see more rapid adoption there over the next few quarters, particularly with the government shutdown or it seems like the domestic market has accelerated a lot when I talk to a lot of the customers and look at some of their demand outlook over the next year or so. Scott Keeney: Yes, I think that's right. And I think in the coming weeks, you'll learn more about the acquisition reform that's being promulgated to address that. So I think we're all eager to see some of that formally launched to change the way that at least the U.S. pursues procurement to more rapidly implement some of these systems. So I think we will see some of that. I think there is urgency around the world actually to get the technology implemented in new ways. Operator: Your next question comes from the line of Troy Jensen. Troy Jensen: Sorry, can you hear me? Scott Keeney: Yes. Troy Jensen: Sorry about that. So first of all, congrats to another great print for you guys. Just a quick question. I know you're getting lots of questions on the development revenues here, but can you just give us the number of customers that are in your development product line or revenue line? Joseph Corso: We're probably working in total on a dozen, just plus or minus a dozen programs. They're all of obviously different sizes and at different periods of time, but that's a pretty good number. Troy Jensen: And then just on the sensing stuff, I did -- as you were going through your prepared remarks, Scott, it kind of felt like you're upticking on that. I guess most of the strength in A&D over this past year or so has been on the directed energy side. Would that be a true statement? Do you feel like you're upticking? Or are these contracts just kind of sustaining? Scott Keeney: On the sensing side, Troy, you mean? Troy Jensen: Yes, sensing specifically. Scott Keeney: Yes. Yes, I think you read that correctly. I think that direct energy, there's a greater awareness of the set of applications in directed energy and what's going on. Sensing, it gets a little more challenging to describe how lasers are, I would say, supplementing, augmenting radar and other systems, but that is a very important area and listed as one of the critical technologies by the Pentagon and one that we're very well positioned for. Operator: We have a follow-up question from the line of Ruben Roy with Stifel. Sahej Singh: Just trying to understand, so your comment on HELSI being an R&D contract makes sense, while it's an advanced dev. And of course, it is my mistake there. But the jump up in revenue really looks like it's coming from your products within A&D. And I know you guided advanced dev to $25 million next quarter. So I'm assuming that's either -- I'm assuming that's mostly HELSI. But can you maybe talk through the A&D product side and just help us understand what drove this jump this quarter? I think someone asked whether it was government shutdown or are you expecting this to sort of sequentially improve? Joseph Corso: Yes, we are expecting A&D products to continue to improve. When we sell -- so we sell a variety of products that are booked as in the products segment of our financial statements. Amplifiers that we sell into the HELSI-2 program, which is a cost-plus development program, those amplifiers are reflected in our revenue as product revenue. There are also laser sensing products that are being sold that are A&D product revenue. And so you start to look at that, and that's why you see the growth in the A&D product side of the revenue. Operator: There are no further questions at this time. I will now turn the call back to John Marchetti for closing remarks. John Marchetti: Thanks, everyone, for joining us this afternoon. And as always, thank you for your continued interest in nLIGHT. We will be participating in a number of conferences over the next several months. So we look forward to speaking with everybody as we continue to go through the quarter. And thank you again for joining us today. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Pacira BioSciences Third Quarter Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Susan Mesco. Please go ahead. Susan Mesco: Thank you. Good afternoon, everyone. Welcome to today's conference call to discuss our third quarter 2025 financial results. Joining me are Frank Lee, Chief Executive Officer; Brendan Teehan, Chief Commercial Officer; and Shawn Cross, Chief Financial Officer. Jonathan Slonin, our Chief Medical Officer, is also here for our question-and-answer session. Before we begin, let me remind you that this call will include forward-looking statements subject to the safe harbor provisions of federal securities laws. Such statements represent our judgment as of today and may involve risks and uncertainties. This may cause our actual results, performance or achievements to differ materially. For information concerning risk factors that could affect the company, please refer to our filings with the SEC. These are available from the SEC or the Pacira website. Lastly, as a reminder, we will be discussing non-GAAP financial measures on today's call. A description of these metrics, along with our reconciliation to GAAP, can be found in the news release issued earlier this afternoon. With that, I will now turn the call over to Frank Lee. Frank Lee: Thank you, Susan, and good afternoon to everyone joining today's call. We're pleased to report another successful quarter of strong execution across our corporate, clinical and commercial initiatives. We're seeing top line growth accelerate with year-over-year revenues increasing by 6%, driven by a strong quarter for EXPAREL and iovera. We continue to make important progress advancing our 5x30 path to growth and value creation. To remind you, this plan supports 2 broad strategic initiatives: first, growing our best-in-class commercial-based business; and second, advancing an innovative pipeline of potentially transformative assets such as PCRX-201. Notable third quarter highlights include increasing EXPAREL demand with year-over-year volumes up approximately 9%. This is the highest quarterly growth we've seen in over 3 years and underscores the value of our commercial investments, improving manufacturing efficiencies and favorable gross margin supporting our second increase in full year guidance, significant cash flows and a strong balance sheet, enabling investments in new growth initiatives, meaningfully expanding our clinical pipeline with the in-licensing of AMT-143. This complementary long-acting non-opioid directly aligns with our 5x30 strategy and has the potential to provide longer pain relief versus currently available local analgesics. Disciplined and strategic capital deployment, including share repurchases of another $50 million. And finally, solidifying our exclusivity runway with the listing of our 21st EXPAREL patent. This now appears in the FDA's Orange Book and additional patents are forthcoming. I'll begin with a high-level overview of our commercial portfolio, where we're seeing improving trends for each of our products. For our flagship product, EXPAREL, momentum is on the rise as a result of strong execution, expanding market access, awareness and utilization. On the market access front, we continue to make important strides improving patient access to opioid-sparing pain therapies. To that end, our GPO partnerships and performance-based contracting are delivering and growing our EXPAREL user base. We continue to secure key wins with additional national and regional commercial payers now providing separate EXPAREL reimbursement. We remain ahead of plan and expect to surpass our full year goal of 100 million covered lives across commercial and government payers. Turning to Zilretta, new initiatives to better support this promotionally responsive product are underway. We're confident the foundation is in place for a return to growth. Our colleagues at Johnson & Johnson MedTech are now trained and active in the field. This partnership is a great example of 5x30 in action. We have tripled our commercial footprint, which we believe will provide a meaningful incremental growth. Lastly, iovera had a strong third quarter as a result of its dedicated sales force and other commercial investments. On the manufacturing front, the team continues to make important progress with third quarter gross margins supporting another increase in guidance. Switching gears to the pipeline. Here, we're focused on becoming the therapeutic area leader in musculoskeletal pain and adjacencies. These are large markets with high unmet need. Our clinical initiatives center around advancing an innovative pipeline along with life cycle management for our commercial base. For new product development, we're prioritizing complementary mid to late-stage derisked opportunities spanning the patient journey. PCRX-201 is a great example that's advancing in a Phase II study for osteoarthritis of the knee. Interest in this study has been high, and we recently concluded enrollment for Part A ahead of plan, placing us on track for 12-month data next year. The data continue to underscore PCR-201's potential to revolutionize OA treatment landscape and be at the forefront of local gene therapy for the masses. Last month, we presented 3-year follow-up data from the Phase I study at the American College of Rheumatology Convergence. These data demonstrated sustained efficacy with improvements in pain, stiffness and function for over 3 years. Importantly, efficacy was observed across all structural severity subgroups, including the most severe. Investigators also highlighted that pre-existing neutralizing antibodies did not affect PCR-201’s efficacy or safety at all 3 doses. Natural immune responses are a major obstacle for gene therapies, and these preliminary data indicate the potential for redosing. We also expanded our pipeline with the recent in-licensing of AMT-143, a novel long-acting formulation of bupivacaine. This asset sits squarely in our wheelhouse, given our deep expertise in long-acting locally administered pain therapeutics. This franchise-enhancing asset is highly complementary to EXPAREL and will allow us to serve a broader range of patients and health care professionals. Its innovative hydrogel technology is a proprietary combination of 2 polymers. It's easy to administer, requiring only installation into the surgical site with minimal reliance on specialized technique. The hydrogel rapidly forms a slow-release depot as it warms to body temperature. In a Phase I study, AMT-143 demonstrated sustained analgesic release through 14 days. This supports its potential for several days of pain control, which would be the longest duration among currently available local analgesics. These data, along with bupivacaine's validated mechanism of action provide an attractive development risk and differentiated product profile. We expect to initiate a Phase II program next year, which places on track for commercialization to begin within our 5x30 time frame. Given its strong commercial synergies, we expect it to be meaningfully accretive to cash flows and earnings. With respect to our HCAd-based preclinical portfolio, we prioritized 3 programs, all with disease-modifying potential in painful conditions of high unmet need. PCRX-1003 for degenerative disease, addressing a major cause of chronic back pain with few currently available effective therapies. PCRX-1002 for dry eye disease, a widespread condition where current treatments offer only temporary relief and PCRX-1001 for canine osteoarthritis, which has strong out-licensing potential for a large market lacking durable solutions. Switching gears to life cycle management. Here, we're highlighting the value of our products with real-world data. Last month, we presented 3 health economics and outcome studies at the AMCP Nexus. The use of EXPAREL was associated with reduced opioid use, lower costs and improved recovery outcomes. Our comprehensive real-world IGOR registry now has more than 3,000 OA patients enrolled. As you know, OA is a unique condition that patients live with for decades and receive a myriad of pain treatments as their disease progresses. IGOR is positioned to provide in-depth insights into the patient journey. We're capturing clinical and economic data as well as patient-reported outcomes for all 3 of our products. Its potential for meaningful evidence is better than any known OA registry of its kind. And to round out the pipeline discussion, our 2 registrational studies for Zilretta in the shoulder OA and iovera in spasticity are progressing. We expect to have interim data readouts from both studies next year. The last item I'll touch upon are the recent Paragraph IV notifications. And as you know, generic attempts are common for successful products like EXPAREL. A great deal has changed since the first genetic filer, where we had one patent at the time. Our current EXPAREL patent estate is stronger than it's ever been, and the team continues to innovate to further solidify our runway. Bottom line, any [ ANDA ] filer has a very high series of hurdles they will need to overcome to be commercially successful. We intend to vigorously protect our intellectual property and have an expert team focused on advancing our legal strategy. As for the rest of us, we're sharply focused on driving growth and remain confident EXPAREL will be a key growth driver of our success for the foreseeable future. With that, I'd like to turn the call over to Bren to share more details on our commercial performance in the third quarter. Bren? Brendan Teehan: Thank you, Frank, and good afternoon to all joining us today. I'm excited to share highlights of the terrific progress we've made over the past few months on the commercial front. Building on our first half trends, we further increased our revenue growth rate in the third quarter, driven by improving EXPAREL volume growth of roughly 9%. This is nearly 3x the first quarter volume growth rate of 3% and significantly higher than our second quarter volume growth rate of 6%. As Frank mentioned, this underscores the value of our commercial investments and positions us for significant and sustainable revenues going forward. We're seeing continued momentum from leading indicators as we head into year-end. These data reinforce our confidence that EXPAREL will be a key driver of our 5x30 objective of 5-year double-digit CAGR for revenue. I'll start with market access, where we continue to reshape the value story for our customers. In addition to clinical value, our accounts consider market access for their specific patient population when making treatment decisions. Here, we're using real-world evidence to highlight EXPAREL's clinical and economic value to national, regional and local commercial plans. We're excited to report that we continue to track ahead of plan and are maintaining an accelerated pace, expanding our commercial coverage map with NOPAIN like policies covering EXPAREL outside of the surgical bundle. We currently estimate that approximately 60 million commercial lives now have access to EXPAREL via the separate reimbursement mechanism. This places us ahead of plan with a total covered population of nearly 90 million lives across both commercial and government payers. As we build this critical mass of coverage, we're communicating these advances to our customers and are very encouraged to see them expanding EXPAREL utilization as evidenced by our growth. Our access efforts continue to be strategic, focusing on key markets with high procedural volumes. We have prioritized our top 5 states, which collectively account for approximately 40% of EXPAREL volumes, where we are steadily expanding coverage. Access here is increasing utilization with third quarter volumes up more than 10% collectively in these markets. Coupled with this progress, we continue to see strong and growing utilization of the EXPAREL J-code for both commercial and Medicare claims. We're also expanding access through compelling strategic pricing programs. Through these preferential pricing programs, health care systems for the opportunity to be at the forefront of opioid-sparing pain management. Our pricing strategy is having a positive impact with our contracted business delivering year-over-year volume growth in the low teens. We expect volumes to improve over time with only a modest impact on net sales dollars. On the GPO front, our third partnership went live in June and is off to an excellent start. Since launch, we have seen significant growth in volumes from accounts within this network, exceeding our forecast. With our 3 GPO networks and individual agreements with health care systems, more than 90% of our EXPAREL business has contracted pricing. Importantly, these are performance-based and designed to maintain and grow both volumes and revenues. In addition to providing our customers with favorable pricing, we are assisting patients in new ways with our recently launched patient assistant programs to further support best practice patient care. Our support specialists are helping qualified patients overcome financial and administrative barriers, minimizing patient out-of-pocket costs. All of these programs have created market access that is more favorable than it has ever been with more key milestones on the horizon for all 3 of our products. Given our strong progress on the market access front, we believe the time is right to mobilize patients to ask for EXPAREL to be part of their treatment plan for postsurgical pain. We rolled out several targeted digital pilot programs in the first half of the year to advance patient and physician awareness and engagement. We're seeing encouraging early signs from these campaigns. Since launch, overall EXPAREL website traffic is up more than 70% across both consumer and health care provider platforms. This is an excellent indicator that our refreshed marketing approach is resonating. Importantly, patient and caregiver awareness, coupled with improved access is translating into real-world volume growth for EXPAREL. Looking at the sites of care, we continue to see strong adoption in ambulatory surgery centers with this setting delivering third quarter volumes up more than 25% over last year. As you know, decision-making in these settings is more streamlined, enabling faster adoption to take advantage of the new reimbursement policies. In the hospital setting, year-over-year volume growth has improved from mid-single digit to a high single-digit percentage. As expected, faster adoption is taking place within community hospitals, where we saw third quarter volume growth in the low teens. Switching gears to our other commercial products. For Zilretta, we're currently expanding our reach through our new partnership with J&J MedTech. In addition, we've rolled out key programs to expand utilization, including our new patient support hub and co-pay assistance programs as well as performance-based agreements with our top customers. We believe these will help meaningfully overcome barriers to Zilretta utilization. For iovera, our sales force realignment is kicking in, and we are seeing a small but growing uplift from the [ MEDEO ] branch launch and improving reimbursement from NOPAIN. We are also ramping up reimbursement training and launching additional customer-facing materials around our new patient services hub. In summary, we believe we are well positioned for a strong finish to 2025 with improving growth ahead. I will turn the call over to Shawn for his review of the financials. Shawn Cross: Thank you, Bren. I'll start with an update on sales and margin trends. Third quarter EXPAREL sales increased to $139.9 million versus $132.0 million in 2024. Volume growth of 9% was partially offset by a shift in vial mix and discounting from our third GPO going live with each having a roughly equal impact. As Bren mentioned, third quarter volumes within this network were ahead of plan, which resulted in a slightly higher-than-expected single-digit year-over-year impact to our net selling price. As we move forward into 2026, we expect volume growth and revenue growth to converge over time as we anniversary these 3-year agreements. Third quarter Zilretta sales were $29.0 million versus $28.4 million in 2024. Looking ahead with our new partnership with J&J and other commercial investments, we believe the stage is set for improving growth. For iovera, third quarter sales grew to $6.5 million versus $5.7 million in 2024. Turning to gross margins. On a consolidated basis, our third quarter non-GAAP gross margin improved to 82% versus 78% last year. Gross margins continue to benefit from the improved cost and efficiencies of our large-scale EXPAREL manufacturing suites. For non-GAAP R&D expense, the third quarter increased to $22.5 million from $17.3 million reported last year. This increase relates to strong enrollment in Part A of our Phase II study, PCRX-201 as well as expenses associated with the Zilretta and iovera registrational studies. Non-GAAP SG&A expense came in at $81.7 million for the third quarter, which is up from $65 million last year. This increase is largely due to investments in our commercial, medical and market access organization, targeted marketing initiatives and field force expansion. All of this resulted in another quarter of significant adjusted EBITDA of $49.4 million for the third quarter. As for the balance sheet, we continue to operate from a position of strength. We ended the quarter with cash and investments of approximately $246 million. With a business that is producing significant operating cash flow, we are well equipped to advance our 5x30 strategy and create shareholder value. We continue to take a disciplined approach to capital allocation where we're focusing on 3 areas: first, accelerating growth of our best-in-class base business; second, advancing an innovative pipeline and becoming the leader in musculoskeletal pain and adjacencies; and third, opportunistically returning capital to shareholders. During the third quarter, we executed an additional $50 million in share repurchases and retired approximately 2 million shares of common stock. To remind you, we have approximately $200 million remaining under our current share buyback authorization, which runs through the end of 2026. We will continue to be opportunistic with stock repurchases given what we believe is a significant disconnect in our market valuation. As we execute 5x30, we expect to prioritize accretive opportunities that benefit operating margins to enhance shareholder value. That brings us to our full year P&L guidance for 2025. Today, we are increasing our guidance for non-GAAP gross margins to 80% to 82% from our previous range of 78% to 80%. 2025 margins benefited from increased manufacturing efficiencies, favorable production volumes and the elimination of our EXPAREL royalty obligation. For all other guidance, we are narrowing our full year ranges as follows: revenues of $725 million to $735 million. While EXPAREL and iovera had a strong uptick in the third quarter as expected, Zilretta's acceleration has been slower than anticipated. Non-GAAP R&D expense of $95 million to $105 million, non-GAAP SG&A expense of $310 million to $320 million, stock-based compensation of $56 million to $59 million. And lastly, for those modeling adjusted EBITDA, we expect our full year 2025 depreciation and amortization expense to be approximately $30 million. Looking ahead, we expect sustainable and significant earnings driven by improving sales, enhanced gross margins and stabilizing operating expenses. In addition, opportunistic stock repurchases and reduction in share count will further enhance EPS. So with that, I'll turn the call back to Frank. Frank Lee: Thank you, Shawn. In closing, I want to thank our entire team for their strong execution, advancing our 5x30 strategy and dedication to the patients we serve. I'm proud of the significant strides we've made this year across our corporate, clinical and commercial objectives. Looking ahead, we believe we're well positioned for sustainable success and significant value creation. Thank you again for joining us today and for your continued support of our important mission. With that, we're ready to open up the call for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Les Sulewski from Truist. Leszek Sulewski: So in the prepared remarks, you commented that the GPO had a higher volume than expected, which pulled down the ASP. How much of that total volume growth was tied to that GPO? And then second, was there anything noteworthy about the difference in the number of selling days in the quarter? And could you share any metrics around average volumes per day? And then I have a follow-up. Frank Lee: Les, this is Frank. Thanks for the question. Yes, we had strong uptake from the GPO that we signed in June. That's a favorable thing. And so as we anniversary that, that will flow through the system in Shawn mentioned the gap between volume is very strong, as you heard, 9% and sales will start to close as we get into next year. So Shawn, I don't know if you want to say anything more. Shawn Cross: I completely agree. We anticipate them narrowing over time, and we're feeling good about the volume trajectory. Frank Lee: Les, you had another question, remind me the second question? Leszek Sulewski: Yes. The second day was around the selling days in the quarter, any potential impact from that and metrics around average volumes per day. Frank Lee: [ No ] So let's just come back to -- it's an important point overall about as we now think about, as you heard, the volume growth of EXPAREL going from 3% to 6% to 9% and as we get into next year and flow through these GPO agreements. And of course, there will be -- we'll take price at some point. This will all add up into dollar sales that are running more at double digits as we had talked about. So we're encouraged that the second half is starting to turn out the way we start to articulate that at the beginning of the year in terms of growth accelerating in the second half. Leszek Sulewski: Okay. Okay. That's helpful. And just one last one for me, and I'll jump in the queue. What's the rationale [ between ] the AMT-143 program? And then how do you think about the trial design, specifically which pain indications would you pursue? And how do you envision the label ultimately to look like? Will it be indication specific or broad based on your design? And then thoughts around the IP protection around this technology given the compound is generic. Frank Lee: That's a good question. So I'm going to come back to our thinking around how we think about building our pipeline in a disciplined manner. We are certainly well, I would say, from a capability standpoint, well versed in developing products like this. We think there's a place in the market for a product that has longer durability and ease of use, that is installation as opposed to any other method that requires technique and so that's the rationale behind it. We think there's a place in the market. We think it's complementary to EXPAREL. And of course, we have the infrastructure in place, so it will be highly synergistic. When it comes to our development programs, it's early to say, Les, we need to work through this. But my sense of it is that we'll be very consistent with the way that we've built other programs in the past, and we'll provide more light on in terms of specific trial design as we get into next year. So that's broadly what it is. In terms of IP, I believe you can speak to that, AMT-143. Brendan Teehan: Sure. The IP goes out to [ 2042 ]. They have a solid state, and we're going to look to expand upon that. Frank Lee: Yes. Jonathan, anything more on your end? Jonathan Slonin: I agree with you, Frank. opportunity here to provide another non-opioid pain solution. And so we're excited about the potential of this asset. Operator: The next question comes from the line of Gary Nachman with Raymond James. Gary Nachman: So where are you in terms of improving awareness of NOPAIN with the bigger hospitals? Where are you seeing the bigger challenges in getting faster adoption there? And when will that accelerate? Will it be next year potentially? And then what was the overall market growth for elective procedures in the third quarter? And maybe what you're seeing, how that's trending in the fourth quarter so far? Frank Lee: Yes. Thanks for the question, Gary. Let me say a few words, and I'll turn it over to Bren for any of his comments. Just to set the stage, I think we've been very consistent in saying that we've seen a good growth uptake when it comes to the smaller hospitals and ASCs. And these bigger institutions will take more time because it's obviously more decision-makers and of course, they have to implement this into their overall system. So it will take some more time. There's clearly an effort behind it. But let me turn it over to Bren for any additional thoughts here. Bren? Brendan Teehan: Yes, for sure. Thanks for the question. I think we are seeing increased awareness for NOPAIN. And I would reference a couple of our prepared comments. Obviously, where there are fewer decision-makers in ASCs and community hospitals, that's where we have our fastest growth. But we've also seen improvement in the larger and broader hospital segment. And despite the fact that there are more decision-makers, we are seeing formulary and P&T decisions in favor of EXPAREL that would be reflective of an audience that's not only taking into account NOPAIN, but are starting to see the significant commercial wins that we have along the way. And it is one of our key commercial initiatives to make sure that we're engaging more of those economic stakeholders, particularly pharmacists and the C-suite, so they have a broader understanding of not only the reimbursement that's being generated, but the potential for EXPAREL, not just clinically but from a profitability standpoint to be of value to the IDN. Frank Lee: And Gary, you had asked about procedures overall, the market-- and from what we've seen, maybe, Brendan, you can comment on that a little bit. Brendan Teehan: For sure. The first half of the year, elective procedures were sluggish, even a little bit down. Having looked at the data in the third quarter, I would say there are modest improvements, but not monumental. And certainly, I think EXPAREL's performance in terms of continuing to drive increased volumes are despite what I would consider to be sluggish or somewhat headwinds in that space. Fourth quarter to be determined, but I would say that fourth quarter, we tend to see more elective procedures simply as a function of seasonality. Gary Nachman: Okay. Great. And then just a couple more quick ones. Just any early indicators for how the J&J partnership is helping Zilretta so far? When do you expect to see somewhat of an inflection there in sales? I know it's still early days and probably didn't see much of an impact in the third quarter, but could it be as early as 4Q or it's going to take more time? And then just on the gross margin, should that continue to improve next year from the 80% to 82% level that you're at right now? Frank Lee: Gary, with regard to Zilretta, I'll just say a few words here and turn it over to Bren. Just a big picture, as Shawn mentioned, we're very pleased with the way that now EXPAREL has grown and also now iovera with this new dedicated field force it's taken a little bit more time to get Zilretta where it needs to be. And when you take a look at our numbers, that's really what was flat instead of growing. So with that said, let me turn it over to Bren for any other thoughts here about how we're going to maximize J&J MedTech partnership. Brendan Teehan: Yes. Thanks, and thanks for the question. I would say 2 things have been important changes in the third quarter. Obviously, we have a dedicated Zilretta sales force. In doing so, they have an expanded footprint and are engaging a number of customers that for that singular group will be first-time customers. And I think that's just a little bit of disruption you would have expected in the third quarter. Also, the J&J MedTech team was fully trained in the third quarter, but that's a good way to describe it, trained and not yet fully out there to see the entire footprint that we have an opportunity to address. So I expect us to begin to see further momentum in the fourth quarter and then significant progress in 2026 as we see a larger audience multiple times with our message. And I would say that Zilretta fits very nicely into the J&J story of the osteoarthritis of the knee treatment journey, and there are a lot of market dynamics that would help us to incorporate Zilretta logically into that treatment journey. Frank Lee: Thanks, Bren. And for the question, Gary, about gross margin, certainly, we're very pleased with the progress we've made. And I think your question was how we see that going forward. And so let me turn it over to Shawn here. Shawn Cross: Yes. Thanks, Gary. So maybe just a step back from a big picture, the guidance we put out for goals we put out from a long-range plan perspective are in our 5x30, which is the 5 percentage point improvement over the 2024 margin. And just as a reminder, the non-GAAP was 76%. So that's the big picture. So just with regard to the performance we've seen this year, first of all, terrific execution by the team and better-than-expected yields from both the 200-liter facilities. So these higher volumes, simple math have resulted in lower per unit costs that have benefited the margins this year. So inventory target is 6 months. We're a little bit ahead of that. We're selling through the lower cost inventory. And so going forward, as the production volumes normalize, we expect to be back on track for our 5x30 plan for a 5% point steady improvement in gross margins over 2024, 76%. Gary Nachman: Okay. That sounds great. So you should at least be in that level looking out into next year, it sounds like. Frank Lee: Bottom line, inventory levels are higher this year, Gary. And so per unit, the margin is better. Next year, as we work it down, it will be slightly less favorable, but then we'll come back to that favorability probably in the second half of the year as we work through the inventory. Operator: The next question comes from Dennis Ding with Jefferies. Dennis Ding: I have 2, if I may. Number one is on BD. Should we expect more deals like [ Amicathera ], i.e., things that seem fairly early? Or do you plan to do more of these types of Phase I deals or can you be more opportunistic and bring something that's in Phase III or even commercial? And then number two, just on PCRX-201, I know you referenced docs who are excited about 201. But what about feedback from docs who aren't as excited? What's the major barrier there? Is it just data? Or do you think there's broader skepticism around gene therapy, especially in the ortho community who may be unfamiliar with the modality? Frank Lee: Thanks for the question, Dennis. First on BD and then on 201, I'll say a few words and turn it over to Jonathan. BD, as we've talked about, we're going to take a very, very disciplined approach to BD. And so that means that these are things that fit into the broadly defined musculoskeletal pain and adjacencies. And certainly, AMT-143 fits into that. As we look at assets, certainly, we favor those assets that are further along in the clinic that have validated mechanisms of action. And so we're not going to take target risk. And so those are some of the guideposts, so to speak, as we think about bringing things into the pipeline. And so we remain open to those kind of opportunities, and we're going to look at those very, very carefully in a disciplined way and bring in those things where we can really add value to those programs. With respect to 201, what I'd say there is, overall, I believe we've seen very good enthusiasm for PCRX-201. And so let me turn it over to Jonathan to have his thoughts. He's been the recent meetings, et cetera. Jonathan Slonin: Yes. All the feedback has been extremely positive and exciting. To your point, I think we continue as we do education and address some of the misnomers around what our platform is compared to current gene therapy. And we explain the benefits around the safety, the cost, the flexibility because of the payload size, it becomes very favorable, not just over current treatment options, which we see lasting maybe 3 to 6 months. And our research shows that patients just aren't happy, and that's all they have. So once we explain to them the benefits of 201 in that we're not giving you a drug produced in a factory, but we're just helping your body cells become that factory and the safety that we've seen so far in our clinical trials, the first question is usually like when can I get this? So we are very optimistic moving forward with 201 and excited that Part A of Phase II enrolled ahead of schedule for us. Frank Lee: Yes. Thanks, Jonathan. Look, I'd summarize it as this is gene therapy for the masses. And so when we come from that line of thinking, that opens up people's minds this opportunity because the way we do that is by, as you know, a local approach as opposed to systemic and that has obviously favorability when it comes to safety and cost of goods and all the things that Jonathan talked about. So we remain optimistic. We're running the Part B and manufacturing process will -- from a commercially viable standpoint is well underway. And so we've got good momentum on this one. Operator: The next question comes from the line of Serge Belanger with Needham & Co. John Gionco: This is John on for Serge today. Just a couple from us. First, I wanted to touch on the shift in bio mix and discounting associated with the latest GPO that came on board in June. Curious if you could provide any color on the level of discounting that you've seen thus far and when you'd expect pricing to stabilize? And then second, on the in-licensing from for AMT-143. Just curious how you view 143's profile in comparison to EXPAREL? And with the potential of [ bohooan ] being on the market down the line, how would you view the future commercial dynamics between the two. Frank Lee: Yes. So thanks for the question, John. Let me answer the AMT-143 a little bit more, and then I'll turn it over to Shawn to talk about [ volume mix ] and GPOs and [ anniversarying ] that last one. What I'd say is that when we take a look at the marketplace, of course, currently available therapies and analgesics are in the range of what we provide for EXPAREL, 3 or 4 days, et cetera. Now we think there is a place in the market for longer durability of effect. And also in those situations where there might not be an ability to bring in other specialists that the surgeon himself can instill this particular product. And so we think it's complementary to what we have. And so that's how we think about it. Certainly, we've got a little ways to go to get this program to market, and we'll be starting our Phase II program as we talk about next year. But there's clearly a market need for something like this. So let me turn it over to Shawn here to talk about [ volume mix ] GPO. Shawn Cross: Great. John, thanks for the call. So just to reiterate from the prepared remarks, we saw the 9% encouraging volume growth for EXPAREL with a 6% growth on the revenue side. And that 3% delta, as mentioned, was roughly 50-50 split between the volume mix towards the 10 ml and then the impact of the GPO discounting. So we can't talk about specific discounts with regard to the GPOs. But as we move forward, we would expect the fourth quarter to be somewhat similar. But then encouragingly, and we'll talk more about this when we put out 2026 guidance. But as we move forward into '26 and beyond, we do expect volume and revenue growth to converge over time. And there's a couple of key things just to remember. Let's just assume we continue to drive volume at the current levels or even a bit higher, if all goes as planned, January price increase. And then once we do lap the third GPO agreement, which is performing quite well in mid next year, that's when we expect the convergence to sort of hit its stride. Operator: I'm showing no further questions at this time. I would now like to turn it back to Susan Mesco for closing remarks. Susan Mesco: Thank you, Jill, and thanks to all on the call for your questions and time today. We're energized by the opportunities ahead and remain focused on executing our 5x30 growth strategy with discipline and purpose. As we close out the year, we are confident in our ability to build on our momentum and position Pacira for long-term success. Thank you again for your continued support and be well. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Ladies and gentlemen, good morning, and welcome to the HELLA Investor Call on the results for the 9 months of fiscal year 2025. This call will be hosted by Bernard Schaferbarthold, the CEO; and Philippe Vienney, the CFO of HELLA. [Operator Instructions] Let me now turn the floor over to your host, Bernard Schaferbarthold. Please go ahead. Ulric Schäferbarthold: Good morning to everybody. Very warm welcome to our 9-month results call. And I'm here together with Philippe Vienney, our CFO; and Kerstin Dodel, our Head of IR. So starting off the presentation on Page 4. So if we look at our sales development, we are at end of September in line with what we expected. So positively, our electronics business is continuing to grow. We had a growth now in the first 9 months of 8.3%, specifically our Radar business, but as well our business in our product center, energy management is continuing to grow. On the Lighting side, we are not growing. So we are down 8.4%. We mentioned also earlier mid of the year that the end of some larger projects, but also the reduction on volumes on some programs in our order book is the reason for that. And I will come back to that and actions we have now taken for Lighting. On Lifecycle Solutions, our business is still down in the 9 months. But positively, we have now seen in the third quarter that we are back to growth. We had quite a decent development in that segment in Q3. So overall, sales is quite stable, FX adjusted. So a slight growth of 0.4%. And considering or looking at reported sales, we are at minus 1.1% considering the strong FX headwind we had. On our operating income margin, we are at 5.8% in the first 9 months. Overall, I can state we continue to have a strong cost discipline. We are implementing the structural programs we have initiated in the last 2 years. So overall, considering the environment, we are in line what we planned also in our budget. Net cash flow has improved on a year-on-year comparison is at EUR 68 million to the end of the year, 1.2%. We have reduced CapEx. And within that number, if we look at factoring, the increase in factoring is at EUR 23 million in comparison to last year, EUR 30 million less. If we move on to the order intake, we are good on track. The third quarter was again a good quarter in terms of order intake. We had a strong momentum, especially in the lighting business, 2 areas where we wanted to grow. More broadly in the U.S. and also in Asia and specifically China, we could win important programs. But as well in Europe, we were quite successful. We are now attacking the market as well in the mass market, so in the volume markets, and we were able to win significant program volumes for the European regions in the third quarter. On the electronics side, we continue to be very successful. So we are highlighting here some of the programs. But what I can state overall that within our Electronics business, we continue on a strong growth path, and this should also support our growth trajectory in the upcoming years. And to finish off, our Lifecycle was also quite successful in the last month. We are highlighting here some of the programs. So bus, agriculture remains important business areas and customer segments for us to continue to grow and as well here also to highlight to get broader in terms of our market reach. So we are happy to win also projects outside of Europe and to gain market shares there as well. So overall, we are on track in terms of our order intake achievements after 9 months. Going to Page 6, some highlights. So on the Lighting side, we continue to see that we are differentiating with our lighting technologies. We are present also in different -- on the different shows and fairs. Here, we are highlighting one, and we are advertising and showing our newest technologies also to the different customers. I think from my perspective, feedbacks are quite good. We are getting. So this should support our growth we are envisaging in the upcoming years. In the electronics, one important milestone now we had is the launch of our iPDM, so of our eFuse technology in one large platform. We are engaging ourselves much stronger now into the whole sonar architecture of the car. And this technology, which manages the power in the car and which is embedded in the sonar architecture and in the new E/E architecture overall of the car is a big milestone for us. And this is one very important technology we envisage will give a strong growth potential in the upcoming years, and this is why we are highlighting it here in a strong way. The other thing I want to mention is on the structural changes. So I mentioned we continue to reduce our cost base. In the last month, we announced the structural change in one of our plants in Germany, which now we are going into execution. Other than that, we are now in execution in terms of our new SIMPLIFY program. So this is a global program where we are reducing in all white-collar functions in the upcoming 3 years, around 15% on headcount. And so we are well on track. We already started on that program. The target is to be at least at 20% of reduction to the end of this year and around 50% on the reduction to the end of next year. And I can say that we are ahead of the target as of today, and we are trying to accelerate on that as well. And you can see that as well in the headcount development. If you only look at the last 9 months, we have already reduced close to 5% on headcount as of today in comparison to the start to the year at a quite comparable sales level, and we will continue on these adaptions. If we move to Page 7, let's say, one of the big challenges we are facing actually is the crisis on the shortage on Nexperia. So it's clear that if we look at our portfolio of products, we have a lot of Nexperia parts in our products. So in general, I can say we are strongly impacted. So we have organized our way -- us in a way also with task forces and are managing the situation in the way that we are building up the alternative suppliers. And in the meantime, for sure, we use -- we still use Nexperia parts. So our relationship today with Nexperia China is still stable, and we also managed to buy broker parts, which in the meantime, supports our supply. So far, I can say that the month of October was in line with our plan. So there was little impact. The start into the month of November showed a little more impact in terms of the full coverage against the plan. And the most difficult weeks now from our side will now be the next ones where in the meantime, where before being able really to ramp up the second sources, we are seeing some of the shortages. So we are working intensively also on the application on export licenses and also taking advantage and the support also on the OEM side, which are going for these applications as well. So this could help to support also on parts we have in China who could be exported to the U.S. and Europe and help there on the shortages. So far, China for us is not impacted. We have enough parts. So this is something difficult to quantify overall. But as I said, so far, the impact was very limited, and we have now to see how next weeks will be and specifically if with -- on the Chinese authorities, the customs and MOFCOM, we are able now to get the necessary applications to the exports to support Europe and the U.S., as I said. But as you can imagine, a lot of intensive work we are doing and managing the situation to keep our delivery promises to the customers. So having said that, we will move on with some more details on the financial results. Philippe will take over. Philippe Vienney: Yes. So good morning to all. So looking at the sales, so we are publishing sales at EUR 5.868 billion, so which is representing a decrease of 1.1% versus prior year. And excluding the exchange rate, this would be at plus 0.4% versus last year and versus the market, which is showing a growth of 3.8%. So here again, as I said, we have a good momentum in all region on electronics, whereas we are suffering on the lighting side with lower sales, which are affected by end of production on some programs and mainly in North America and Asia. And Lifecycle was reducing -- showing reducing sales, but which we are also -- where we are also seeing a good momentum in Q3 with some slight recovery. So looking at the sales per region and versus the market. So Europe, where we still have more or less 56% of our sales, we have a growth of 1% versus the market of -- which is showing a decrease of 1.7%. So we are overperforming versus the market for Europe. For Americas, where we have sales which are above the 20% of our sales, we are seeing a decrease of our sales of 1.1%, slightly impacted as well by the FX impact versus the market, which is reducing by 0.5%. So here also, we have the -- again, the impact of lighting, where we have this impact of some end of production series, which are not fully compensated by new launches. And we have Asia, which is also a bit above 20% of our sales. where we have a decrease on our published sales of 6.4%, also slightly impacted by the FX versus a growth in this region of 7.2%. So here again, we have the same topic on end of production of series project in lighting, but not fully compensated by new sales and new launches with local OEMs in Asia. And we still have, again, growth momentum in China on the electronics with radar and battery management. So now looking at the profitability per segment. So lighting, we are at EUR 2.7 billion of sales, which is representing an organic decrease of 7.3%, excluding the exchange rate. So here, I said again, we have the impact of end of production of some series projects in China and North America. We have some increase on the headlamps and rear combination lamps in Europe and Americas, but which are not enough to compensate the drop that we are seeing in Asia and North America on the rundown programs. So the operating income for Lighting is at EUR 73 million or 2.7%. So here, we are impacted by the volume drop, which is clearly impacting the gross margin and the operating margin, which we are partially compensating by lower material costs, also some reduced R&D cost and SG&A costs, but not enough to compensate the volume drop that we are facing where we still have to reduce and continue to reduce our fixed cost to absorb this and face this volume drop. Electronics. So we are publishing sales of EUR 2.5 billion or EUR 2.6 billion, which is representing plus 9.5%, excluding FX rates on an organic basis. So here again, we have growth in all regions and growth -- thanks to the radar business. We have also growth in the car access system in Europe and Asia. And we have also some growth, thanks to the battery management system as well in Asia. So good momentum on the sales in Electronics. And this is leading us to an operating income of EUR 196 million or 7.6% of operating margin. So here, we have the benefit of the volume, which is helping the gross margin and the operating margin. And we have been able to be stable on the R&D spend and also thanks to reduction of external spend and external provider. And we have also been able to maintain or even reduce the SG&A percentage in this segment. So all in all, leading to the 7.6% of operating margin. The Lifecycle, where we have sales of EUR 739 million, which is representing a decrease of 1.5%, excluding FX rates. So yes, as we said, we have a low demand, especially coming from the H1 and especially on the commercial business vehicles. But we see some recovery, a slight recovery in Q3. So especially also on the commercial business with some stable business on the after market. And this is leading us to an operating income of EUR 74 million or 10%. So here, we are impacted also slightly by the volume. And we have been able to maintain or even decrease the R&D expense and with SG&A, which are slightly increasing mainly due to distribution costs. Profit and loss for HELLA? Yes. So we have a gross profit of EUR 1.3 billion, which is 22.8% versus 23.2% last year. So here, we have the weight of the volume decrease in Lighting and Lifecycle, which is impacting us and not fully compensated by the improvement on the Electronic segment. On the R&D side, we are at 9.4% versus 9.8% last year. So here, we continue to see the benefit of our adjustment and structural adjustment on the R&D side and cut on the external provider, as I mentioned, for Electronic. On the SG&A, we are at 7.7%. So here, we see a decrease on the administration costs, where we have a slight increase on the distribution costs. So I think the good trend is the administration costs which are decreasing and showing some effect of the program which have been launched to reduce this cost. On the earnings before tax, so we are reaching EUR 208 million versus EUR 409 million last year. So here, we have the impact -- negative impact of all the restructuring programs, which are booked and are part of the EUR 129 million. To mention that last year, we also had some restructuring costs, but which were more than compensated by the sales of the BHTC business and the net gain that was booked last year. And this is leading us to a net income of EUR 108 million versus EUR 310 million last year. On the net cash flow, we are at EUR 68 million, so versus minus EUR 8 million for the same period last year. So here, we are increasing our net cash flow. So we have higher cash from operations. We are also having a good momentum on the working capital with some negotiated and good payment terms with suppliers. And we are also reducing our tangible CapEx. You can see that we are at minus 23% versus what was cash out last year and spent last year for the same period. So this is benefiting to our cash flow, leading us to have a EUR 68 million cash flow for the 9 first months of the year. With that, I think we are finishing the financial details, and we can go to the outlook. Ulric Schäferbarthold: Thank you, Philippe. So on the outlook, so on Page 17, if we look at volumes, so the actual outlook on S&P is 91.4 million cars. I would expect that specifically on Europe and Americas, we would see some reductions in the fourth quarter due to the shortages on Nexperia parts. China is quite stable in terms of volumes. This is also what we see actually now in the fourth quarter. On Page 18, so we confirm our outlook in terms of sales in the range of EUR 7.6 billion to EUR 8 billion. On the operating income (sic) [ operating income margin ] 5.3% to 6% and the net cash flow of at least EUR 200 million. We are stating that this assumes a sufficient supply situation on -- especially in Nexperia parts. As I said, in terms of -- today, if I look at the month of October and the start into November, the impact were limited, but I also mentioned that the next weeks will be the crucial ones. So summing it up on the key takeaways. So, so far, looking at the 3 quarters, from our point of view, a robust sales development in line in terms of profit and net cash flow, what we expected, strong focus on the structural changes we have done and still a good momentum on the order intake side. So we -- outlook I mentioned, we see us on track for the guidance we have given. And if it comes to the top priorities, so we continue to work on the structural programs. One important new program we have now initiated is in the lighting area. We have started a transformation program now with -- starting into the second half of the year. Mainly, we focus on 3 big topics. One is on the business growth. So we need to come back to growth again for that. We are broadening our reach and focusing significantly also on the regions where we see a strong potential, especially the U.S., but also beside of China, Japan, Korea, India. And we already see now in the third quarter, the first successes and programs we could book in quite a sizable numbers. So first, let's say, proof points are given, but I think this is a very relevant point to come back to growth. And on top of that, we are -- we have initiated the operational transformation. We see significant potentials in terms of reductions on our footprint or on our costs within the operations, including also the supply side and logistics. We have initiated a structured program on that, which is specifically for Europe and also for our Mexican operations. And the third element is the improvement in D&D productivity and efficiency where as well we initiated a program also with a focus on cost reductions on our technology, where we see also a big potential to reduce on the cost side as well here, too. So this should help to bring our Lighting business into a much better profitable situation in the years to come. Having said that, we are happy to take your questions. Operator: [Operator Instructions] And the first question comes from Christoph Laskawi from Deutsche Bank. Christoph Laskawi: The first one, coming back a bit to what you just said on the Lighting performance. Obviously, Q3 margin around 1% is very low. When you've implemented all the measures that you talked about, what do you think is in the midterm a realistic margin potential? Could it be around 5% plus? Or any thoughts on that would be appreciated. And then in contrast to that, electronics is actually quite strong in Q3 with 9% plus margin. Was there any specific one-timers in there or just really capitalizing on growth and showing the margin potential of that business? And then the third question would be on Nexperia. It sounds like you didn't face production shutdowns on your own yet, and you haven't cost any so far. Still you're expecting production cuts to come. Do you already see that in the schedules? Any volatility you can highlight there? And then just on the cost of going to brokers and others, those have been quite high in the semi shortage. Is this something which could be a meaningful impact on earnings in Q4, just the sourcing alternatives? Ulric Schäferbarthold: Thank you for your questions, Mr. Laskawi. So on the Lighting performance, our target is to come back to 6%. But this will not be possible on the short notice. So this is a target we have set ourselves. It will take until '28, '29. So before we are at this 5% level, you said, probably '28, '29 to come closer to the 6%. So we have now seen that, as I said, so we are struggling a lot because, first of all, we are not growing. Secondly, we have also been impacted now in the second half by a warranty topic, which was quite significant as well. So it is partially in the third quarter and will also hit the fourth quarter. So this is a topic which lasts now from the years '22, '23, where now finally, we got to an agreement with -- and the settlement with the customers. So we are close to, but this was an impact as well. And overall, on the full, let's say, second half, it will have an impact of around EUR 25 million, which is quite significant for the Lighting business. But the overall, let's say, if I look at Lighting, we are -- the business is declining. And this is something which will also continue into the next years and will be a headwind also in the next year before now we see with the momentum we have on the order intake, we will be able to grow again in the -- starting from '27. What I have to say positively is that in lighting, we are very strong in China. So the transformation also we need to do for Europe and specifically also our Mexican operations, we already have done in China and also the adaption to competitiveness. So I see us very strong in Asia today. And now we need to do the work we have -- we need to do in Europe and also South America. So we changed also the responsibility. So I have taken over in combination of tasks now from the 1st of July. And so we are now starting on this transformation program, as I said. On Electronics, I'm very pleased about how our business is developing also in terms of performance. So what we now see is basically that we see now the payoff of the business now where we see now the growth coming with the launches and the new programs, which are going into serial production. So the growth supports the profit development. And what we as well see is that the structural changes we have done in terms of -- on the cost side helps as well. So with that, we see immediately a very strong profit development. There was no really specific one-off in the third quarter. So -- but it was quite a good quarter. So I wouldn't say now every quarter will be the same. So also no negative impact, I have to say. But I have to admit also, it's a good development, and we are building on that and trying to continuously to improve on that. On the Nexperia, so I think that -- I stated so far with the coverage or with the stocks we had, with the coverage we had. We also bought some -- quite early on some broker parts. So this helped really to cover the period of time until now. We see now that some shortages on some products, they are already there. On the call offs, basically, you do not see yet that customers are changing anything. But for sure, on the -- in the systems, but for sure, we are in very intensive discussions with all of our customers. And today, the situation is as follows that the weekly -- the decisions are taken now on a weekly base, what can be produced and how much reduction will we see. And I mentioned the next weeks will show reductions. And the magnitude is still not absolutely clear. So what is in the next, let's say, 3 to 4 weeks. And it certainly will now also depend on how -- are we now able really to get exports on Nexperia parts with these exemptions or with export licenses granted now to the OEMs or to us. And we are already trying out the test shipments and working with MOFCOM and the customs, as I said. So there is some hope that now it should work and that certainly will help a lot immediately. But this is the uncertainty we have. If this is not working, I mentioned it, then the reductions on the volumes in the next weeks will be much higher. And on the cost side, on the broker so far, I would say, for sure, it goes fast. The last broker -- broker offers I saw between factor 600, factor 800, also factor 1000 I already have seen. The difference to the semi is that the original price is much lower. So there, we are only talking cents, but sure, if we are talking factor 500, 600 or higher, then you talk immediately some millions. So far, it has not such a big impact. The market today is still -- there are not so many volumes any longer in the broker market. So I would not expect that this should have such a hit, which is comparable to the semi today or to the semi crisis we had some years ago. But it's -- again, still we are talking some money. It's some millions we are discussing. That's for sure. But not comparable, as I said, to the semi crisis. Operator: And the next question comes from Sanjay Bhagwani from Citi. Sanjay Bhagwani: Maybe to begin with, so on the Nexperia situation, this morning, there seems to be several articles suggesting like -- so yes, I mean, on the Nexperia situation, this morning seems to be like several like constructive articles typically like quoting some of these Dutch ministers that things will be okay in the coming weeks and chip supply should resume. Is that providing some comforting messages to you as well? Maybe let's say, if there is a disruption, there can be just 1 week disruption or something like that? Or it's probably too early to look at these headlines or something like that? Ulric Schäferbarthold: So there are 2 things for me. One is does China now allow that Nexperia China -- the parts which are still produced at Nexperia China that we can export these to Europe. And this -- we are still working -- I mentioned it. We are still working on how process-wise, the application and the export needs to be executed. And this is where I said we are now just running now with custom, the discussions we have with MOFCOM doing these test shipments to try out how we have now to handle and practically do it. And there are some signs now. This I can at least also confirm that -- I hope that it will be possible soon. Let's put it like that. Still today, it has not worked out, but we are getting signals that there is hope that it could be possible. So that is one thing. So I would take that as a positive note, but still to be seen if then really it works out. Because just practically, I can tell you the custom were not aware that they are allowed to do. On the other hand side, MOFCOM is allowing it. So I think we are still, let's say, it's an administrational point, but you never know. So that is one thing. The other thing we are also working on, and this is as well, let's say, a critical path, we are still getting a lot of parts from Nexperia China, and they are dependent still on the wafers they get from Europe. And there apparently, they are not coming along. So that these wafers, which are needed for the further production, if they -- if China do not have any longer wafers from Nexperia Europe, they couldn't continue on their production. And they will run out at a certain point of time if there is no agreement. And this is the second path we are working on to get a solution between the 2, Nexperia Europe and China, to stabilize the situation so that Nexperia China is able to continue to deliver. And this is important because, as I said, we are working on the alternative suppliers. And for most of the suppliers, it can be -- we can find, let's say, good agreements and to ramp up quick. But for some of the parts, it will take a little longer, and this is why it's important to have a stability on Nexperia China as well. Sanjay Bhagwani: That's very helpful. And I think on the broker parts, you mentioned that so far, this has not been a major impact. But in terms of the pricing pass-throughs, I understand in the previous like chip crisis, you had to actively go and negotiate the price increases. In this case, is it easy to like kind of have some sort of indexation for these components now? Or this again, will be subject to negotiation if the, let's say, inflation becomes material? Ulric Schäferbarthold: So in the actual situation, because we need to be quick, we take the decision with the customer, so with our customer, with the OEM together. And the agreement is that in terms of who takes which part, we agreed that this will be then discussed later. But it's clear that we will have a comparison as it was in the semi crisis where we agreed on the, I would call it, pain share, who takes which proportion. So you can assume that what we have seen similar in the semi crisis should -- at least from our perspective, should also be true now for this one. Sanjay Bhagwani: And then my final one is on the Q3 margins. Just a kind of follow-up to Christoph's question, but more at the group level. So Q3 group margins have like sequentially gone down to, I think it's 5.3% versus H1 was 6%. So are you able to provide some color in terms of the Q4? Is it sequentially looking better as of now? And in terms of divisions, how the Q4 versus Q3 margins are looking? Ulric Schäferbarthold: So month of October was okay. It was in plan. So -- and normally, the months, October and November are very strong in the industry. So we have seen quite a good month in October so far, even we had this Nexperia situation. So the month of November will certainly be impacted now. And it's difficult to say on the margin -- so really to say now what does it now mean for the full quarter because it will depend on volumes at the end. And we will lose volumes. The question is how much. So I would not feel so comfortable now to say how it will go. I think in terms of our cost savings, all what we are doing there, we are in plan. At the end, it will depend on sales. Operator: [Operator Instructions] So it looks like there are no further questions at this time. So I would like to turn the conference back over to Bernard Schaferbarthold for any closing remarks. Ulric Schäferbarthold: So thank you to all of you who participated, and thank you to showing the interest on HELLA again. And I wish you a pleasant remaining day and after that, a good weekend. Hope to see you and speak to you soon. Bye-bye.
Operator: Good afternoon. Thank you for attending the FIGS Third Quarter Fiscal 2025 Earnings Conference Call. My name is Matt, and I'll be the moderator for today's call. I'd now like to pass the conference over to our host, Tom Shaw, Senior Vice President of Investor Relations. Tom, please go ahead. Tom Shaw: Good afternoon, and thank you for joining us to discuss FIGS Third Quarter 2025 results, which we released this afternoon and can be found in our earnings press release and in the shareholder presentation posted to our Investor Relations website at ir.wearfigs.com. Presenting on today's call are Trina Spear, our Co-Founder and Chief Executive Officer; and Sarah Oughtred, our Chief Financial Officer. As a reminder, remarks on this call that do not concern past events are forward-looking statements. These may include predictions, expectations or estimates, including about future financial performance, market opportunity or business plans. Forward-looking statements involve risks and uncertainties, and actual results could differ materially. These and other risks are discussed in our SEC filings, including in the 10-Q we filed today. Do not place undue reliance on forward-looking statements, which speak only as of today and which we undertake no obligation to update. Finally, we will discuss certain non-GAAP metrics and key performance indicators, which we believe are useful supplemental measures for understanding our business. Definitions and reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in the shareholder presentation we issued today. Now I'd like to turn the call over to Trina. Catherine Spear: Thanks, Tom, and good afternoon, everyone. Our third quarter results are built on the momentum generated during the first half of the year, delivering our highest quarterly year-over-year revenue growth over the past 2 years, supported by strong performance across the board. Net revenues were up 8% for the quarter, well ahead of our plan. Importantly, this success was pronounced across the core parts of our business, scrubwear, the U.S. and our business as usual selling days. At the same time, we drove the core while executing our plan to pull back on promotions. We believe these positive trends within our foundation are a great sign of our brand health and support the sustainable growth story we see ahead. We also executed well across the P&L in Q3. Gross margin remained healthy, approaching 70% despite the growing impact of tariff headwinds. Substantial SG&A leverage reflected both the lapping of outsized expenses last year, but more importantly, the success of our ongoing efficiency and tariff mitigation efforts. Overall, this execution supported an impressive 900 basis point improvement in our adjusted EBITDA margin to 12.4% for the period. As we look ahead, we are seeing this positive momentum carry over to the start of Q4, and we are meaningfully increasing our outlook as a result. We now expect Q4 to be our strongest net revenue growth of the year, driving our full-year estimate to approximately 7% growth. We also have increased our adjusted EBITDA margin expectation above the high end of our original outlook and back to low double-digit levels. This reflects the great progress we have made during the year despite the onset of tariff headwinds. Overall, we are executing exceptionally well against our expectations and driving better consistency. I'm so proud of our team's collective effort as we look to deliver to all of our stakeholders, most importantly, our healthcare professionals. Reflecting on our year-to-date results, we have seen an outstanding response to our brand and wanted to spend some time on this call walking through some of the dynamics we see contributing to our top line outperformance. At the highest level, it really comes down to our success in delivering a great product assortment and impactful connections. Starting with our product strategy, we are excited about the direction we are headed in and how we are more effectively delivering our portfolio to healthcare professionals. We see 4 interrelated areas of focus that are both paying dividends today and setting us up for success in the future. These include improved function and fit, expanded head-to-toe solutions, strategic inventory investments and stronger calendar alignment. We recognize the importance of function and fit. These are already hallmarks of our brand, but areas to continually improve in to address the evolving needs of healthcare professionals. From a functional standpoint, we are delivering impactful and relevant new silhouettes, which are resonating with new and existing customers. This focus has been key in driving our core while also demonstrating success in elevating our assortment. Function also informs fabric leadership, where our category-defining FIONx fabrication remains the centerpiece of our brand. However, we know that there are opportunities to address the full range of activities that healthcare professionals go through every day. Our FORMx fabrication debuted in Q1 for environments where comfort and stretch are paramount, and we have seen momentum build as we have methodically expanded offerings throughout the year. We also just announced our next fabric solution, FIBERx, which is set to debut in Milan at the 2026 Winter Olympics. Lightweight yet structured, soft yet durable. This fabric is designed to work in environments, like for those supporting our Olympic athletes, where durability is particularly important. Looking at our fit initiative, our efforts are already paying off with lower returns, fewer inbound comments to our customer experience team and improved customer trust. With our obsession with function and fit coming together, we are also excited with how our enhanced product design work will elevate the entire product portfolio in 2026 and beyond. Continuing to build this strength in our core opens the aperture for outdating healthcare professionals from head to toe. For example, our recently introduced ArchTek compression socks demonstrate our latest commitment to category leadership as the first ever patented medical-grade compression socks in the market. Across additional areas such as outerwear, underscrubs and footwear, our team has developed a road map of how we plan to prioritize and build out these opportunities in the years ahead. With confidence in great product, we are investing appropriately. Coming off recent periods of more conservative buying plans, we have made more informed and deeper inventory investments across certain styles and colors. This action has contributed to a better flow of newness to our healthcare professionals while also supporting better overall in-stock levels. Finally, this all ties directly to our enhanced merchandising work around calendar alignment. We have added more rigor to how and when we deliver our product and messaging, efforts that have not only enhanced productivity across launch moments, but also our ability to leverage those moments in driving demand back to the core. This work has added importance as we reset our promotional cadence this year and as we execute against a repeatable, scalable framework for consistently delivering great products. As excited as we are with our product direction, our impact would not be what it is without our unique ability to serve our community and build connections in ways that only FIGS can. We are seeing the payoff of our amazing top-of-funnel moments that started with some of last year's big brand splashes and have continued throughout 2025. Looking at some of our recent successes, let's start with what was a unique opportunity heading into this year's Emmy awards. Last call, we detailed our advocacy work in Washington, D.C. with actor Noah Wyle, work which went viral across our community. When Noah was then nominated for Best Actor for The Pitt, he challenged us to make a tuxedo for the Emmy that was as comfortable as the scrubs he wears onset. We stepped up to the challenge by creating a first-of-its-kind tuxedo. With subtle details and craftsmanship, we are proud to support Noah's desire to bring the healthcare community directly to the red carpet. As the night progressed and momentum built, we strategically aired our Where Do You Wear FIGS spot during the last commercial segment before the awards for Best Actor and Best drama were announced. This was executed perfectly as Noah and The Pitt went on to win both of those awards coming out of the break. On stage, Noah eloquently dedicated his award to anybody who's coming on shift tonight or anyone who's coming off shift tonight. This overall moment became among the most viral in our history with multiple best dress nods for Noah and 175 total placements across traditional media and social, including over 30 top-tier press articles across fashion, entertainment and lifestyle outlets. Most importantly, our actions led healthcare professionals, our awesome humans, to feel seen in a way they rarely do on the world's biggest stage. Our brand work was just getting started as we continued our year-long celebration of ready-to-wear FIGS. Following the Emmys, we debuted our global installment of the campaign filmed across Tokyo, London, Mexico City and Los Angeles, showing how medicine is a universal language. We are excited to be able to amplify our message in key countries with upper funnel support. It is also important to highlight our work supporting breast cancer awareness. It's easy to highlight the commercial success of the campaign with our Epping Pink and Fight Club Pink color launches being one of our top-performing color drops in our history. The more important part, the harder part was showing the inspirational work of healthcare professionals, including Dr. Elisabeth Potter, a breast reconstruction surgeon from Austin, Texas. The success of our campaign underscored how much she resonates and is at the forefront of industry conversations in the medical community. It also reinforced the type of impact that we aspire to with Dr. Potter proclaiming, you guys listen, we feel represented and you care about what we're going through. The success of these campaigns are further proof points of how we strike a deep emotional cord with healthcare professionals through the stories we tell. This has always been part of the secret sauce at FIGS, but since our Olympics campaign in 2024, we've been on a run of our best top-of-funnel campaigns ever, and we're determined not to slow down. Not only are our campaigns resonating in unprecedented ways for the brand, but we are also matching this work with added sophistication in our measurement. Performance marketing tools are giving us added insight into when to lean into brand moments and how to optimize our messaging. Importantly, we still have considerable opportunities ahead as we think about leveraging unique views of healthcare professionals to better personalize their experiences. Finally, it's important to highlight that our great execution is bolstered even further by an industry backdrop that is returning to its pillars of fundamental strength that most other apparel industries can only dream of. This includes the replenishment-driven, largely non-discretionary and seasonless nature of our scrubwear that healthcare professionals return to over and over again. It also involves a massive industry that is among the fastest-growing brand any sector with over 23 million U.S. and over 100 million international healthcare professionals. To put it simply, we are serving a strong industry with professionals that need uniforms to do their jobs. Raising the bar further in these foundational areas also helps fuel our efforts across our 3 emerging growth drivers: international, teams and community hubs. We are making important investments across all 3 of these opportunities in 2025, and each is expected to scale in importance in the years ahead. Starting with international, our expansion is a significant focus and one where we have a number of recent developments. With over 80% of global healthcare professionals located outside of the U.S. and driving less than 20% of our revenues, international remains a massive opportunity. We are rapidly expanding our footprint this year, jumping from 33 countries to nearly 60 planned international markets by the end of this year. We are driving this expansion in a disciplined way through 2 strategies, either go broad or go deep. To go broad, we are focusing on low-touch ways to open markets, leveraging technology and regional commonalities to efficiently expand. Following 12 new Latin American markets we announced last quarter, we are on the cusp of opening 11 new markets across the Middle East and Africa region. We know that healthcare professionals globally have the same awful experience as they used to have domestically, and this strategy is an easy way to begin to reshape expectations in many smaller markets while also informing potential future investments. With our go deep strategy, we're focusing on markets with more clearly defined opportunities and taking additional steps to more directly invest. For some of our more established markets like Canada, U.K. and Mexico, investments extend to infrastructure as we look to localize and scale. This includes adding in-market talent, brand marketing to drive awareness and logistics to drive more efficient operations and support profitable growth. This strategy also informs our approach to several new markets, including the launch of Japan in Q2. This market is trending well to-date and providing great early learnings with how to serve locally. We also took the same level of care as we opened South Korea in October. We are excited to announce today that we plan to debut in China through Tmall later this quarter. While near-term contributions of these 3 new markets are expected to be modest, we see the opportunity for each to be significant drivers of our long-term international growth story. We are also actively investing in our teams and community hub opportunities, solidifying each of their own foundation for meaningful growth going forward. With teams, we want to both capture the legacy demand for institutional-led buying and also influence behavior with great solutions to drive this mix even higher. To power these efforts, we have added talent to both nurture our great existing partnerships and also to better cultivate new ones. We also have a focus on unlocking seamless and customizable solutions for a wider range of institutions and are excited to begin deploying updated technology this quarter. With Community Hubs, we are excited to debut 3 new stores this quarter, starting with New York's Upper East Side planned next week and then followed by planned openings in Houston and Chicago. Each of these locations will apply key learnings from our first 2 stores and apply updated design and merchandising elements to enhance the overall experience. We continue to see the value of having a physical presence for the brand, particularly with nearly 40% of customers coming in new to the brand. We remain confident in our disciplined approach and are well-positioned to accelerate our cadence of openings in 2026. Before turning the call over to Sarah, I would like to reiterate how excited we are with our progress. As we have highlighted, the foundational pieces of our business are strengthening. Our community engagement has never been more impactful, and we see significant opportunities to sustain momentum in 2026 and beyond. Importantly, we will never lose our unyielding focus in support of the healthcare community. This is an intangible thing to measure, but one that defines our brand's leadership, caring, connection and authenticity. This is our non-negotiable. It's how we drive relevance and staying power. At the same time, we're applying more discipline, talent and rigor across all the other factors that drive our business. We are positioned well to continue our momentum and amplify the brand over the long term. With that, I'll pass it over to Sarah. Sarah Oughtred: Thanks, Trina. Our year-to-date performance highlights the growing potential of the FIGS story as we more closely align our product strategy with our unique ability to drive impact for healthcare professionals. We are particularly encouraged to drive this high level of execution in a year where we had both a planned headwind with our promotional repositioning as well as an unplanned headwind with tariffs. As I'll discuss, we are excited to see the progress reflected in our full-year top and bottom line expectations that have moved markedly higher the past few quarters. First, let me start with details of our strong third quarter performance. Net revenues increased 8% year-over-year to $151.7 million, ahead of our outlook of flat to up 2%. As Trina highlighted, our performance was underscored by both scrubwear growth and U.S. growth, each reaching 2-year highs as well as the extremely encouraging strength and momentum across our business as usual selling period. These indicators continue to support our successful ability in resetting our promotional strategy this year, particularly with more aggressive action planned across the back half of the year. From a measurement standpoint, average order value increased 6% to $114, primarily driven by higher average unit retail due to product mix and a higher rate of full price sales. Active customer growth has remained consistent throughout the year at plus 4%, pushing our active customer count to a company record of nearly 2.8 million. This growth comes despite our promotional reset, and we have seen momentum in our acquisition trends and sustained success in bringing lapsed customers back to the brand. We were also pleased to see our trailing 12-month measure for net revenues per active customer inflect positive for the first time in 3 years with 2% growth in the period to $209. By category, scrubwear grew 8%, representing 84% of net revenues for the period. Results were ahead of plan with strength in our core products supported by impactful color stories, strategic positioning in key styles and effective merchandising and marketing. Color launches and cadencing were successful in not only driving excitement to new offerings, but also energized our core colors. Looser-fitting silhouettes are increasingly resonating, particularly in bottoms, and we are leading and investing in these areas. Complementing our great assortment, we continue to drive cohesion with how and when we deliver and message to our customers, which is driving productivity. Non-scrubwear increased 7%, representing 16% of net revenues. We saw strong growth in underscrubs, which included new 3-quarter length versions of our popular Salta and Mercado styles and were inspired by customer feedback. Shoes rebounded from some of the executional challenges in last year's period and were supported by strong coordination with our color stories. We were excited to launch our ArchTek socks at the end of the quarter, which we believe will be a great core offering to address healthcare professional needs going forward. Notably, results also reflect the comping of some Olympics-driven newness in areas like outerwear and bags, but we remain excited with the pipeline of products in these key areas going forward. By geography, U.S. sales increased 8% to $127.3 million. This was our strongest performance over the past 9 quarters and continue to reflect balanced growth across both new and repeat customers. International net revenues increased 12%, led by particular strength in driving new customers. Headline growth was solid, but had some nuances that understated our overall strength. In particular, we had a more significant reduction in promo days relative to the U.S., which had an outsized impact on Canada and Australia, 2 of our larger markets. Nonetheless, we are excited as we look at our overall performance, including active customers up strong double digits, AOV up in all regions and ahead of the consolidated growth and fantastic business as usual growth. Gross margin for Q3 expanded 280 basis points to 69.9%. Key contributors to this year-over-year performance included lower discounts from the reduction in promotional days, improved return rates and processing, lower duties and reduced freight costs. These tailwinds were partially offset by higher tariffs. Results were significantly better than planned, driving our best quarterly performance since early 2023 with broad-based upside, including conservative sell-through assumptions of the mix of non-tariff goods and through our improved returns processing work. Our selling expense for Q3 was $35.8 million, representing 23.6% of net revenues compared to 27.5% last year. As a reminder, last year's third quarter included the majority of transition costs associated with the opening of our Arizona fulfillment center. In addition to lapping these costs, we drove continuous improvement here as we further optimize our business. We also saw improvements in shipping given our successful actions to optimize our carrier mix, improve pricing and drive strong service levels. Marketing expense for Q3 was $23.5 million, representing 15.5% of net revenues, down from 20.3% last year. The reduction in the spending rate primarily reflected lapping last year's strategic investment to outfit the Team USA medical team at the Olympic Games and efficiency in marketing spend. G&A for Q3 was $37.1 million, representing 24.5% of net revenues compared to 25.3% last year. Consistent with prior quarters, the lower G&A expense rate was primarily due to a meaningful reduction in stock-based compensation expense, partially offset by higher people costs. In total, our adjusted EBITDA for Q3 was $18.9 million with an adjusted EBITDA margin of 12.4% compared to 3.4% last year. Net income for the quarter was $8.7 million or diluted EPS of $0.05 compared to net loss of $1.7 million last year or diluted loss per share of $0.01. On our balance sheet, we finished the third quarter with a strong net cash, cash equivalents and short-term investment position of $241.5 million. Inventory increased 23% year-over-year to $151.2 million or up 20% on a unit basis. Several factors are impacting the buildup of inventory. As indicated last quarter, it starts with our action to support both product introductions and deeper investments in key styles, which we believe has helped drive some of the upside opportunity during the back half of the year. We also saw a higher-than-planned level of in-transit inventory, reflecting earlier timing given some of the process improvement we have been working to drive across the supply chain. While the gap between unit growth and dollars growth was modest during the quarter, we expect the growing impact of tariffs will contribute to a wider spread in Q4. On the capital allocation side, we did not repurchase shares this period and have $52 million available for future repurchases under our current share repurchase program. Capital expenditures for the quarter were $2.9 million, primarily related to our 3 new community hubs, and we now expect approximately $7 million for the full-year. Now turning to our updated outlook to close out the year. Full-year 2025 net revenues are now expected to grow approximately 7% year-over-year, ahead of our prior outlook of up low single digits. On top of our strong Q3 results, we see several factors supporting even better implied growth in Q4. To start, we had fantastic momentum coming out of the third quarter, starting with our hugely successful breast cancer awareness campaign and extending into our business as usual selling days. As I also mentioned, we are investing more strategically in our inventory position to ensure better availability of key products and styles. This also drives what we expect to be our best balance of new colors and styles offered year-to-date, which is also proving effective at supporting the core business. We are excited to continue to launch this newness with the same discipline that has supported our strong productivity this year. Finally, we will complete our year-long promotional reset this quarter, though do not expect the corresponding revenue drag to be as meaningful as Q3. Looking at gross margins, our full-year 2025 outlook has improved from our prior call and now expect only a modest year-over-year decline from last year's level of 67.6%. A large part of the sequential improvement comes from the Q3 upside, though we do now expect less overall drag in Q4 as well. As a reminder, we faced 2 sizable headwinds in Q4. First, we expect ramping sequential tariff pressure as more impacted goods average into our product costs. We continue to assume added tariffs of 20% in Vietnam and 15% in Jordan, which combined drive nearly all of our production. Second, we are also lapping a sizable onetime benefit from duty drawback claims in the year ago period. However, similar to Q3, we have several items that are helping offset these pressures, including lower discounts, improvements in our returns processing and freight. Additionally, we are starting to get better scale on certain styles in conjunction with demand. The full-year SG&A story continues to show strong leverage following last year's outsized investment. While Q4 is still expected to show some expense rate deleverage, the magnitude has been reduced primarily by the impact of our improved top line assumptions across each of our expense buckets. More specifically, this quarter, selling expenses should continue to benefit from our scaling efforts and tariff mitigation strategies. The marketing expense rate is planned to meaningfully increase, reflecting both lower spend rate from the prior year as well as our ramping support for the forthcoming 2026 Winter Olympics. The G&A rate will continue to reflect lower year-over-year stock-based comp, partially offset by higher planned people costs. Overall, we are updating our full-year adjusted EBITDA margin to approximately 10.3% compared to the prior range of 8.5% to 9% and ahead of the original outlook of 9% to 9.5%. We also want to provide several high-level comments that pertain to our early 2026 planning. First, on net revenues. We are committed to growing the business in 2026, which should continue to be supported by strong current momentum and ongoing process improvements. Additionally, we expect the investments we have made in our 3 emerging growth drivers, international teams and community hubs will begin to have more material impact. While not all of these factors will have linear contributions, we are excited to further unlock these businesses given our strengthening core. Next on tariff mitigation. As we have discussed, we have a number of levers across both product costs and SG&A that we have already pulled and some that remain in consideration. We have already seen strong execution as we optimize costs across inbound and outbound shipping and at our fulfillment center, benefits that we plan to extend into 2026. Our supplier negotiations have been productive and are expected to yield additional savings next year. While we do not plan to take any pricing action in 2025, it remains a lever for next year. Finally, on margins, the bar for 2025 adjusted EBITDA margins has been raised despite an estimated unmitigated tariff drag of approximately 110 basis points. However, with an estimated annualized unmitigated impact of closer to 440 basis points, we expect that the majority of tariff headwinds is still ahead of us in 2026. As such, we will use our ongoing planning process to continue monitoring the overall environment while also balancing our ongoing discipline, the full range of tariff mitigation as well as strategic investment levels. While it is too early to provide specifics, we do think it is important to note that we see opportunity for 2026 adjusted EBITDA margins to be within range of current 2025 expectations. Overall, we are energized to be in such an incredible industry where serving healthcare professionals is paramount. With improving profitability and ample balance sheet flexibility, we believe we are positioned to remain on offense and drive the sustainable long-term growth story we see ahead. I will now turn the call back over to the operator for Q&A. Operator? Operator: [Operator Instructions] First question is from the line of Bob Drbul with BTIG. Robert Drbul: Nice quarter. A couple of questions for you. Just on the gross margin performance this quarter, I guess when you look at it a little bit longer term into next year, but I would even say when you look at your historical results, given your ability to sort of navigate a lot of the tariffs, can you just talk us through how you envision that segment, that line item of the business over the next several years, I guess, at this point? Catherine Spear: Bob, yes, so we saw a really great gross margin for this quarter, up to 69.9%. Obviously, that's been quite higher than where that rate has been. We did see some components there, some that will continue into the future, but some that are unique to the quarter. We are seeing improved discount rates from the pullback in our promo strategy, and we'll see that continue into Q4 as being a benefit year-over-year. Longer term, that increase year-over-year will moderate as that promo strategy normalizes into next year. We've been working hard with our new returns partner and seen some good improvement in our refurbishment rates. Then there was a bit of nuance in how some returns processing happened with the prior year DC transition. We do expect some of those improvements in refurbishment rates to continue going forward, but not at the same rate that we saw in the quarter. We've been really working hard to optimize our inbound rates, and we saw the benefit of that this quarter, and that should continue into next year until we annualize that. Obviously, tariffs are the biggest piece, and so that will have a 440 bps total impact next year or up 330 bps. There's still some unknowns around how tariffs will remain. We'll continue to monitor that, but feeling good with our measures of how we're able to continue to find efficiencies within margin and carry that into future to continue to work on offsetting those tariffs. Operator: Next question is from the line of Rick Patel with Raymond James. Rakesh Patel: Congrats on the strong execution. Can you expand on the demand that you saw during the business as usual days when you didn't offer promotions. How is Q3 performance on those days relative to where it was in the first half? Second, given tariffs are intensifying and demand is holding up well, what do you need to see to revisit the pricing lever for next year? Catherine Spear: Great. In terms of our business as usual days, we've seen acceleration each quarter in those business as usual days. Really great to see that. It's really from the broad-based performance that we're seeing across both the U.S. and international as well as both scrubwear and non-scrubwear. Really happy with that performance, and it's really that acceleration that has had revenue growth rates overall accelerate each quarter. Really happy with what we're seeing there. Then I think you asked on pricing, and so our pricing remains consistent with what we've shared previously. Several considerations that we've shared before that still remain, which is healthcare professionals need our products to do the critical work that they do. Nearly 2/3 of our customers make under $100,000 a year. We have 16 core styles that generate the majority of our revenue. Our ability to simply flow through higher prices into new seasons or new styles is limited. We want to be prudent, and there is still some open-endedness on where tariffs will land. We've been working really hard on our tariff mitigation and these efforts include optimizing our supplier base, negotiating discounts with our suppliers and driving efficiency in inbound and outbound. The great news is that we've seen strong progress on these measures to-date. We're not going to be taking pricing in 2025. If we were to take any future pricing, that decision would be held to share with our healthcare professionals first so that we can control the narrative and deliver with the care that our healthcare professionals deserve. Operator: Next question is from the line of Brooke Roach with Goldman Sachs. Brooke Roach: Trina, Sarah, I was hoping we could discuss the trends that you're seeing in AOV, understood that some of this is coming from the promo reset, but how are you thinking about the opportunity for AOV to contribute to revenue growth as you look ahead into 2026? Similarly, can you talk a little bit about the customer trends that you're seeing? Are your customers engaging more frequently? Are they staying for longer? Are you seeing better reactivation trends or better new acquisition trends? Are you seeing any trends specifically within any age or income cohorts given the broader macro environment? Catherine Spear: Great. I'll start with the question on AOV. In terms of AOV, we've been seeing that increase each quarter and saw a fairly large increase in the current quarter, up 6%. That is driven from both mix shift in our product as well as the pullback in our promotional efforts. I think as we think about 2026, we still think there is some opportunity for AOV to continue to increase. That's largely with how we're thinking about product mix and continuing to build out that full assortment head to toe of that healthcare professional and continue to drive into a higher wallet share that we know is available to us. Sarah Oughtred: I'll just add in terms of the trends we're seeing in our consumer. Brooke, as you know, we don't -- we serve a different consumer than the average apparel or even e-commerce company. Our customer works in an industry that has a real like level of stability. People need healthcare workers. They're not going anywhere. If anything, our industry is really accelerating. It's the healthcare jobs are the fastest-growing job segment. They're growing 3x faster than the overall job market. The demand for healthcare professionals is expected to remain high. A lot of the trends that we've seen in the quarter, some of it is the fundamentals of the industry and obviously, what we're doing on the product side, on the marketing side to execute at the level that you're seeing. To your question around like the trends we're seeing, we're seeing our customers come back. If you look at repeat frequency and you kind of remove the impact of the promotional pullback, we're seeing repeat frequency up significantly. We're seeing our reactivations up significantly, and we're seeing actually cohorts performing across all income levels. Really great trends across the board. We feel really confident that the post-COVID overhang is easing, and we're operating in a much more normalized environment, and it's great to see. Operator: Next question is from the line of Matt Koranda with ROTH Capital. Matt Koranda: It's probably just a follow-up from some of the earlier questions. Just wanted to hear a little bit about what's driving the acceleration that you're implying into the fourth quarter despite the tougher comparison year-over-year. I just wanted to hear a little bit more about customer strength. It sounded just like Trina, like you just said, even your lower income cohort is still performing well. I just wanted to hear you kind of talk a little bit more about the drivers of the acceleration into the end of the year here. Sarah Oughtred: Matt, yes. I mean, we've been seeing some really broad-based and healthy trends that have continued to progress as the year has gone on and see the opportunity for that to continue into Q4. We feel good with how our product and marketing is set up for the fourth quarter. We think we can get there with continuing the trends that we've seen. We've been seeing that new customer acquisition has turned positive in terms of growth for the last 2 quarters and seeing that momentum also really come from our domestic business, which carries weight in terms of the overall growth. We're seeing some great trends in the business as usual days that has been accelerating. All of those components has been captured in how we're thinking about the fourth quarter upcoming. From a promotional perspective, our stance has still remained with how we had seen before. The improvement in revenue growth expectations from Q4 really comes from our business as usual days. No change in how we've been thinking about promo. For Q4, the focus will be on Black Friday, Cyber Monday, but similar to previous quarters, there will be a pullback in our efforts versus the prior year. Matt Koranda: Can I ask about community hubs? You guys sounded more excited, I guess, than usual about the opportunity to lean in there going into '26. Just wanted to hear a little bit more about the potential drivers of growth with Community Hub and where we are with store formats, how they're set up for growth next year. Catherine Spear: Sure. Thanks, Matt. We're really excited about our community hubs. We're about to more than double the amount that we have. We only have a community hub in Century City in Los Angeles today and in Philadelphia and Rittenhouse Square. We're about to open New York City on the Upper East side at 69th and 3rd. We're right in what's called hospital row, which is incredible. You have Memorial Sloan Kettering, you have the hospital Special Surgery, New York-Presbyterian Weill Cornell, Rockefeller. These are powerhouse healthcare institutions that are literally at the same intersection of where we are. Houston, we're opening right near Texas Medical Center, the world's largest medical complex. It has 120,000 employees, 10 million patient encounters a year, over 180,000 surgeries a year, and so Houston, incredible healthcare professional city, and it's a great place to be, and we're really excited. Finally, Chicago. We're located less than 2 miles west of the loop. We're in Illinois Medical District. It's one of the largest urban medical district clusters in the United States, 4 major hospital systems, 2 medical university campuses, 40-plus healthcare-related facilities. That's just -- those are just opening the rest of 2025, and it's November 6 today. Couldn't be more excited. We're taking our learnings from what we've seen with our first 2 hubs 40% of customers are still coming in new to the brand. 30% of customers that are coming into our community hubs are becoming omnichannel customers coming back into the stores, coming back to us online. Really strong -- and we're seeing really strong incrementality in the markets that we're in, and so took a lot of the learnings from our 2 hubs. We've redone the format, the space, how much inventory we can get on the floor, how we're approaching our color drop stories, our newness, our layering, our fit and how we can showcase that in a new and original way. Finally, customization. Everyone wants their scrubs embroidered with their name and their logo so they can tell the world who they are and what they do. These are just being in person with our community, having them feel and touch and experience our product and our brand is -- it's so amazing and so important, and we're really excited. Operator: Next question is from the line of Brian Nagel with Oppenheimer. Brian Nagel: Nice quarter. Congratulations. I've got a couple of questions. I guess one near term and then one long term. On the near-term side, as we look at the sales acceleration in the business, particularly what's happened here in the third quarter, then as you're telegraphing in the fourth quarter, to what extent is that sales acceleration being driven by new products, the new product introductions? Then my follow-up question, I guess, is longer term, a little bit longer term in nature, but now as we're watching the top line of FIGS start to solidify, you're seeing the sales growth. Is there any updated thinking on how the margin – particularly, the EBITDA margin profile of the business should evolve over time? Should we have the potential to get back to the peak operating margins? Sarah Oughtred: Great. In terms of your question on is the growth coming from new products, I mean, actually, what we're really excited to see is the majority of the growth is coming from our core products and even in our core colors. That's a great foundation for the long-term health of our business. Obviously, we've seen growth in some of our newer styles and in our color, and it's really showing that when we showcase some of that newness and innovation, it actually drives the halo effect to our overall core. Really great for us to see there that we have the ability to continue that momentum longer term from a sales growth perspective. In terms of EBITDA, for next year. For now, we've made the commitment that our adjusted EBITDA margin rate would be within range of our guide for 2025. We do have 330 bps of tariff headwind year-over-year into next year. We would be offsetting that in order to stay within range of this year. Our ability to meaningfully offset that is from improvements that we are making in the business to be more efficient, to drive into savings while still being able to invest for the longer term. We'll have some harder ability to expand margin next year just due to the tariffs. Longer term, we see the path for this foundation to continue to go forward and us for -- to drive growth, both top line and into bottom line. Operator: Next question is from the line of Dana Telsey with Telsey Group. Dana Telsey: Nice to see the progress, Trina. Two things. As you think about the Olympics coming up and the marketing for the Winter Olympics, what will be the same or different than what you did for the Olympics in Paris, knowing that summer, this is winter. What do you see as the difference? One of the interesting things in the quarter is the sequential improvement in the growth rate of the non-scrubs business, up high singles compared to the slight decline last quarter. What are you seeing there? What categories are resonating? Catherine Spear: Thank you so much, Dana. We're really excited about our continued partnership with Team USA. As you know, we're the first company ever to outfit a medical team for any country globally, and we're really proud to be able to do that again for these upcoming winter games in Milano Cortina. There's a few things that we really learned and we're going to be applying from our lessons in Paris. First one is that we're finding more ways to have an impact. We learned a lot on the ground. We've created an even better, if you can imagine, a more dedicated space at the Team USA, welcome Experience. That's really exciting. We have a brand-new fabrication called FIBERx. It's really made for healthcare professionals in more high-impact environments like what you would be doing outside in winter and especially for the medical professionals supporting our athletes during the winter games. I do believe this fabrication is going to go well beyond that to serving healthcare professionals within hospitals and offices and clinics, and it's a really, really great lightweight durable fabric that is awesome. You're going to love it. Then finally, I think we've learned a lot in terms of how to optimize our marketing spend and how to ensure that we're really balanced across the funnel. I think you've seen that throughout this year, really taking these very strong top-of-funnel marketing campaigns that, in some ways, are breaking the Internet and how do we bring that all the way down to our healthcare professionals that are on social or across channels and to meet them where they are with really strong product that serves their needs and really strong messaging that resonates and really shows the best of them back to them. I think that's what this campaign is going to do again. Then your question on non-scrubwear. In Q2, the growth rate was negative, and that was really impacted by comping over the same quarter of the prior year that had some additional non-scrubwear launches. What we've seen with category performance for non-scrubwear is that it can vary based on promotional comparisons, the impact of new styles in different quarters and our work to reinvent a few areas. Happy to see that we inflected positive in non-scrubwear this quarter. Even still, we are comping against the stronger quarter last year from where we had Olympics. We had strong accessories and outerwear growth from Olympics last year that doesn't annualize this year. I would say that our non-scrubwear did perform to our plan and has outperformed the first half. We've been happy to see consistent attachment rates and really excited about the opportunity ahead for many of the categories within non- scrubwear. Operator: Next question is from the line of Ashley Owens with KeyBanc Capital Markets. Ashley Owens: Congrats as well. Maybe just first to touch on international. With this now being 16% of revenue of the quarter, if we kind of parse that out and think of that as just shy of $100 million run rate for the business, could you just walk us through some of the next building blocks as to how you're planning to scale these regions? I know regions like Japan, South Korea are still really new. China is obviously coming on board. Would just be curious on thoughts as to if international could sustainably grow at double digits for the next several quarters and how you're thinking about that long-term mix target there? Catherine Spear: Yes. I mean we have a two-pronged strategy, Ashley, in terms of where we go broad and where we go deep. It's been really exciting to see that we'll be at 60 markets by the end of this year. That's driven by our ability to leverage both technology and our understanding of each region and use the commonalities across regions to open up markets very efficiently. If you think about we just -- in Q3, we opened up 12 new markets, Argentina, Bolivia, Chile, Ecuador, I won't list them all, but you can get that. Then in the fourth quarter, we opened up a number of countries in the Middle East and in Africa. That's really exciting. Then to your point, how do we go deep, right? That's the second part of the strategy, where once certain markets reach scale, think about Canada, Mexico, U.K., Australia, we're able to really invest more in the brand and brand awareness. Really localized deeply, deeper engagement with our ambassadors with events, in-market support and so, and having talent on the ground in these places. It's very exciting to continue to build out in both -- in newer markets, but also really go deep in these larger markets that have hit what I would call critical mass. No matter where you live, prior to FIGS, you had this horrible experience with your uniform. Our goal is to get some more healthcare professionals around the world and help change the game for them. Ashley Owens: Then just quickly to follow-up. Maybe on the return rate improvement, if you could help us contextualize how much of the progress there benefited margin for the quarter or the magnitude of the decline you saw? Then just following up, moving down the P&L, any other quantifiable cost savings from fewer restocks and reverse logistics activity that you'd be willing to share? Sarah Oughtred: Yes. Within returns, we've seen overall improvement in our return rates, and that is largely attached to some of our improvements to fit. We definitely saw an outsized benefit related to returns processing. It is quite meaningful of a bump that we saw in Q2. You can really see how the implied guidance for Q4 does step down. That's both with tariffs and mix shift into non-scrubwear that seasonally happens in Q4, and not recognizing the same degree of benefit on returns that we saw in Q2. Operator: Next question is from the line of John Kernan with TD Cowen. John Kernan: Obviously, a lot of upside to on a few line items in Q3. And I just want to go back to the prior question on the fourth quarter guidance because it does assume quite a bit of the momentum on the margin level doesn't continue. Can you just unpack the gross margin and then maybe the selling and G&A in fourth quarter and the expectations there, given you have a lot of momentum coming out of Q3 on the top line and the margin profile? Just curious what's maybe changing in Q4. Sarah Oughtred: Yes, certainly. We will have quite a step-up quarter-over-quarter from Q3 into Q4 on tariff impact. There will be quite a step-up on the incremental amount of tariffs that Q4 has to carry. That will continue to step up as we go into 2026 as a higher portion of our inventory captures the full amount of tariffs. We also have seasonality to consider, so we have a much higher proportion of our business in the fourth quarter that has non-scrubwear that carries a lower margin rate. You'll kind of see that seasonal mix if you look back at the proportion of non-scrubwear business in Q4. Planning similarly, and that will have some drag on the quarter. Then also just to consider from a year-over-year perspective, as you're looking at Q4 that we did have a sizable duty drawback benefit in the fourth quarter last year that was onetime catch-up, so we won't -- that will have a headwind into year-over-year growth in Q4 as well. Then I think you're asking in terms of the overall P&L profile. I mean, as we think about our selling costs, we've continued to see improvement there each quarter and happy with our efforts there, and that will continue into Q4. A lot of really great work that's been done to negotiate with our vendors, bring on multi-carriers and at the same time, being able to provide even better service. That will continue into Q4. From a marketing perspective, the marketing rate will increase in Q4 from what you've seen each quarter in 2025, and that's a function of us starting our investments to support the Olympics, which happened in Q1 of 2026. Then as we go into G&A, we've been continuing to see the decline in our stock comp expense year-over-year, and that trend will continue into Q4 as well. I think those are the main puts and takes on how we think about the profile for Q4. Operator: Our final question will come from the line of Angus Kelleher with Barclays. Angus Kelleher-Ferguson: This is Angus Kelleher on for Adrian. Congrats on a solid quarter. I wanted to ask how you are balancing -- how you're balancing the elevated inventory growth against the plan to pull back on promotions? What safeguards are in place there to avoid margin pressure or excess stock? I guess just more broadly, how do you feel about the composition of that inventory? Sarah Oughtred: Yes. Thanks. We've been intentionally investing in inventory to support demand and improve our core in-stock levels. We've really seen improvement in those in-stock levels, which has been supporting our sales growth. We did have an impact from higher-than-expected in-transit inventory in the quarter, which we do view as positive as it does result from the work we're doing with our partners to drive consistency and execution, and it's ultimately driving shorter lead times. If you were to adjust for that higher in-transit, our unit growth would be low double digits. So much more in line with our Q3 growth and our Q4 guide, while also giving us the opportunity to potentially capture upside. We're effectively getting product more efficiently, and we do need to adjust. As we look at the go forward, we would expect some moderation in unit growth, and that's really just as this in-transit timing adjusts. Then from a dollar growth perspective, we actually expect that to increase into the fourth quarter, and that's really a function of those tariffs impacting that inventory that's coming in, so our inventory is higher. We do have some pockets of inventory that we are working down. We've got some older fit profiles and areas we intend to reinvest in the future seasons. We have made some good progress here, including with our targeted promotional efforts and selective write-offs we were able to do. We do continue to make progress here and in the quarters ahead. We're working on improving greater discipline and efficiency to our buying process. Over time, we do expect that inventory balance to come down over 2026 despite the higher tariffs. Angus Kelleher-Ferguson: Then if I could just squeeze one last one in about Teams. How is the Teams strategy evolving? How has the target customer shifted over time there? Then just if possible, any margin commentary you could share on the contribution of that business? Catherine Spear: Well, first off, Angus, I just want to thank you for not ending on the inventory question. Thank you for adding something about Teams because I'm so excited to talk about our Teams business. It's really -- we've been really focused on investing in our Teams business as we look to ensure an optimal foundation to set us up for the future. We've talked about our outbound strategy, bringing on new institutions that are looking to standardize and brand their teams, and we've made a lot of progress. The biggest kind of item that we're excited about is the upgraded technology. We mentioned it in the earlier part of this call, and so this is really designed for healthcare teams of all types and sizes. This platform is going to give organizations much more flexibility and functionality to purchase in a way that makes sense for their team. We are on our way to becoming the employee store for all different types of healthcare professionals that's going to go well beyond traditional group ordering. This is going to introduce new capabilities like sipeins, like gifting, different types of discounts based on your employee type. We're really excited about being able to roll out this upgraded Teams experience. It's going to feature our full product assortment. It's also going to be able to support international teams customers, which hasn't been the case. We think we're going to be able to unlock meaningful growth in the future. And so -- and then you asked about the margin. Sarah Oughtred: The margin profile. The teams profitability is accretive bottom line. It has a lower gross margin profile just to the offering of a higher discount. Then operating expense structure is much more favorable with the efficiencies, both within outbound shipping as well as marketing. I'm excited with the overall economics that this business provides. Operator: There are no additional questions waiting at this time. I'll pass the call back to Trina Spear for any closing remarks. Catherine Spear: Thank you all for joining us. Really excited to speak with you all, and we'll talk again soon. Operator: That concludes the conference call. Thank you for your participation. You may now disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by. [Operator Instructions] I would now like to turn the conference over to Tahmin Clarke. Please go ahead, sir. Tahmin Clarke: Thank you, operator. Good afternoon, and welcome to Arlo Technologies Third Quarter 2025 Financial Results Conference Call. Joining us from the company are Mr. Matthew McRae, CEO; and Mr. Kurt Binder, COO and CFO. If you have not received a copy of today's release, please visit Arlo's Investor Relations website at investor.arlo.com. Before we begin the formal remarks, we advise you that today's conference call contains forward-looking statements. Forward-looking statements include statements regarding our potential future business, operating results and financial condition, including descriptions of our revenue, gross margins, operating margins, earnings per share, expenses, cash outlook, free cash flow and free cash flow margin. ARR, Rule of 40 and other KPIs, guidance for the fourth quarter of 2025, the long-range plan targets, the rate and timing of paid subscriber growth, the commercial launch and momentum of new products and services, the timing and impact of tariffs, strategic objectives and initiatives, market expansion and future growth, partnerships with various market leaders and strategic collaborators, continued new product and service differentiation and the impact of general macroeconomic conditions on our business, operating results and financial conditions. Actual results or trends could differ materially from those contemplated by these forward-looking statements. For more information, please refer to the risk factors discussed in Arlo's periodic filings with the SEC, including our annual report on Form 10-K and our most recent quarterly report on Form 10-Q filed earlier today. Any forward-looking statements that we make on this call are based on assumptions as of today, and Arlo undertakes no obligation to update these statements as a result of new information or future events. In addition, several non-GAAP financial measures will be discussed on the call. A reconciliation of the GAAP to non-GAAP measures can be found in today's press release on our Investor Relations website. At this time, I would now like to turn the call over to Matt. Matthew McRae: Thank you, Tahmin, and thank you, everyone, for joining us today on Arlo's Third Quarter 2025 Earnings Call. Q3 was another record-breaking quarter for Arlo across numerous performance and financial metrics. I'll start by highlighting our outstanding SaaS business, which continues to grow and propel Arlo to new heights. We added 281,000 paid accounts during the quarter, well above our target range of 190,000 to 230,000 and which drove our total paid accounts to 5.4 million. This performance was driven by net additions in our retail and direct channel, coupled with stronger performance from our partner, Verisure. I'd like to take a moment to congratulate Verisure on their recent acquisition of ADT Mexico and their successful initial public offering last month. Their success is so well deserved, and we look forward to continuing to be a part of their growth and outstanding execution across their expanding footprint. Arlo Secure 6, our latest AI-based security platform, is also driving our performance with users finding substantial value in the features and capabilities. In our retail and direct channel, average revenue per user was over $15 per month, and the lifetime value of each user grew to over $870, a new record for Arlo. These metrics helped propel Arlo's annual recurring revenue to $323 million, up 34% year-over-year and another record for the company, while service gross margin expanded 770 basis points to more than 85%. In addition to this impressive service performance, Arlo also executed the largest product launch in company history during the quarter, comprised of new platforms and products across our Essential, Pro and Ultra product tiers. These platforms not only bring a 20% to 35% reduction in BOM costs and new form factors such as pan, tilt, zoom, they also contributed to a nearly 30% year-over-year unit sales growth in Q3. These new products are receiving high ratings from both professional and user reviews, which call out the ease of setup, high performance and new capabilities across the lineup. The execution of this product launch and transition was nearly flawless. Arlo launched over 100 SKUs simultaneously across channels on time despite several shipping and weather disruptions, all while managing the [ ex-ramp ] of inventory for a smooth transition. This is extraordinarily difficult to achieve, and a huge congratulations and thank you to the Arlo cross-functional teams on this exceptional outcome. There are very few companies in the world that have successfully developed world-class capabilities in both the Software Service segment and the hardware device segment. This quarter is a great illustration that Arlo is one of those rare companies that can not only excel in both areas, but also bring these segments together to create compelling user experiences and drive real shareholder value. And that could not be more obvious based on our full Q3 results and profitability. Adjusted EBITDA was up 50% year-over-year and reached $17 million. GAAP earnings per share was $0.07 in the quarter, a new record for Arlo. And year-to-date, we reported a massive $0.35 improvement compared to the first 9 months over last year. And looking at our services business in a Rule of 40 context, Arlo achieved a result of 46, which underscores the elite performance against all peers in the SaaS space. Looking ahead to Q4, Arlo is exceptionally well positioned in a competitive market with our new product launch, and we expect to see 20% to 30% unit growth year-over-year, which sets us up well for service revenue growth heading into 2026. And we continue to see great progress across our strategic accounts, including Verisure driving growth via their IPO, Allstate deploying kits to home insurance customers and ADT testing units in the field ahead of next year's market launch. Expect more announcements in this area over the coming quarters. Given this performance, it is clear that Arlo is making excellent progress against our long-range plan targets of 10 million paid accounts, $700 million in ARR and an operating income of over 25%. Now I'll turn it over to Kurt for a more detailed review of our Q3 results and our outlook ahead. Kurt Binder: Thank you, Matt, and thank you, everyone, for joining us today. During the quarter, we again delivered outstanding financial results driven by our commitment to our services-first strategy. Every decision that we make as an organization is centered around delivering an innovative and value-added smart home security experience that drives annual recurring revenue, and these efforts are yielding strong results. As Matt mentioned, the LTV generated by our paid accounts is at an all-time high and ensuring that we continue to fill the acquisition funnel and drive our subscriptions and services revenue is paramount to delivering best-in-class SaaS metrics and achieving our long-term financial goals. Now on to the results for the quarter. Subscriptions and services revenue was $79.9 million, up 29% year-over-year, driven by a significant increase in ARPU and a great pace of paid account adds over that same period. This strong performance is largely due to the introduction of our new AI-driven Arlo Secure 6 rate plan offerings. Additionally, our intense focus on enhancing customer journeys and delivering a differentiated value proposition drove new paid accounts to select our premium rate plans and existing customers to upgrade to higher rate plans. Paid accounts continued their strong growth trajectory as we generated 281,000 paid subscribers in Q3. We exited the quarter with a base of 5.4 million paid accounts, an increase of 27% year-over-year. Improving ARPU trends and the growth in our retail paid account base reflects our ability to guide customers to our higher-value AI-enhanced service levels and in turn, drove our annual recurring revenue to $323 million, up 34% over the same period last year. Total revenue for the third quarter came in at $139.5 million, up slightly from the prior year period, with our subscriptions and services revenue comprising 57% of total revenue, up from 45% in the same period last year. This level of predictable and recurring service revenue is the key driver of our substantial improvement in profitability and our ability to deliver best-in-class SaaS metrics, including ARR growth. Product revenue for the period was $59.6 million, down $16.2 million or 21% when compared to the prior year and as a result of the industry-wide decline in ASPs as well as the frequency and depth of promotional campaigns, especially in Q3 as we promoted our end-of-life or EOL products to make way for the sell-in of our broader next-generation product portfolio. We continue to drive new household formation by optimally pricing our products to increase POS volume and utilize the devices as a subscriber acquisition vehicle. The refresh of our product portfolio offers a considerable reduction in BOM costs, enhancing our competitiveness across various price tiers while also helping to offset some of the tariff impact. And with the upcoming holiday season, we are leveraging this portfolio to help accelerate the growth trajectory of our subscriptions and services revenue. Given the outstanding subscriptions and services gross margin and expanding profitability with each new paid account, our decision to sacrifice product gross margin for durable, highly profitable subscriptions and services revenue is an easy one. We view a modest decline in product gross margin as part of our cost of customer acquisition. And even after considering the incremental investment, we are still delivering a best-in-class LTV to CAC ratio in the range of 3x. Our goal to drive solid POS volume and gain access to additional households in Q3 occurred as planned, and we expect a similar outcome in the fourth quarter. We believe the strategy insulates us from certain external market factors and drive shareholder value, and we will continue to lean into this approach during this Q4 holiday selling season. In Q3, international customers generated $58 million or 42% of our total revenue, down from $66 million or 48% in the prior year period related to the increased level of subscription and services revenue from our U.S. retail business and the successful launch of our new products. Verisure continues to be an important partner for us in Europe, and we thank them for their continued collaboration and expect them to remain a solid growth driver in the future. From this point on, my discussion will focus on non-GAAP numbers. The reconciliation from GAAP to non-GAAP figures is detailed in our earnings release, which was distributed earlier today. Our non-GAAP subscriptions and services gross margin was 85%, again, a new record and up 770 bps year-over-year. The significant growth in services gross margins is attributable to enhanced ARPU, coupled with a reduction in the cost to serve our customers, including lower storage and compute costs. Product gross margins were negative, representing a modest decline when compared to the same period last year. The decline in product gross margin is related to the full quarter impact of tariffs approximating $5 million, coupled with industry-wide ASP declines and planned promotional spend on EOL products to optimize inventory levels ahead of our recent product launch. Even withstanding these items, we reported consolidated non-GAAP gross margin of 41%, up 540 bps year-over-year. Our continued improvement in profitability in a period where the full impact of tariffs was experienced underscores the significant ancillary benefits that the shift to our services enterprise provides us. Total non-GAAP operating expenses for the third quarter were $41.1 million, up 6% from $38.7 million in the same period last year. The year-over-year increase is primarily driven by app store fees and an increase in personnel to support R&D investment as we launch our new innovative product offerings and Arlo Secure 6 this year. Our leveraged go-to-market approach has enabled us to maintain our operating expenses at roughly $40 million per quarter or less since 2022, while growing ARR at a 37% CAGR during that period, which is truly remarkable. For the third quarter, adjusted EBITDA was $17.1 million or an adjusted EBITDA margin of 12.2%. The growth in adjusted EBITDA represents a 50% increase year-over-year and a powerful testament to the operating leverage created by scaling our subscriptions and services business. Further, we generated non-GAAP net income of $18.1 million for the third quarter and $53.3 million for the 9-month period ended September 30, which was up an impressive 68% when compared to the same period last year. Regarding our balance sheet and liquidity position, we ended the quarter with $165.5 million in cash, cash equivalents and short-term investments. This balance is up about $19 million since September of 2024, even withstanding certain strategic investments and our ongoing share repurchase program. We generated record free cash flow of $49 million during the first 9 months of the year, representing a free cash flow margin of almost 13%. Our Q3 accounts receivable balance was $76.7 million at quarter end, with DSOs at 50 days, up from 45 days in the same period last year. Our Q3 inventory balance was $44.4 million, down from the $52 million level in September of last year and a testament to the amazing job that our supply chain team has done with optimizing inventory levels ahead of our portfolio refresh. Inventory turns were 6.4x, up from 5.8x last year as we sold in inventory for one of our largest product launches in history. Now turning to our outlook. Even with the full impact of tariffs during the period, our business generated outstanding financial results driven by the resilience of our subscriptions and services business. The recent launch of our innovative product portfolio gives us dry powder to remain competitive given the solid reduction in BOM cost. We will leverage our new products and competitive ASPs to drive strong POS volume and accelerate paid subscription growth. As a result, we expect our Q4 consolidated revenue outlook to be in the range of $131 million to $141 million. Additionally, we expect non-GAAP net income per diluted share for Q4 to be in the range of $0.13 to $0.19. And now I'll open it up for questions. Operator: [Operator Instructions] The first question comes from Adam Tindle with Raymond James. Adam Tindle: I just wanted to start maybe on margins, obviously, acknowledging that gross and operating margin overall is quite healthy here. But when we look at the components, you had your largest launch with a 20% to 30% BOM cost reduction that you talked about, but product gross margin is still pressured. I understand there's a number of moving parts driving that. Maybe the question would be, if you could just remind us the accounting method for inventory and wondering if that BOM cost reduction is maybe not fully reflected in the Q3 results that we're seeing. And secondly, there's an inventory clear out that you mentioned. I wonder if you could, Kurt, just help us quantify that. Is that something that was -- what did it do to impact in the quarter? And does it carry into future quarters from here? Kurt Binder: Yes. Adam, let me just start by saying, as we've discussed in the past, we are very much focused on our consolidated gross margins, and we were extremely pleased by the fact that if you look at the third quarter consolidated gross margins relative to last year, we were up about 540 bps. If you look at that margin on a year-to-date basis, we're up about 640 bps. So as we've mentioned before, we hold ourselves accountable to continue to grow consolidated gross margin, and we'll continue to do that here in the upcoming future. As it relates to the product gross margin you're referencing, Adam, we were at -- on a non-GAAP basis at about 17% -- negative 17.3%. What's embedded within that number is a number of things. So first and foremost, obviously, we had the first full quarter of tariffs. If you actually look at it closely and you strip out tariffs, that margin actually would decline to about a negative 8%. So small -- or I would say, a pretty significant shift from the 17% and in that range of, say, high single digits. Additionally, we did have a fair amount of EOL investment that was necessary to make sure that all of the inventory in the channel was at the right levels, which would enable us to load in the right amount of inventory on the next-generation platform of products that we just rolled out. So there was a fair amount of upfront spending to encourage promotional activity to move that inventory through. That inventory has now been moved through, and we feel really good about where we stand right now as we go into the fourth quarter. So I have to say that we're extremely pleased with the fact that if you look across all of our operating metrics, especially our profitability targets, whether it's adjusted EBITDA, non-GAAP operating income, gross margins, they are all moving up and to the right, and we're extremely pleased with the overall performance of the team in this area. That's helpful. Adam Tindle: Yes. And it provides obviously a platform for future growth in margin when some of these temporary items rebound as well. So it makes sense. Maybe a follow-up, Matt. There's a number of growth drivers in the future as well for the business. I know you addressed some of the partnership in particular in your prepared remarks. So I want to ask a question on 2 of those. First is on Verisure. You mentioned the ADT Mexico piece of this. I wonder if that's maybe a broader opportunity for Arlo to expand more in Latin America in general. Would that need to be sort of a separate RFP process for you to win? Or do you have sort of visibility into that as an opportunity? How big could that be? And then secondly, on ADT itself, you mentioned they're testing units ahead of the market launch. Just wonder -- I understand you're probably going to be a little bit limited on what you can say here, but any framework that you can get as you get closer to this in setting investor expectations on the magnitude of that partnership? Matthew McRae: Yes. Great question. And when you talk about growth drivers, Adam, you're 100% right when we're focused on a couple of areas. One is, as Kurt was just mentioning, the growth in our normal channels like retail channels, and that's going really well. We mentioned on the call that units were up year-over-year by nearly 30% from a POS perspective, and we expect somewhere between 20% and 30% growth there. One of the other areas is exactly what you're talking about, what we call strategic accounts or our more B2B plays. There's a couple, and you mentioned some of them. So the ADT Mexico acquisition by Verisure, I believe, actually closed yesterday. in European time. And we've been actually working with them, as you probably could guess, behind the scenes for months, if not actually quarters, preparing and actually certifying all of our products for Mexico. So there's no incremental business to win. As you know, we are, at this time, the exclusive provider of some of the back-end service for them. We do a lot of camera development for them, both on Arlo product for those certain regions, but also some custom products that we've developed for them. So our expectation is that ADT Mexico acquisition by Verisure is kind of the first area they're focused on with potentially a more bigger expansion across Latin America. So it is a new region, I think, for the partnership to expand into over time and drive a lot of growth for both companies. So we're excited -- really excited about that. Then you look at EDT, I can't say a lot about EDT beyond what I said on the call, except that from an Arlo execution perspective in conjunction with that partner that we hit all the timelines we needed to hit, and there's actually product in the field. And from a user experience perspective, it's stellar. So we're really excited about talking more about that in the future, and we'll leave that to the date that, that actually goes live. And then I mentioned on the call that this is an area that we're excited about, and you should expect some more information over time. There are several other partnerships that we're in discussion with. And I expect between now and probably the end of Q1 or maybe going slightly into Q2, we'll have a couple of more sizable name brand accounts in the partnership space that we'll be talking about that could have a material impact on us going forward. So if you -- if I pull back and talk about how we get to our long-range targets that we talked about on the call, the 10 million subscribers, the $700 million in ARR and increasing that operating income over 25%. Kurt and I on previous calls, have said we think about 60% of that incremental growth over where we are today is going to come from strategic accounts. And I would tell you, based on recent activities and some of the things we can talk about and some of the things that are coming soon, I absolutely believe that's the case that we'll see 60% of that incremental growth come from strategic. And that's saying a lot because we think the traditional channels, retail and direct are growing really nicely, and we think there's a lot of growth there. So hopefully, that gives you a little bit more color on those specific accounts and where we think this part of our business is headed over the next couple of quarters. Operator: [Operator Instructions] The following comes from Jacob Stephan with Lake Street Capital Markets. Jacob Stephan: Nice quarter. Just wanted to ask, you guys made some comments last call, gross shipments in Q3 will be higher than you had originally expected. And you also kind of mentioned 20% to 30% unit growth as we look at the second half of the year here in Q4 specifically. But maybe you could help us kind of think through -- we saw higher negative margin in the products segment, but products actually -- product revenue was actually higher than we kind of had anticipated. And I understand that tariffs are part of the impact there. But maybe help us kind of contrast that with where you expect -- because it seems like you guys are a little bit above plan in Q3. And maybe I'm wondering if there's any kind of pull forward into Q3 versus what's going to be in Q4? Kurt Binder: Yes. There's no pull-in. I mean it was a very strong quarter. And to kind of break that down a little bit, the growth ship number is obviously strong because of the ex-ramp and the load-in of all of our new products. We always have a little conservativeness built in when we do the forecast for the quarter because there's a lot of things you can just run into from a supply chain logistics perspective. And I kind of mentioned on the call, we had a -- there was a container ship that caught fire in Korea. There was containers dropping in the ocean in Long Beach, none of ours, by the way. There were 2 typhoons. I mean, so there's always some things going on. And again, the team here executed exceptionally well around all of that, and we landed all the product where we needed to on time. And so I would say is that little bit of buffer we leave in for supply chain issues maybe during the quarter, we didn't need. And so you saw a pretty strong quarter on gross ship. The 20% to 30% or the inside the quarter, the 29% growth on year-over-year units, that's actually our forecast and results on POS. So how many units actually sold through the channel. And we like to talk about the growth that we're seeing there, 29% in Q3 and the 20% to 30% we're anticipating in Q4 because, as you know, shipments out really then become household formation, which then becomes service revenue, which is what's obviously driving the outstanding performance of the company and the expansion of profitability over time. So that's -- the gross ship number, Q3 is always strong because of seasonality. I think it was exceptionally strong because of the execution of the team and the load-in of so many new products. But the 29% in Q3 and the 20% to 30%, that's actually commentary on POS, which actually leads to future service revenue. Jacob Stephan: Yes. Understood. I know you guys run a tight ship on the logistics team. But maybe kind of help me think through some of the more important partners then as we enter kind of the back half of the year here. Obviously, you guys have bigger shelf share at Best Buy. You're kind of growing into a longer-term partner -- a bigger partnership with Walmart. Help me think through some of these strategic kind of retail partners? Kurt Binder: Yes, absolutely. I mean I think just commenting on Q4 in general, we know it was going to be a very competitive quarter. We're seeing great demand in the channel. So that's a good sign as we roll forward on Q4, but we knew it was going to be a competitive quarter, and you can see us preparing the entire company to actually be really successful inside of a competitive environment. So the product launch with 20% to 35% COGS declines as an example of that. A lot of the promotional activity we've got lined up with our biggest partners. Some of those are obviously Amazon, which is a big part of the market. We're actually gaining some share there week by week, and so we're happy about that. You mentioned Walmart. I mean, Walmart is part of our thesis around this product segment going more mass market. And we're seeing a wider population actually enter the space as the awareness over the product category and people feeling less safe in general is starting to drive. And we've been proven right over the last couple of holiday seasons. So we're expecting a strong holiday season with Walmart as well. And that's the channel as we've launched in our new product line, we've gone from 4 SKUs or 5 SKUs to closer to 9 SKUs at Walmart, so almost a doubling of shelf share there. And that's partially what's driving some of the unit velocity year-over-year from a quarter basis and why we feel like we're going to be exceptionally positioned with this product line going throughout 2026. So from a partnership perspective or where we think some of the growth is coming, it's across the board. I think we'll see strength in our strategic accounts. And then a lot of our big retail partners were set up, I think, very well for what will be a competitive quarter, but something we completely anticipated with our product launch and our promotional activity. And for us, as you know, it's really about driving that household formation to see that service revenue grow through the end of the year and actually tip over into a strong service quarter in Q1. Jacob Stephan: Got it. And maybe just kind of continuing on the service revenue growth question and comments. When we look at paid sub adds of 281,000, maybe you could kind of help us piece out the timing of those subs in the quarter, obviously, keeping in mind your $310 million service revenue guidance for the full year. Matthew McRae: Yes. I think it was pretty much through the quarter. There are some that kind of came a little bit later as we promoted the older product through the channel that Kurt was talking about, some of the EOL product towards the end of the quarter as the new product came in. So it might be a little bit more backloaded than you would expect over maybe a traditional just very linear trajectory through the quarter. But that 281,000 was really driven by 2 things. One, Verisure performed very well, and I think that was part and parcel of their IPO and going to market there and just really leaning into sales and executing extraordinarily well in Europe. But we're seeing strength in our retail and direct channel. as well, which is great. And so you see a more balanced revenue line when Kurt was talking about the split between Europe and the United States. So you're seeing some strength across our traditional channels. Another indicator of that is what I was saying before around seeing nearly 30% unit growth in the quarter. Now if you remember, when we guided the year on service revenue, we guided close to $300 million in service revenue. And on our last call, already seeing what was happening in Q3, we took that up to closer to $310 million. And so that's the confidence we're seeing. We are already seeing some of that sell-through happen in Q3 on the previous call and why we were willing to kind of bring up that guidance to demonstrate how strong not only the lift and the growth in the market of unit sales going through to the end user, but that it is resulting in higher than originally expected service revenue, which obviously leads to greater profitability. Operator: Thank you. This concludes today's conference call. You may now disconnect.
Operator: Good morning, all, and thank you for joining us on today's European Residential REIT Third Quarter 2025 Results Conference Call. My name is Drew, and I'll be the operator on the call today. [Operator Instructions] With that, it's my pleasure to hand over to Nicole Dolan, Investor Relations, to begin. Please go ahead when you're ready. Nicole Dolan: Thank you, operator, and good morning, everyone. Before we begin, let me remind everyone that during our conference call this morning, we may include forward-looking statements about expected future events and the financial and operating results of ERES, which are subject to certain risks and uncertainties. We direct your attention to Slide 2 and our other regulatory filings for important information about these statements. I will now turn the call over to Mark Kenney, Chief Executive Officer. Mark Kenney: Thanks, Nicole, and good morning, everyone. Joining me this morning is Jenny Chau, our Chief Financial Officer. Let's get started on Slide 4 with a high-level update. During Q3, ERES continued to execute on its strategic disposition program, focusing on maximizing unitholder value. We successfully completed several key transactions, including the sale of our commercial properties in Belgium and Germany, the closing of previously announced disposition of a portfolio containing 1,446 residential suites in the Netherlands and the sale of an additional 110-suite property in Rotterdam. Collectively, these transactions generated EUR 397 million in gross consideration, bringing our 2025 disposition total to EUR 489 million, with part of that capital used to repay EUR 238 million in debt. With remaining proceeds, ERES declared and paid a special cash distribution of EUR 0.90 per unit, in line with our commitment to return capital to unitholders. Operationally, rent growth remained robust with same-property occupied AMR increasing by 4.7% to EUR 1,349 at current period end. However, you will see on Slide 5, our residential occupancy was down to 90.8% as of September 30, 2025, on the total and same-property portfolio. This reflects elevated vacancies associated with our disposition strategy as we are intentionally keeping additional suites offline each month in order to maximize sale value. With that introduction, I will now turn the call over to Jenny to highlight our financial results. Jenny Chou: Thanks, Mark. Slide 7 provides some key performance metrics for the third quarter of 2025. Due to lost rent on vacant units combined with an increase in repair and maintenance costs, the REIT's NOI margin was down to 67.8% for the current quarter on a same-property basis from 76.2% realized for the 3 months ended September 30, 2024. Our diluted FFO per unit was EUR 0.13 for Q3, which is down from EUR 0.04 in the comparative period, primarily due to the significant amount of property sales that have been completed since. On Slide 8, we've highlighted our resilient financial position and liquidity. As we've used part of our disposition proceeds to repay debt, our ratio of adjusted debt to market value has decreased to 34% as of September 30, 2025, down from 53% as at comparative period end. We're also actively managing our access to liquidity and ensuring ongoing compliance with all covenants. Turning to Slide 9. You'll see that we have no mortgages maturing over the remainder of 2025 and '26, which provides us with financial flexibility to continue executing on value-maximizing transactions. As we advance on our disposition program, prudent financial stewardship will remain central in our decision-making. With that, I will hand the call back to Mark. Mark Kenney: Thanks, Jenny. By period end, ERES's portfolio consisted of 1,033 residential suites and ancillary retail space in the Netherlands as listed out on Slide 11. We're continuing to work with our financial and real estate advisers on the sale process for this remaining portfolio. Buyer interest is still active, and the REIT is exploring several potential alternatives, including individual asset transactions that present compelling value opportunities in the near term and/or a larger portfolio disposition. These efforts are being advanced alongside certain structural and outstanding tax matters, including the previously disclosed reassessments by the Dutch tax authority. Ultimately, our primary focus is on realizing the full value of the REIT's remaining portfolio and maximizing distribution of capital proceeds to unitholders. While the wind-down process involves complexity and uncertainty, we remain committed to acting in the best interest of all unitholders and providing timely updates as developments unfold. With that, we would now be pleased to take any questions that you may have. Operator: [Operator Instructions] Our first question today comes from Sairam Srinivas from Cormark Securities. Sairam Srinivas: Mark, just going back to the time line of transactions, are you basically comfortable with the idea that this will probably wrap up in Q4? Or are we looking for something beyond that? Mark Kenney: No, we've not provided clear guidance on a final wrap-up of the REIT. There are issues here as we discussed with tax and other issues to work out, but we will be providing definitive feedback when we have more certainty. Operator: With that, we have no further questions in the queue at this time. I'll now hand back over for some closing comments to Mark Kenney. Mark Kenney: Thank you, operator, and thank you, everyone, for joining us this morning. If you have any further questions, please do not hesitate to contact us at any time. Thank you again. Have a great day. Operator: Thank you all. That concludes today's call, and you may now disconnect your lines.
Shrinal Inamdar: Thank you, operator. Good afternoon, everyone. Thank you for joining our third quarter 2025 results conference call. As usual, before we begin, I would like to remind you that we'll be making a number of forward-looking statements during this call, including, without limitation, those forward-looking statements identified in our slides and the accompanying oral commentary. Forward-looking statements are based upon our current expectations and various assumptions and are subject to the usual risks and uncertainties associated with companies in our industry and at our stage of development. For a discussion of these risks and uncertainties, we refer you to our latest SEC filings as found on our website and as filed with the SEC. In a moment, I will hand over to Leon Patterson, our Executive Vice President and Chief Business and Financial Officer, who will provide an overview of our recent business and partnership updates, along with financial results for our third quarter 2025. Following this, Dr. Sabine Mikan, our Senior Vice President of Clinical Development, will provide progress updates on our Phase I programs ZW191 and ZW251. We will then pass the call over to Dr. Paul Moore, our Chief Scientific Officer, who will provide a brief overview of recent R&D developments. At the end of the call, Leoni, Sabeen, Paul and Ken Galbraith, our Chair and CEO, will be available for Q&A. As a reminder, the audio and slides from this call will also be available on the Zymeworks website later today. I will now turn the call over to Leon. Leone Patterson: Thank you, Shrinal, and good afternoon, everyone. I'd like to start the call by walking you through recent progress on both clinical and preclinical programs within our wholly owned product pipeline. As you know, our team was pleased to present initial clinical data from the Phase I trial of ZW191, an antibody drug conjugate targeting folate receptor alpha at the ENA conference in October. Sabeen will provide a recap of the data we presented during our poster presentation later on today's call. We are encouraged by the preliminary Phase I data for ZW191, which provides early clinical validation of our ADC approach. And we are pleased to announce that we have dosed the first patient in the Phase I clinical trial of ZW251, a DAR4 ADC targeting GPC3 in hepatocellular carcinoma. Again, Sabeen will talk more about the trial design later on today's call. We also continue to present preclinical data of ZW1528, a bispecific inhibitor of IL-4 and IL-31 to address respiratory inflammation at the European Respiratory Society Annual Congress. Additional information can be found on the ERS Congress website, and a copy of the poster is available on the Publications page of Zymeworks website. Meanwhile, our partnered programs also continue to provide encouraging data at ESMO. Our partner, Jazz, presented a trial in progress poster on the DiscovHER PAN-206 Phase II study of zanidatamab in HER2 overexpressing solid tumors as well as a 2-year follow-up in first-line metastatic colorectal cancer showing durable responses and a favorable safety profile. In addition, yesterday, Jazz announced that the ITT population for the primary PFS and interim OS analysis of the HERIZON-GEA-01 trial will include the full patient population enrolled in the study of 920 patients. Also at ESMO, J&J presented translational findings from the first-in-human study of pasritamig in metastatic prostate cancer, linking T-cell phenotypes with clinical activity. These updates highlight the strong momentum in our partnered portfolio and the long-term value these collaborations continue to build. With this in mind, I'm pleased to announce that this quarter, we recognized a $25 million development milestone as revenue from our collaboration partner, J&J, in association with clinical progress of pasritamig, a first-in-class bispecific T-cell engager targeting KLK2 in Phase III studies in metastatic castration-resistant prostate cancer, which was an engineering -- engineered using Zymeworks Azymetric platform. As a reminder, we remain eligible to receive up to a further $434 million in development and commercial milestones from the J&J collaboration in addition to potential mid-single-digit royalties on global product sales. In addition, this quarter, we earned royalties of $1 million based on Ziihera net product sales by Jazz and BeOne Medicines. And we look forward to pivotal data from the HERIZON-GEA-01 study expected in the fourth quarter. I'd also like to highlight that as of November 4, 2025, we have completed share repurchases of $22.7 million of the remaining $30 million under our previously authorized share repurchase program. which reflects the leadership team's confidence in the company's outlook, the strength of our pipeline and our long-term commitment to shareholder value. This program was primarily funded from Ziihera development milestones and cumulative royalties received from Jazz and BeOne related to initial regulatory approvals in biliary tract cancer in both the U.S. and China, allowing us to efficiently deploy excess capital while maintaining full flexibility to fund operations and growth initiatives. This action reinforces our view that the stock remains undervalued, and it aligns with our disciplined, balanced approach to capital allocation designed to drive sustainable long-term returns. Turning now to our financial results. Total revenue was $27.6 million in the third quarter of 2025 compared to $16 million for the third quarter of 2024. The increase was primarily due to a $25 million nonrefundable milestone recognized from J&J in relation to clinical progress on pasritamig in Phase III studies in metastatic castration-resistant prostate cancer and $1 million of royalty revenues from Jazz and BeOne medicines. These increases were partially offset by a reduction in development support and drug supply revenue from Jazz and due to a nonrecurring milestone from GSK that was achieved in the third quarter of 2024. Overall, operating expenses were $49.7 million for the 3 months ended September 30, 2025, compared to $50.2 million for the same period in 2024, representing a decrease of 1%. The decrease was primarily due to a reduction in expenses from ZW220 and ZW251, zanidatamab and zanidatamab zovodotin and a decrease in personnel expenses. This was partially offset by an increase in preclinical and research expenses for our ZW209 and ZW1528 programs, progression of clinical studies for ZW171 and 191 and an increase in noncash stock-based compensation expense. Net loss was $19.6 million for the 3 months ended September 30, 2025, compared to a net loss of $29.9 million for the same period in 2024. This was primarily due to an increase in revenue, partially offset by a decrease in interest income and an increase in income tax expense. As of September 30, 2025, we had $299.4 million of cash, cash equivalents and marketable securities, which is a decrease in cash resources compared to $324.2 million as of December 31, 2024. Our cash resources as of September 30, 2025, did not include the $25 million milestone from J&J recognized in the third quarter and expected to be received in the fourth quarter. We remain well capitalized. And based on our current operating plans, we expect our existing cash resources as of September 30, 2025, when combined with the assumed receipt of certain anticipated regulatory milestones will enable us to fund planned operations in the second half of 2027, which is anticipated to take us through multiple catalyst events on our pipeline. These achievements underscore the strength of our foundational partnerships and the relevance of our platform across multiple products moving into clinical development by our partners. For additional details on our quarterly results, I encourage you to review our earnings release and other SEC filings as available on our website at www.zymeworks.com. With that, I'd like to hand over to our Senior Vice President of Clinical Development, Dr. Sabeen Mekan, to run through progress on our clinical development programs. Sabeen Mekan: Thank you, Leone, and good afternoon, everyone. I'd like to start off by providing a recap of the initial Phase I data for ZW191 as presented at the AACR-NCI-EORTC conference last month. As it pertains to the safety, we are encouraged by the tolerability profile that we've seen. The safety profile for ZW191 allowed us to escalate dose up to 11.2 milligram per kilogram, which is quite high for topoisomerase payload of this potency similar to deruxtecan. Across all treated patients, there was a low incidence of grade 3 or higher treatment-related adverse events and adverse events leading to dose interruptions or reductions were infrequent. The most commonly reported events were nausea, fatigue and anemia, which are generally consistent with our expectations for an ADC. Importantly, there were no serious treatment-related adverse events, no discontinuations due to adverse events and no deaths observed in this study. These findings support a favorable safety profile, particularly in a population that has been heavily pretreated. Overall, these data gave us confidence that this drug is well tolerated at clinically active doses, providing a solid foundation for ongoing and future studies. Moving now to the efficacy results. This slide shows the waterfall plot summarizing the best change in tumor size across dose levels. What we see here is also very encouraging. There are meaningful reductions in tumor size across multiple dose levels with objective responses observed at doses as low as 3.2 milligram per kilogram and the majority of patients continuing on treatment at data cutoff. Importantly, these responses were seen across the spectrum of folate receptor alpha expression, an important observation as we think about future development and patient selection. In participants with gynecological cancers dosed between clinically relevant doses of 6.4 and 9.6 milligram per kilogram, we observed an objective response rate of 64%. Taken together, these early data show promising antitumor activity across multiple dose levels and tumor types. reinforcing the potential of this program to be a best-in-class folate receptor alpha directed ADC. Based on the integrated assessment of safety, efficacy and pharmacokinetic data, we have selected 2 doses of 6.4 milligram per kilogram and 9.6 milligram per kilogram for optimization with approximately 30 patients planned in each cohort. Enrollment is expected to begin in this quarter, and this will allow us to further refine the balance between efficacy and safety and inform optimal dose registrational studies. We expect to share additional data at a future medical conference with a larger and more mature data set. Overall, early results support ZW191 as a potential best-in-class asset with promising early activity and a manageable safety profile. We continue to be data-driven in planning further development for registration and expanding into earlier lines of therapy and in combination. As we move forward, we -- our focus remains on disciplined clinical execution while exploring strategic partnerships that could accelerate development and expand global reach. Based on the encouraging clinical findings for ZW191, we are moving forward with the clinical development of our second ADC candidate, ZW251 and are pleased to confirm the dosing of the first patient in our Phase I open-label multicenter study of ZW251. The study is actively recruiting and aims to enroll approximately 100 participants across North America, Europe and the Asia Pacific region. The patient population includes advanced or metastatic hepatocellular carcinoma that has progressed after standard of care treatments where regardless of gpiin-3 expression levels and with measurable disease as per RECIST. Part 1 of the study will evaluate escalating doses of ZW251 to determine safety and maximum tolerated dose. Part 2 of the study includes randomized dose optimization at 2 selected doses of ZW251 in order to further evaluate safety and explore efficacy according to the RECIST evaluation criteria. I will now hand over to our Chief Scientific Officer, Dr. Paul Moore, to provide an overview of R&D developments. Paul Moore: Thank you, Sabeen. I'd like to just add a few final thoughts on the developments disclosed this quarter for both ZW191 and ZW171. Firstly, the initial data presented on ZW191 provides important translational insights that could help accelerate and reduce risk in the future development of ZW251 and other pipeline ADCs using our ZB06519 payload. As you can see on this slide, behind 191 and 251, we also have preclinical stage candidates targeting more novel antigens such as Ly6E and PTK7. Also, our NaPi2b program remains IND ready, and we continue to explore next-generation ADCs. Importantly, each of our ADCs has been tailored to factor in target biology by toggling drug-to-antibody ratio and the Fc modifications. Furthermore, we also ensure to utilize the most optimal antibody to deliver an internalized payload, whether this be a superior monoclonal antibody to benchmark as ZW191 or LE or a biparatopic antibody such as in the case of PTK7. Our approach of tailoring these parameters to target biology, patient population needs and preclinical safety efficacy data aims to ensure optimal therapeutic windows while minimizing off-target toxicities. Secondly, I wanted to touch briefly on our decision to discontinue the development of ZW171 and importantly, the valuable insights, both scientifically and operationally that we took from this experience. Internally, we hold ourselves to very high standards when it comes to our target product profiles. That discipline is important because we have a broad and productive pipeline, and we want to ensure our capital and our focus go to programs with the clearest path to meaningful patient benefit. Based on the totality of the dose escalation data, we concluded that as a monotherapy, this program did not fully meet our internal threshold to advance further within our portfolio as it was unlikely to support a benefit risk profile consistent with the desired monotherapy target product profile. It was not an easy decision as we continue to believe there is potential for mesothelin-directed therapies, including ZW171, perhaps in specific subpopulations in combination settings or through the right external partnership. So we felt it was the right choice to prioritize programs that more closely align with our long-term strategic and clinical goals. Our experience of taking 171 through dose escalation significantly strengthened our understanding of the T-cell engager design and provided clinical experience, which will aid us in executing future clinical trials for our next-generation T-cell engagers. For example, we were able to advance 171 safely and efficiently through dose escalation in under a year, which is a real testament to our team and technology. We also deepened our understanding of dosing strategies, routes of administration and investigator engagement, all of which we can apply to our next generation of trispecific T-cell engagers. The study also reinforced our hypothesis around the importance of co-stimulation for T-cell engagers, the use of our novel CD3 epitope and tailoring our candidates for patient characteristics and target biology. Our ongoing portfolio management is a reflection of our discipline, our high scientific standards and the strength of our portfolio. We will continue to hold ourselves and our target product profiles to high standards of success and remain focused on advancing the programs we believe can have the most impact for patients, partners and shareholders. With that in mind, we look forward to presenting 3 poster presentations at the SITC Annual Meeting this weekend with one showcasing the versatility and application of our innovative TriTCE Co-Stem T-cell engager platform to enable diverse targeting strategies across different target tumor types, one featuring a next-generation tumor targeted Mast IL-12 enabled by Iometric and the third covering new research co-authored with NeoGenomics on ADC resistant mechanisms using spperum models. Together, we believe these presentations showcase our continued leadership in advancing innovative and target oncology research. With that, I'll hand over to our Chair and CEO, Ken Galbraith, to conclude today's call and open up the call for Q&A. Kenneth Galbraith: Thanks, Paul. Over the last 2 years, we've redefined what this company can achieve by combining R&D innovation, smart partnerships and disciplined capital allocation to help deliver potential best-in-class therapies while helping to grow shareholder value. Our partnership-based model continues to generate value today while also providing opportunities for growing potential cash flows. We plan to continue leveraging partnerships across our wholly owned pipeline to bring in external capital and accelerate development. We believe this approach allows us to main control of our R&D innovation while helping to derisk clinical development and to help ensure that every investment we make has the potential to contribute meaningfully to durable value creation. As we look beyond important near-term events for our pipeline and partner programs, our long-term focus is on compounding returns from Ziihera and protecting and enhancing future cash flows that can be reinvested to drive the next wave of innovation. With this in mind, this quarter, we announced some changes to our Board of Directors to align governance and leadership with the next phase of our strategy. We welcomed 2 new directors in August and 3 members transition off the Board effective today. We'd like to thank those 3 directors for their service to Zymeworks. In October, we appointed Dr. Adam Schayowitz as acting Chief Development Officer to help advance our portfolio and strengthen our partnership-driven strategy. With this refreshed leadership, we believe we're well positioned to transit our scientific innovation into a scalable model that builds durable royalty streams and deliver sustainable long-term value for our shareholders. To close, I want to emphasize that our capital allocation decisions, whether investing in R&D, advancing partnerships or returning capital through share repurchases, all serve one purpose to help build sustainable long-term value. Our R&D priorities remain focused on programs with clear differentiation and strong scientific rationale, and we'll continue to fund those using partnerships to extend our reach and offset development risk. Those collaborations also aim to provide a meaningful revenue floor through milestones and royalties, giving us the flexibility to invest with conviction and discipline. This is how we plan to sustain momentum through focus, partnership and the power of compounding. I want to thank you for your continued support. I'd like to turn the call back over to the operator for the question-and-answer session. Operator?[ id="-1" name="Operator" /> The first question comes from the line of [Technical Difficulty]. Unknown Analyst: Can you hear me? Shrinal Inamdar: Yes, we can hear you. Yue-Wen Zhu: Perfect. Congrats on the progress. Two from me, if you don't mind. First one, we heard it from Jazz yesterday and I think earlier today as well. But wanted to get your thoughts perhaps on the update in the PFS analysis for HERIZON-GEA to include the ITT rather than the PITT population, your thoughts here and perhaps what drove that change? Kenneth Galbraith: Yes. Thanks, Charles. I think Jazz provided some guidance on that yesterday in their earnings call in the prepared remarks, I think in question-and-answer session. We don't have anything to add beyond what Jazz has shared other than that we're aligned with the regulatory strategy that they laid out for the readout of HERZON-01 and how to analyze that data. So I really can't add anything beyond that. Yue-Wen Zhu: Got it. Fully understood. And perhaps for my second question, I want to say congrats on the folate receptor alpha data at Triple meeting. That was quite impressive. Kind of also wanted to get your thoughts on what does this mean for GPC3, especially when we're thinking about a DAR4 construct in the liver cancer population. And similarly, if we see anything that comes close or is similar or even exceeds what we saw with 191, what would your thoughts be on potential development in-house versus partnership versus out-licensing of this asset in liver cancer? Kenneth Galbraith: Yes. No, good question, Charles. Yes, we're intrigued as your question suggests as well and looking forward to continued recruitment of ZW191 in dose escalation, moving to dose optimization, which provide a larger, more mature data set. At the same time, as we announced, we're recruiting patients now in the ZW251 study. So far, our clinical execution is as good as it has been to date with our prior programs. We're looking forward to that. I think in terms of what we think about that, I think maybe I'll give Sabeen and then Paul both a chance to add their flavor to that because it's a really, really interesting intriguing question for us as well. So I don't know, Sabeen, if you want to go first and I'll ask Paul to follow up. Sabeen Mekan: Yes. I can go first. So as you know, hepatocellular carcinoma is a population with very high unmet medical need, particularly post first-line setting. There are not many treatment options for those patients. And that's why we think we should be able to create a difference given the construct of our ADC and what we've observed in ZW191 based upon the clinical data that we've observed. One of the key concerns with the hepatocellular population is concern for safety because this patient population often is very fragile and they have underlying liver disease. So the concern for safety is very important. And it is for this reason that we have selected DAR4 for this ADC molecule. And given the safety profile that we've observed with ZW191, we're fairly confident that we should be able to have a good safety profiles and to be able to have a therapeutic window in terms of treatment for hepatocellular carcinoma patients. I'll pass over to Paul. Paul Moore: Yes. No, I think Sabeen really captured the key points. I think the tolerability -- I mean, from the 191 study, it was both the tolerability was really what we were hoping for, but we also got the efficacy. And we've gone with the DAR4, we know from preclinical studies that we can maintain the same -- we can get to the same activity level with that. So we were really being careful on just making sure we had the most tolerable molecule to develop in such a challenging cancer indication. And I think the data from the Phase I sort of supports that we're in the right direction with the way that we selected the payload. We were very careful in how we pick that payload in the sort of the space of the topisomerase inhibitors that it would support a tolerable profile while maintaining our ability to get good dose into patients, and you could see that from our data. I think ultimately, we want the molecules to be combinable with other modalities as well so that we can go up in line. But obviously, first, we want to establish the profile as a monotherapy, and this really energizes us now after seeing the 191 data to really chase after the 251. [ id="-1" name="Operator" /> The next question comes from the line of Yaron Werber of TD Cowen. Yaron Werber: Congrats as well on the folate receptor alpha. I got maybe a couple of questions actually on the pipeline. Maybe the first one, while we're staying on GPC3, B1 today on their call said that with their bispecific GPC3 4-1BB, they actually established proof of concept. So they're moving forward. That's definitely very encouraging. In terms of the payload that you're using is irinotecan and typically -- I'm sorry, a TOPO1 kind of based payload. That's not -- are TOPO1 typically used in liver cancer? And kind of maybe give us a little bit of a sense from the preclinical data, what are you expecting in terms of showing efficacy? And then secondly, for the next IND in the first half of next year, the DLL3 CD3, CD28 trispecific, we know DLL3 is a great target, and we've seen a lot of activity with both the bispecific on the market and the ADC. CD28 has not worked out so far in most other cases. So maybe what makes you more optimistic this time around? Kenneth Galbraith: Yes. I'll let Paul talk about the DLL3 and then maybe let Sabine and Paul both comment about CDC3, that's okay. Paul Moore: Yes. So yes, maybe I'll -- yes, I'll take the second question first. And then -- so great question, Yaron, on why do we think we can make CD28 work where others have had challenges, right? And so I think we do take precedents from the CAR-T space where adding in co-stimulation has shown benefits. So something like CD28 or 4-1BB that you refer to in the context of the B1 molecule. But -- and a lot of people have chased after that because of the attraction of getting that CD28 costimulatory signal to the T-cell to maintain or enable activity that you don't achieve just by having signal 1 through CD3. And I think what the challenge has been is actually getting that timing, that simultaneous engagement of CD3 and CD28 in the kinetics and the timing that you need to get that benefit. So that is what we took the challenge on when we developed a trispecific so that we knew that when we engage CD3, that T-cell could be then engaged with CD28. And no one's really developed a solution until what we think we have the solution for that. And so that's where we feel we can make an impact based on our preclinical data that gives us encouragement that we'll see that impact in the clinical setting. So it's a little bit to do with just the way we design it. Others have tried doing CD3 bispecific plus the CD28 bispecific. And in some cases, that may work. But we feel a more precise way is to hit the same T-cell with the primary and the secondary signal in a concert in a manner that can be done with a single molecule. So that's the DLL3. And certainly, we've presented data, we'll show a little bit more actually at SITC this week and that really shows the benefit that we can achieve with that above like a bispecific molecule, but doing it safely in the preclinical setting. For the TPC341BB, and I think also your question was about why do we think a chemo can work there in the liver setting. And certainly, it isn't a standard of care chemotherapy for liver cancer, but there is precedent for chemo working in liver cancer. It's just that it's not -- it just can't be tolerated. It's not just well -- given as a systemic treatment. So we think there is precedent there, and we think the way that we can deliver payload or chemo such as a topo inhibitor with our ADC gives us the opportunity to do it in such a way that we can thread the needle and get the right level of payload to the patient that can enable then the sustained exposure that will give you the benefit, but still with doing it within a tolerable profile. So that's kind of the preclinical hypothesis or the hypothesis and the preclinical data that we have has shown that when we've looked at like a scan of different HCCPDX models, we see 8 out of 10 or that sort of range of responses of models responding, but we can go up to like 100 mg per kg with this molecule in cynomolgus monkeys. So we have the safety tolerability profile with the evidence of efficacy with some glimpses that in patient population they can under certain conditions respond to chemo, we think we can open that window up with the ADC. Kenneth Galbraith: Sabeen, anything you want to add from a medical perspective with this patient population and the idea of chemo versus a payload delivery with an ADC construct? Sabeen Mekan: Yes. So I would like to say that chemotherapy has been tried in hepatocellular carcinoma with limited success, but there has been some incidence of success there, especially trying to localize chemotherapy that's been effective. And that actually makes us believe that giving cytotoxic in an ADC format, particularly with our higher internalizing antibodies and the fact that hepatocellular carcinoma has very high expression of GPC3 gives us confidence that we should have the therapeutic window that is needed in this patient population to be successful. [ id="-1" name="Operator" /> The next question comes from the line of Andrew Berens from Leerink Partners. Andrew Berens: Congrats on the progress. Just a question. I know Jazz is controlling the trial, but I was wondering, would the increase in the -- to the intent-to-treat analysis today also increase the number of PFS events that are necessary to trigger the analysis? Just try to put this announcement in context. Kenneth Galbraith: Yes. No, thanks for the question, Andy. I think I going to answer the same way before. I think Jazz provided all the guidance appropriate around that decision of the patient population that will be utilized for the ITT patient population, both from a PFS perspective and OS. And I don't want to go further than the guidance they've provided. Obviously, we've been working on the study for 4 years from a Zymeworks perspective and proximity data is very close. And so I'll just let Jazz provide that guidance, and we'll just have to wait for a future announcement and presentation to understand anything further beyond that. [ id="-1" name="Operator" /> The next question comes from the line of Stefan Wiley of Stifel. Stephen Willey: Just curious how we should be thinking about the starting dose levels of 251 relative to 191. I know obviously, different DARs, different target organs. But is there anything you can say qualitatively or maybe even quantitatively about how you're thinking about pushing dose here? And I guess, did that dose escalation schema for 251 change at all as some of the 191 data started to come in? And I just have a follow-up. Kenneth Galbraith: Yes. Good question, Steve. Sabeen, do you want to -- obviously, we haven't disclosed the starting dose yet. We'll obviously look to do that probably a similar way we did with 191. But Sabeen, is there anything you want to add about the dose schema for dose escalation for 251 as it relates to the 191 schema that now people have seen? Sabeen Mekan: So I would say that the schema for 251 is very similar to 191, although as you rightfully pointed out, this is a DAR4 as opposed to 191, which was a DAR8. So there are differences. And also with 191 was our first ADC into the clinic. So we were very conservative with our initial starting dose. And now that we've gained some clinical experience, particularly with regards to safety, I can say that we have more confidence in our starting dose, but we are not disclosing that yet. We will be disclosing that later similar to what we did with 191. Stephen Willey: Okay. That's helpful. And then -- maybe just a question for Paul. Just curious how big the universe of target antigens you think is for a trispecific format beyond DLL3. I know that target has a pretty exquisite expression profile between tumor and healthy tissue that obviously mitigates some of the concerns about amplifying off-tumor tox with a signal 2. But just curious where and how you might be able to leverage this format to other targets of interest. Paul Moore: Yes. No, thanks, Steve. That's definitely very much in our mind. And actually, I sort of alluded to we have actually a presentation this weekend at SITC and what we're going to show there is application of the technology to different targets and the way that we designed the molecule for the target. So the base molecule on the context of the CD3/CD28, we know sort of the positions of those molecules. We're not telling people really the secret sauce there and how they're in the geometry of the molecule. But what we also can think about is how do you then target the antigen and design the targeting of the tumor antigen in such a way to get that maximum window. So we are looking at that. We're looking at targets both in solid tumor and in hematological cancers. We can deploy against sort of the 2 plus 1 strategies. We can think about logic gated strategies as well. So there are ways with the Azymetric so versatile and flexible that we can put in multi binding sites to help us get more selectivity and targeting. We can share more of that. But that we're very much thinking about how do we tailor that so that we can have that therapeutic window. We don't rule out the use of masking. We do have masking technology. We're actually applying that to the IL-12 molecule, and that can also be adapted to our T-cell engagers. So we have that toggle if we feel we need it as well. But we just run it through, we test all the different permutations of the molecules, let the data drive and then we have the preclinical models that then allow us to understand the toxicity profile and the therapeutic window. So we're very excited about the application of that. And again, looking forward to pushing forward with the DLL3 program, but we do have other molecules coming behind as well. [ id="-1" name="Operator" /> The next question comes from the line of Brian Cheng of JP Morgan. Brian Cheng: Just 2 quick ones from us. So in a trial design for GPC3, we noticed that you're recruiting patients actively through the patients who have been through standard of care. So just one is, Paul, I'm curious what you saw in the preclinical setting that gives you confidence that GPC3 will be active in the post-IL setting, given that NIVO IPI got approved in the first-line HCC not too long ago. And then just on the biomarker side, I'm curious if you perceive a potential need for -- to develop a biomarker assay near term, is there a need for it today? Just curious what you think about that front, too. Kenneth Galbraith: I'll let Paul start on that. I think Sabine may have something to add also on those, but I'll go ahead, Paul. Paul Moore: Yes. No, thanks. So I think from the preclinical setting, your question was how do we -- what's our confidence that we can go behind other standard of care, right? So I think the expression level of GPC3, we've looked at that. And that doesn't -- we don't anticipate or any -- there's no proof that, that would be modulated by IL treatment. So I think the complementary mechanisms and how they work wouldn't really preclude us going with a targeted medicine that's going after GPC3. And we've got preclinical data in different PDX models. Some of those will be collected potentially after treatment, right? But I think just mechanically, we don't see that as a barrier. And I think one of the Yaron mentioned there's encouraging data with other GPC3 modalities that are also going behind -- they would be tested behind standard of care from those clinical trials. So we take encouragement from what others have seen with GPC3 targeted therapies using different modalities. We just feel the ADC modality could just give us an additional mechanism that -- and the power of that approach can just give us an opportunity for more meaningful differences in benefit there. So that was the thinking there. And then on the biomarker side, there, just like we did with folate receptor, we will look at GPC3 levels and make a decision on whether that would be something that we would need as we move forward in clinical development, and we'll collect that data as we go on that. And Sabeen can reiterate that or elaborate on that. Sabeen Mekan: So I'm answering a question regarding NIVO IPI being approved not too long ago. I don't think that changes our development plan. If you look at the treatment landscape for first-line hepatocellular carcinoma, the treatment is currently includes checkpoint inhibitors and VEGF and also checkpoint inhibitors plus CTLA. So prior to approval of NIVO IPI durvatremi has been approved as well. So it's the same mechanism of action, and it really doesn't have an impact on how we think an ADC, particularly a topoisomerase ADC would perform in this setting. So I think we remain confident with regards to that. And I think Paul answered all your questions regarding the biomarker. We are enrolling similar strategy to our 191 enrolling patients regardless of expression and be able to ultimately do a correlation of how the expression level relates to clinical activity. [ id="-1" name="Operator" /> The next question comes from the line of Mayank Mamtani of B. Riley Securities. Mayank Mamtani: Congrats on a productive quarter. Can you talk a little bit more about your expectations on durability for 191, just given what you've seen at the dose levels you're at? And at what point you'd also be able to explore combination, obviously, important in PROC, but also in other solid tumor types that you may want to explore there? And just kind of put it together, when you think you have a sort of partnership enabling package here, just your latest thoughts on that. And then I have a follow-up. Kenneth Galbraith: No. I'll just answer the partnership question quickly, and then I'll turn it over to Sabine, I think can answer part 1 A, B and C of your first question. But obviously, we found the data from 191, although early in initial clinical data, very interesting. I think there are others who are interested in other ADCs that are differentiated. We think ours clearly are. And so we'll continue to talk to parties who might have an interest in joining us and moving that forward that might allow us to accelerate development, might allow us to find a better ability to compete even on a time basis and explore the full potential of ZW191. So we'll continue to have those discussions. And as I think you've seen that data was very intriguing to KOLs and obviously, people on this call and especially to us. And I think there are potential partners where that data was also very intriguing. And so we'll continue to let the data mature, continue to collect more data and have ongoing discussions at the same time. And I'll let Sabeen answer the subparts of your first part of your question, if that's okay. Sabeen Mekan: So with regards to durability of responses, I think some of the key things when you look at efficacy is the number of patients who responded. So our overall response rate looks pretty encouraging, particularly in the doses we would like to take forward that is 6.4 to 9.6 milligram per kilogram. Key things that we noted were we have a pretty wide therapeutic index with responses starting at 3.2 milligrams per kilogram, that actually gives us a lot of confidence. And if you look at our swimmers plot that we shared in our poster, a few things that give us encouragement is that most of the responses, particularly at higher doses occurred early. And looking at the waterfall plot, the depth of responses, we had a pretty good depth of responses in terms of reduction in tumor size for the target lesions, even though our follow-up is relatively short. And vast majority of patients are staying on treatment. So combined with our safety profile, which would hopefully allow patients to stay on treatment for a long period of time, I think that would help us give the durability that we're going to need to achieve the PFS and OS that we -- that would be important in these indications. Mayank Mamtani: And then on the learnings from 171 to 209, were there any step-up dosing learnings you're looking to apply here as the DLL3 program gets into the clinic? I know you're not saying what dose levels you may start at, but I was just curious, the therapeutic window should be very different consideration given the target differences in mesothelin and DLL3 from an off-target toxicity standpoint. Any thoughts there would be great. Kenneth Galbraith: Yes. I'll let Paul talk about just learnings from our 171 program and how they're going to apply to our thoughts around 209. Paul Moore: Yes. And I think one of your questions was just thinking about the dosing and how we go about thinking about the step-up. And what we did for 171 was we used QSP modeling and we sort of leaned on prior clinical precedents to allow us to really nail what we thought was a good starting dose and then how we could accelerate through the dose escalation. And that approach we will use a similar approach for projecting the starting dose and the step-ups for 209. And what I would say is that those projections when we looked at the exposure levels in the PK, they seem to really fit nicely with what we had projected. So we're anticipating that we can use that again. Obviously, the target toxicity profile, the safety profile is a little bit different for DLL3 than it is for mesothelin. But we still think there's relevant learnings from the design of them -- from the clinical design. But then also there was also some design features in 171 that we're also carrying over into 209. I think that also gives us confidence then that we have that human experience with that approach that it sets us up well for 29. [ id="-1" name="Operator" /> The next question comes from the line of Robert Burns of H.C. Wainwright. Robert Burns: Just one, if I may. So one of the things that I noticed in the presentation for ZW191 was that you used an score categorization, low negative 0 to 74 intermediate 75 to 199 and high 200 to 300 versus the majority of the competitors are using a PS2+ method to define high versus low. So I was just curious about the correlation between those 2 different scoring methodologies so we could sort of assess them in a more apples-to-apples comparison. Kenneth Galbraith: Yes. Thanks for the question, Robert. I think I'll let Sabeen start addressing that question and then see if Paul has something to add to that response as well. But excellent question. Sabeen Mekan: So I would say that H-score is pretty well-known and very well-validated research method in evaluating expression levels of different targets, and it combines both intensity, which is usually measured in IC treatments for 1, 2 plus intensity as well as the number of patients with positive -- number of cells with positive scores. So it's a pretty well integrated method for evaluating the number of pay cells that express the target. And it has had a pretty good correlation with both TPS score, which is often used in certain assays that are ultimately commercialized as well as IHC scores. So that is why we use the H score. It's a composite, and it's got a pretty wide range from 0 to 300, and that gives us a pretty good evaluation across the range for the expression level. So one of the things that we did also do in our poster is categorize the H-score into 3 different categories, high, intermediate and low. And within those categories, the high category that we defined is correlates with high expression that of folate receptor that is used for treatment with ELAHERE. And that is a measure where we can evaluate how many of our patients responded who would have been candidates for ELAHERE versus patients who were low or negative and were not candidates for that treatment. Paul, if you want to add something. Please go ahead. Yes. Paul Moore: Yes. No, I think that's good. Yes. No, great, Sabine, you covered it. I think with the H-score, it just gives us a little bit more granularity across that than using the PS2+ score. But by having the H-score, the score the way that, that specimen sample is scored with the test, we can -- as Sabeen alluded to, we can also calculate the PS2+. That's doable. So you can -- we can take that data and analyze it whichever way we want. But we felt for this analysis, this was the appropriate way to show the H-score because it just gives people more breadth and understanding of the profile of the patients that we're seeing. Robert Burns: Yes. No, I completely understand that, and I appreciate the granularity. So just if you don't mind, like would it be an accurate assumption to say the patients that you defined as high expression per the H-score of 200 to 300 would fit the category of PS2 plus greater than or equal to 75? Or would there be some discrepancy between them? Sabeen Mekan: It should be a very high correlation. Robert Burns: I guess last question for me. Given the data that we've seen from RENA-S as well as the Eli Lilly compound, obviously, they're using a PS2+ scoring system. In those non-high patients, how do you think that ZW191 stacks up against those 2 compounds in the lower expressing or intermediate expressing folate receptor alpha patients? Sabeen Mekan: So as you saw from our data, we showed pretty transparently across a spectrum of H scores across low and negative that we observed clinical activity across folate receptor expression levels. We're looking at data from -- which we are pretty confident about, and we're showing pretty good activity. Given in our sample size, we had roughly around 2/3 of patients who were low negative roughly. which correlates very well to the number of patients who are not candidates for ELAHERE. And comparing our data to the competitors you talked about GES and Lilly, I think we feel pretty confident about our activity in the low negative patient population from what we've observed so far. Obviously, we're going to continue to follow our patients. We are enrolling very actively in our study with more patients in dose escalation and longer follow-up, and we are initiating our Part 2 dose optimization, which will provide us more data at the doses that we would like to move on. I think that would give us a lot of confidence in our activity across the spectrum for expression levels, including low and negative. Robert Burns: I can't wait to see the additional data for ZW191. [ id="-1" name="Operator" /> The next question comes from the line of Akash Tewari of Jefferies. Phoebe Tan: This is Phoebe on for Akash. On ZW191, it looks like a key differentiator between this and other next-gen folate receptor alpha ADCs is safety, specifically on Grade 3 cytopenia. Can you talk about the importance of this difference in terms of potential combinations maybe in earlier treatment lines? Kenneth Galbraith: Good question. I think we see a number of potential differences, differentiating factors between ZW191 and data we've seen from others. But I'll let maybe Sabeen talk specifically about the tolerability profile we've seen so far in our data set. Sabeen Mekan: The tolerability profile, we're very pleased, particularly with our safety event rate. Most of the safety events that we saw were pretty expected, as we mentioned, which were mostly not vomiting cytopenias. Our cytopenia rate is -- actually, we're very pleased with that rate because this is something that you would expect very typically from a topoisomerase ADC. And the rates that we observed for anemia, neutropenia and thrombocytopenia are well within expected for an ADC, particularly with the fact that we're going at relatively high doses compared to other ADCs with similar payload. So with that, we are confident that, that would help us drive efficacy. And at the same time, the safety profile with cytopenias helps us combine with treatments in earlier lines of therapy. As you know, in ovarian cancer, earlier lines of treatment consists of a combination of platinum, taxanes and bevacizumab. So that gives us a lot of confidence to combine with all of these treatments going in earlier lines of treatment, particularly some of the pitfalls that we've seen with other ADCs, cytofolate with combinations in earlier lines is neutropenia, and that often leads to reduction in doses to the point that it affects efficacy. And we're hoping with our safety profile and particularly the lower rates of neutropenia that we're observing, ZW191 should be able to be combinable with the platinum agents at a much more efficacious dose. So that's one of the key areas. The other thing that we're thinking about in earlier lines of therapy from a tolerability perspective, obviously, is the ability to treat patients for much longer, particularly in the maintenance setting. And I think these are all areas where we can differentiate. [ id="-1" name="Operator" /> The next question comes from the line of Jon Miller of Evercore. Jonathan Miller: I'll follow on a question on the DLL3. I guess we've seen some really great data from other T-cell engagers there even pretty recently. So I'd love what do you think are the key places where you'd hope to differentiate? What would make your molecule a best-in-class molecule in your opinion? And where do you think you can target that? And then I've got a follow-up. Kenneth Galbraith: Okay. Paul, do you want to... Paul Moore: Yes. No, I think absolutely. I mean, DLL3, a lot of excitement. It's a attractable target in solid tumors. We're getting encouraging response rates. For sure, we think there may be patients that could still -- that could benefit from -- that don't respond that don't have the T-cells that can really mount a response or a prolonged response. And that's really what we're trying to do here with our molecule. So really change the game and really get the next level of response and durability of response is really what we're hoping for. And we think by having the CD28 co-stimulation, it gives us opportunity to do that. So there may also be some benefits in the mechanism that can lead to thinking about the duration of response and the way that we dose the molecule. They could also be intrinsic in the design and the fact that we have that extra T-cell response, but that will away further analysis. But it's really more patients responding and longer responses. Again, that's the goal, Jonathan, and our data suggests that we can from a preclinical, we have a chance to achieve that. Jonathan Miller: Fair enough. I guess since you were talking earlier about being almost finished with your repo, I am curious, given the expected upcoming milestones from Jazz would be one on the GEA readouts, what is your expected use for future milestones? Should we be expecting that repo will make a return when you have cash inflows in that response? Or is that money spoken for, for your internal programs? Kenneth Galbraith: Really good question. I think as we started this last year, we do want to have the ability to always have an authorized stock repurchase program that then gives us the ability to allocate capital to reducing share count at what we think is attractive prices to boost TSR. So we always want to have that optionality. So I think you should expect that we will always have an authorized stock purchase plan in place. We get to decide when and how we use that for shareholder benefit. So I think you should just expect as we're getting to the end that we should always have one in place to be able to do that. It's not the only place we've been allocating capital over the past period of time. We have been allocating capital to R&D programs that make sense for us and when the data justifies it, continuing to move forward with additional investment as we are with ZW191. We've obviously talked a little bit about our strategy of maybe creating another area to allocate capital as capital comes in from milestones and royalties from Ziihera and hopefully eventually pasritamig. Having the ability to then decide to allocate that capital back into a royalty portfolio, given that those royalty portfolio we have right now, it earns very attractive annualized rates of return, we think, from holding it from development through commercialization and having the ability as some of those gains are realized through payments from our partners to put that back into an attractive royalty portfolio that could generate really interesting rates of return is something another piece of the puzzle and strategy that we've talked about putting in place, and we'll talk more about this in the weeks and months ahead. So I think you should see us in in the future, be disciplined on capital allocation. I think we'll obviously have a stock repurchase plan authorized, and we've obviously shown that we like to use it to generate TSRs. We'll allocate capital into R&D when we think is differentiated and productive and data justifies it. And I think we'll develop the capability, infrastructure and strategy and the interest to consider putting some of the cash flows that come out of our licensed products back into a royalty portfolio with potentially other licensed products, and we'll talk more in the future about the strategy and differentiation of how we think we can accomplish that. And I think all 3 of those together, having the optionality to allocate capital to those resources is important for us. I think getting the mix right is important for us. I think if we can do all 3 of those in the right way at the right time and the right mix, we can generate some very interesting long-term TSRs in Zymeworks. And that's what we've been working on and we'll continue to work on as our licensed products move from development to commercialization. [ id="-1" name="Operator" /> The last question comes from the line of Yigal Nochomovitz from Citi. Unknown Analyst: This is [ Shuan ] on for Yigal. Congrats on the progress. Maybe just a quick one from us. You spoke on it a bit already, but just wondering if you could provide additional color on potential time lines of third-party milestones beyond what might be expected from Jazz. Kenneth Galbraith: Yes. We haven't, as a practice, provided much guidance in that regard. Obviously, we've tended to wait until we've earned or receive milestone payments as we did this quarter with the $25 million that we earned from Johnson & Johnson with respect to pasritamig moving into Phase III studies. So for right now, I think we'll keep that guidance. I think as we move forward, especially with Ziihera into commercialization, we might provide some additional guidance around milestones from both Jazz and B1 as they become closer, more approximate and more probable just so people understand a little bit more about cash flows that might be realized in those licensed products and then obviously, then where that capital might be allocated to. So until then, you just have to wait and see, but not too long, I think. [ id="-1" name="Operator" /> This does conclude the question-and-answer section. I would now like to hand the call back over to Chair and CEO, Ken Gabre. Ken, please go ahead. Kenneth Galbraith: That's great. So thanks, everyone, for your time and attention and questions on today's call. Obviously, back in 2021, we designed and initiated a really important clinical study with zanidatamab, the HERIZON-G01 study. And we're really pleased that Jazz continues to be optimistic and confident of reporting out the top line data in this quarter. And we're as interested as anyone in understanding that data set and what the potential is for zanidatamab to be practice-changing in this patient population. And we're very pleased that we won't have to wait that long to understand that. And so please stay tuned and look forward to talking about that further with our partners, Jazz and B1 as appropriate. So thank you very much for your time, and we'll talk to you all very soon. [ id="-1" name="Operator" /> This concludes today's presentation. You may now disconnect.
Operator: Thank you for standing by, and welcome to the IREN Q1 FY '26 Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mike Power, VP of Investor Relations. Please go ahead. Mike Power: Thank you, operator. Good afternoon, and welcome to IREN's Q1 FY '26 Results Presentation. I'm Mike Power, VP of Investor Relations. And with me on the call today are Daniel Roberts, Co-Founder and Co-CEO; Anthony Lewis, CFO; and Kent Draper, Chief Commercial Officer. Before we begin, please note this call is being webcast live with a presentation. For those that have dialed in via phone, you can elect to ask a question via the moderator after our prepared remarks. Before we begin, I'd like to remind you that certain statements that we make during the conference call may constitute forward-looking statements, and IREN cautions listeners that forward-looking information and statements are based on certain assumptions and risk factors that could cause actual results to differ materially from the expectations of the company. Listeners should not place undue reliance on forward-looking information or statements, and I'd encourage you to refer to the disclaimer on Slide 2 of the accompanying presentation for more information. With that, I'll now turn over the call to Dan Roberts. Daniel Roberts: Thanks, Mike, and thank you all for joining us for IREN's Q1 2026 Earnings Call. Today, we'll provide an overview of our financial results for the first fiscal quarter ending September 30, 2025, highlighting key operational milestones and importantly, discuss how our AI cloud strategy is driving strong growth. We'll then open the call for questions at the end. So Q1 FY '26 results. Fiscal year 2026 is off to a really good start. We delivered a fifth consecutive quarterly increase in revenues and a strong bottom line. Revenue reached $240 million and adjusted EBITDA was $92 million. Noting, of course, that net income and EBITDA importantly, reflected an unrealized financial gain on financial instruments. This performance reflects our continued -- the team's disciplined execution along with the benefits of having a resilient vertically integrated platform. Microsoft and the cloud contract. So earlier this week, we announced a $9.7 billion AI cloud contract with Microsoft, which was a defining milestone for our business that underscores the strength and scalability of our vertically integrated AI cloud platform. The agreement not only validates our position as a trusted provider of AI cloud service, but also opens up access to a new customer segment among the global hyperscalers. Under this 5-year contract, IREN will deploy NVIDIA GB300 GPUs across 200 megawatts of data centers at our Childress campus. The agreement includes a 20% upfront prepayment, which helps support capital expenditures as they become due through 2026. The contract is expected to generate approximately $1.94 billion in annual recurring revenue. Beyond the obvious positive financial impact, the contract carries strategic value of significance for us. It not only positions IREN as a contributor towards Microsoft's AI road map, but also demonstrates to the market our ability to serve an expanded customer base, which includes a range of model developers, AI enterprises and now one of the largest technology companies on the planet. As enterprises and other hyperscalers accelerate their AI build-out, we expect that our combination of power, AI cloud experience and execution capability will continue to position us as a partner of choice. Looking ahead, we're executing now on a plan that will see our GPU fleet scale from 23,000 GPUs today up to 140,000 GPUs by the end of 2026. When fully deployed, this expansion is expected to support in the order of $3.4 billion in annualized run rate revenue. Importantly, this expansion leverages just 16% of our 3 gigawatts in secured power, leaving ample capacity for future expansion. With that overview in mind, let's turn to the next section, a closer look at our AI cloud platform and how we're positioned to scale in the years ahead. So as I alluded to earlier, a key driver of IREN's competitive advantage in AI cloud services is our vertical integration. We develop our own greenfield sites, engineer our own high-voltage infrastructure, build and operate our own data centers and deploy our own GPUs. Simply put, we control the entire stack from the substation all the way down to the GPU. We believe strongly that this end-to-end integration and control is a key differentiator that positions us for significant growth. This model of vertical integration eliminates dependence on third-party colocation providers and most importantly, removes all counterparty risk associated. This allows us to commission GPU deployments faster with full control over execution and uptime. For our customers, this translates into scalability, cost efficiency and a superior customer service with tighter control over performance, reliability and delivery milestones, driving tangible value and certainty. For those reasons, our customers, including Microsoft, view IREN as a strategic partner in delivering cutting-edge AI compute, recognizing our deep expertise in designing, building and operating a fully integrated AI cloud platform. On that note, we're excited to announce a further expansion of our AI cloud service, targeting a total of 140,000 GPUs by the end of 2026. This next phase includes the deployment of an additional 40,000 GPUs across our Mackenzie and Canal Flats campuses, which are expected to generate in the order of $1 billion in additional ARR. When combined with the $1.9 billion expected from the Microsoft contract and $500 million from our existing 23,000 GPU deployment, this expansion provides a clear pathway to approximately $3.4 billion in total annualized run rate revenue once fully ramped. Importantly, this incremental 40,000 GPU build-out will be executed in a highly capital-efficient manner through leveraging existing data centers. While we have not yet purchased GPUs for the deployment, we continue to see strong demand for air-cooled variants of NVIDIA's Blackwell GPUs, including both the B200 and the B300. And given their efficient deployment profile, we expect these to form the basis of this expansion. That said, we will continue to monitor customer demand closely and pursue growth in a disciplined, measured way. This full expansion to 140,000 GPUs will only require about 460 megawatts of power, representing roughly 16% of our total secured power portfolio. This leaves substantial optionality for future growth and importantly, continued scalability across our portfolio. The key takeaway here is that we have substantial near-term growth being actively executed upon, but also have significant and additional organic growth ahead of us. Turning now to Slide 8, which highlights the British Columbia data centers supporting our expansion to 140,000 GPUs. At Prince George, our ASICs to GPU swap-out program is progressing well. The same process will soon extend to our Mackenzie and Canal Flats campuses, where we expect to migrate ASICs to GPUs with similar efficiency and speed. Together, these sites are allowing us to fast track our growth in supporting high-performance AI workloads, scaling it into what is becoming one of the largest GPU fleets in North America. Turning to Childress, where we are now accelerating the construction of Horizons 1 to 4 to accommodate the phased delivery of NVIDIA GB300 NVL72 systems for Microsoft. We've significantly enhanced our original design specifications to meet hyperscale requirements and also further ensure durable long-term returns from our data center assets. The facilities have been engineered to Tier 3 equivalent standards for concurrent maintainability, ensuring continuous operations even during maintenance windows. A key feature of this next phase is the establishment of a network core architecture capable of supporting single 100-megawatt super clusters, a unique configuration that enables high-performance AI training for both current and next-generation GPUs. We're also incorporating flexible rack densities ranging from 130 to 200 kilowatts per rack, which allows us to accommodate future chip generations and the evolving power and density requirements without major structural upgrades. While these design enhancements have resulted in incremental cost increases, they provide long-term value protection, enabling our data centers to support multiple generations and reduce recontracting risk typically associated with lower spec builds. In short, we're building Childress not just for today's GPUs and the Microsoft contract in front of us, but also for the next generations of AI compute. Beyond the accelerated development of Horizons 1 through to 4, the remaining 450 megawatts, as you can see in the image on screen of secured power Childress provides substantial expansion potential for future horizons numbered 5 through to 10. Design work is underway to enable liquid cooled GPU deployments across the entire site, positioning us to scale seamlessly alongside customer demand. Finally, turning to Sweetwater, our flagship data center hub in West Texas, which has been somewhat overshadowed in recent months by the activity in Childress and Canada. At full build-out, Sweetwater will support up to 2 gigawatts, 2,000 megawatts of gross capacity, all of which has been secured from the grid. As shown in the chart, this single hub rivals and in most cases, exceeds the entire scale of total data center markets today. While the recent headlines have naturally been dominated more about our AI cloud expansion at other sites, Sweetwater is a pretty exciting platform asset, giving us the capability to continue servicing the wave of AI compute demand. Sweetwater 1 energization continues to remain on schedule with more than 100 people mobilized on site to support construction of what is becoming one of the largest high-voltage data center substations in the United States. All exciting stuff. With that, I'll now hand over to Anthony, who will walk through our Q1 FY '26 results in more detail. Anthony Lewis: Thanks, Dan, and thanks, everyone, for your attendance today. Continued operational execution was reflected in another quarter of strong financial performance. Q1 FY '26 marked our fifth consecutive quarter of record revenues with total revenue reaching $240 million, up 20% -- 28% quarter-over-quarter and 355% year-over-year. Operating expenses increased primarily on account of higher depreciation, reflecting ongoing growth in our platform and higher SG&A. The latter primarily driven by a materially higher share price, resulting in acceleration of share-based payment expense and a higher payroll tax expense associated with employees -- $63 million were both significantly up, largely on account of unrealized gains on prepaid forward and cap call transactions entered into in connection with our convertible note financings. Adjusted EBITDA was $92 million, reflecting continued margin strength, partially offset by that higher payroll tax of $33 million accrued in the quarter on account of strong share price performance. Turning now to our recently announced AI cloud partnership with Microsoft. As Dan mentioned, this is a very significant milestone for IREN. It not only delivers strong financial returns, but also creates a significant long-term strategic partnership for the business. Focusing on the financials. The $9.7 billion contract is expected to deliver approximately $1.9 billion in annual revenue once the 4 phases come online with an estimated 85% project EBITDA margin. This strong margin, which reflects our vertically integrated model incorporates all direct operating expenses across both our cloud and data center operations supporting the transaction, including power, salary and wages, maintenance, insurance and other direct costs. These cash flows deliver an attractive return on the cloud investment, i.e., the $5.8 billion CapEx for the GPUs and ancillaries after deducting an appropriate internal colocation charge, ensuring that the project delivers robust cloud returns as well as an attractive return on our long-term investment in the Horizon data centers, which will deliver returns for many years into the future. The transaction has also a number of features that allow us to undertake the transaction in a capital-efficient way. Firstly, the payments for the CapEx are aligned with the phased delivery of the GPUs across the calendar year '26 as we deliver those 4 phases. Secondly, the $1.9 billion in customer prepayments being 20% of total contract revenue, paid in advance of each tranche provides funding for circa 1/3 of the funding requirement at the outset. Thirdly, the combination of the latest generation of GPUs and the very strong credit profile of Microsoft should allow us to raise significant additional funding secured against the GPUs and the contracted cash flows on attractive terms. While the final outcome will be subject to a range of considerations and factors, we are targeting circa $2.5 billion through such an initiative. And depending on final terms and pricing, there is meaningful upside to that, noting again the very high quality of our counterparty. We also have a range of options available to fund the remaining $1.4 billion, including existing cash balances, operating cash flows and a mix of equity convertible notes and corporate instruments. On that note, turning more generally to CapEx and funding. We continue to focus on deepening our access to capital markets and diversifying our sources of funding. We issued $1 million in 0 coupon convertible notes during October, which was extremely well supported. And we also secured an additional $200 million in GPU financing to support our AI cloud expansion in Prince George, bringing total GPU-related financings to $400 million to date at attractive rates. Taking into account recent fundraising initiatives, our cash at the end of October stood at $1.8 billion. Our upcoming CapEx program, which includes the construction of the Verizon data centers for the Microsoft transaction will be met from a combination of the strong starting cash position, operating cash flows, the Microsoft prepayments, as just noted, and other financing streams that are underway. These include the GP financing facilities that we discussed as well as a range of other options under consideration from other forms of secured lending against our fleet of GPUs and data centers through to corporate level issuance, whilst maintaining an appropriate balance between debt and equity to maintain a strong balance sheet. With that, we'll now turn the call over to Q&A. Operator: [Operator Instructions] The first question today comes from Nick Giles from B. Riley Securities. Nick Giles: I want to congratulate you on this significant milestone with Microsoft. This was really great to see. I have a 2-part question. Dan, you mentioned strategic value, and I was first hoping you could expand on what this deal does from a commercial perspective. And then secondly, I was hoping you could speak to the overall return profile of this deal and how you think about hurdle rates for future deals. Daniel Roberts: Sure. Thanks, Nick. I appreciate the ongoing support. So in terms of the strategic value, I think undoubtedly, proving that we can service one of the largest technology companies on the planet has a little bit of strategic value. But below that, the fact that this is our own proprietary data center design, and we've designed everything from the substation down to the nature of the GPU deployment and that has been deemed acceptable by a $1 trillion company, I think that's got a bit of strategic value, both in terms of demonstrating to capital markets and investors that we are on the right track, but also importantly, in terms of the broader customer ecosystem and that validation. And look, we've seen that play out over the days since the announcement. In terms of hurdle rates and returns, I think it's worth Anthony, if you can to jump into this. I think it's fair to say that IRRs, hurdle rates and financial models have dominated our lives for the last 6 weeks. So there's probably a little bit we can outline in this regard. Anthony Lewis: Sure. Thanks, Dan, and thanks for the question. The -- yes, just in terms of -- yes, the returns on the transaction, obviously, as I noted in the introductory comments, we -- when we look at the cloud returns, we obviously take away what we think to be an arm's length colocation rate, right, so effectively charge the deal for the cost of reaching the data center capacity. After we take that into account on an unlevered basis and assuming that there are 0 cash flows or RV associated with the GPUs after the term of the contract, we expect an unlevered IRR of low double digits. Obviously, we'll be looking to add some leverage to the capital structure for the transaction, as we also discussed. And once we take that target $2.5 billion of additional leverage into account, you're achieving a levered IRR in the order of circa 25% to 30%. Obviously, that is assuming that $2.5 billion package and it also assumes that the remaining funding is coming from equity as opposed to other sources of capital, which we might also have access to. I'd also note that we said that the -- might well be upside on that $2.5 billion. Obviously, at a $3 billion leverage package against the GPUs on a secured financing package, you could see those -- that levered return increase by circa 10%. In terms of the RV, we've obviously -- in those numbers, we're just reflecting 0 economic value in the GPUs at the end of the term. If, for example, you were to assume a 20% RV, obviously, that has a material impact. Unlevered IRRs would increase to high teens and your levered IRRs would be somewhere between 35% to 50% depending on your leverage assumptions. Daniel Roberts: Yes. I think maybe just to jump in as well. Thanks, Anthony. That's all absolutely correct. And there are a lot of numbers in there, which is demonstrative of the amount of time we spent thinking about IRRs. So I think just to reiterate a couple of points. One is we've clearly divided out our business segments into stand-alone operations for the purposes of assessing risk return against a prospective transaction. So to be really clear, all of those AI cloud IRRs assume a colocation charge. So they assume a revenue line for our data centers. So our data centers, we've assumed to earn internally $130 per kilowatt per month escalating, which is absolutely a market rate of return, particularly considering the first 5 years is underwritten by a hyperscale credit. So that's probably the first point I'd make. But it's also really important to mention that we've optimized elsewhere. So the 76,000 GPUs that we've procured for this contract at a $5.8 billion price, Dell have really looked after us to the point where they've got an in-built financing mechanism in that contract, where we don't have to pay for any GPUs until 30 days after they're shipped. So there's further enhancements there. And then the final point I'd reiterate is this 20% prepayment, which I don't believe we've seen elsewhere, accounts for 1/3 of the entire CapEx of the GPU fleet. And I guess we've been asked previously why we would prefer to do AI cloud versus colocation. As one very single small data point, we are getting paid 1/3 of the CapEx upfront here as compared to having to give away equity -- big chunks of equity in our company to get access to a colocation deal. So we're really pleased to lead us towards that $3.4 billion in ARR by the end of 2026 on returns that are pretty attractive. Yes, it's a good result. Nick Giles: Anthony, Dan, I really appreciate all the detail there. One more, if I could. I was just wondering if you could give us a sense for the number of GPUs that will ultimately be deployed as part of the Microsoft deal. And then as we look out to year 6 and beyond, I mean, can you just speak to any of the kind of future-proofing you've done of the Horizon platform and what can ultimately be accommodated in the long term for future generations of chips? Kent Draper: I'm happy to jump in and take that one, Dan. So in terms of the number of GPUs to service this contract, I draw your attention to some of our previous releases where we've said that each phase of Horizon would accommodate 19,000 GB300s. And obviously, we're talking about 4 phases here with respect to that. In terms of future proofing of the data centers, there are a number of elements to it, but the primary one is that we have designed for rack densities here that are capable of handling well in excess of the GB300 rack architecture. And to give you specific numbers there, the GB300s are around 135 kilowatts of rack for the GPU racks and our design at the Horizon facilities it can accommodate up to 200 kilowatts of rack. So that is the primary area where we have future-proofed the design. But as Dan also mentioned in the remarks on the presentation, we have enhanced the design in a number of ways, including effectively what is full Tier 3 equivalent concurrent maintainability. So yes, there are a number of elements that have been accommodated into the data centers to ensure that they can continue to support multiple generations of GPUs. Nick Giles: Very helpful, Kent. Guys, congratulations again and keep up the good work. Operator: The next question comes from Paul Golding from Macquarie. Paul Golding: Congrats on the deal and all the progress with HPC. I wanted to ask, I guess, just a quick follow-on to the IRR question. Just on our back of the envelope math, it looks like pricing per GPU hour may be on the rise or at the higher end of that $2 to $3 range, assuming full utilization, so presumably potentially even higher. How should we think about the pricing dynamics in the marketplace right now on cloud given the success of this deal? And what seems to be fairly robust pricing? And then I have a follow-up. Daniel Roberts: Sure. Kent Draper: You go ahead, Dan. Daniel Roberts: Look, I'll let Kent talk a bit more about the market dynamic, but it is absolutely fair to say that we're seeing a lot of demand. That demand appears to increase month-on-month in terms of the specific dollars per GPU hour, we haven't specified that exactly. However, we have tried to give a level of detail in our disclosures, which allows people to work through that. I think importantly, for us, rather than focusing on dollars per GPU hour, which I think your statement is correct, is focus on the fundamental risk return proposition of any investment. And when we've got the ability to invest in an AI cloud, delivering what is likely to be in excess of 35% levered IRRs against the Microsoft credit, I mean, you kind of do that every day of the week. Kent Draper: Yes. Thanks, Dan. And Paul, with regard to your specific question around demand, we continue to see very good levels of demand across all the different offerings we have. The air-cooled servers that we are installing up in our facilities in Canada lend themselves very well to customers who are looking for 500 to 4,000 GPU clusters and want the ability to scale rapidly. As we've discussed before, transitioning those existing data centers over from their current use case to AI workloads is a relatively quick process, and that allows us to service the growth requirements of customers in that class very well. And case in point, we've been able to precontract for a number of the GPUs that we purchased for the Canadian facilities well in advance of them arriving out of the sites. And this is something that customers have historically been pretty reticent to do, but that level of demand exists in the market as well as ongoing trust and credibility of our platform with both existing and new customers that is allowing us to take advantage and pre-contract a lot of that away. And then obviously, with respect to the Horizon 1 build-out for Microsoft, this is the top-tier liquid cooled capacity from NVIDIA. We continue to see extremely strong demand for that type of capacity. And the fact that we are able to offer that means that we can genuinely serve all customer classes from hyperscalers, the largest foundational AI labs and largest enterprises with that liquid cooled offering down to top-tier AI start-ups and smaller scale inference enterprise users at the BC facilities. Paul Golding: As a follow-up, as we look out to Sweetwater 1 energization coming up fairly soon here in April, are you able to speak to any inbound interest you're getting on cloud at that site? I know it's early days just from a construction perspective, maybe for the facilities themselves. But any color there and maybe whether you would consider hosting at that site given the return profile and potential cash flow profile that you would get from engaging in, in the cloud business over a period of time? Kent Draper: Yes. In terms of the level of interest and discussions that we're having, we're seeing a strong degree of interest across all of the sites, including Sweetwater as well. Obviously, very significant capacity available at Sweetwater, as Dan mentioned, with initial energization there in April 2026, which is extremely attractive in terms of the scale and time to power. So I think it's very fair to say that we're seeing strong levels of interest across all the potential service offerings. As it relates to GPU as a Service and colocation, as previously, we will continue to do what we think is best in terms of risk-adjusted returns. Anthony outlined the risk-adjusted returns that we're seeing in colocations -- sorry, in GPU as a Service specifically at the moment. And as we've outlined over the past number of months, that does look more attractive to us today. But as we continue to see increasing supply-demand imbalance within the industry, that may well feed through into colocation returns where it makes sense to do that in the future. But as it stands today, certainly, the return profile that we're seeing in GPU as a Service, we think is incredibly attractive. Operator: The next question comes from Brett Knoblauch from Cantor Fitzgerald. Brett Knoblauch: On the $5.8 billion, call it, order from Dell, can you maybe parse out how much of that is allocated to GPUs and the ancillary equipment? And on the ancillary equipment, say, you wanted to retrofit the Horizon data centers with new GPUs in the future, do you also need to retrofit the ancillary equipment? Kent Draper: So out of that total order amount, I mean, it's fair to say the GPUs constitute the vast majority of it, but there is some substantial amounts in there for the back-end networking for the GPU clusters, which is the top-tier InfiniBand offering that's currently available. In terms of future proofing, we'll have to see how much of that equipment may or may not be reusable for future generations of GPUs. As I was referring to earlier, the vast majority of our data center equipment and the way that we have structured the rack densities within the data center mean that the data center itself is future-proofed. But in terms of the specific equipment for this cluster, it remains to be seen whether that will be able to be reused. Brett Knoblauch: Perfect. And then on the -- maybe the new 40,000 order that sounds like kind of be plugged in, in Canada. You talked about maybe a very efficient CapEx build for those data centers. Can you maybe elaborate a bit more on that? I know when the AI craze maybe first got started 18 months ago, you guys flagged that you guys are running GPUs up. I'm pretty sure that you built for less than $1 million a megawatt. Are we closer to that number for this? Or are we just well below maybe what the Horizon 4 cost per megawatt basis? Kent Draper: So in terms of the basic transition of those data centers over to AI workloads, it is relatively minimal in terms of the CapEx that is required. The vast majority of the work is removing ASICs, removing the racks that the ASICs sit on and replacing those with standard data center racks and PDUs, so the power distribution units. That can accommodate the AI servers. So that is relatively minimal. As we've discussed before, it's a matter of weeks to do that conversion. And from a CapEx perspective, it is not material. The one element that may be more material in terms of that conversion is adding redundancy if required to the data centers that would typically cost around $2 million a megawatt if we need to do that. But obviously, in the context of a full build-out like we're seeing of liquid cooled capacity at Horizon, it's extremely capital and CapEx efficient. Operator: The next question comes from Darren Aftahi from ROTH Capital Partners. Darren Aftahi: Congrats on the Microsoft deal as well. To start, with Microsoft, was colocation ever on the table with them? Did they come to you asking for AI cloud? Or how did those negotiations sort of fall out? Daniel Roberts: Just think about the best way to answer this. So we've been talking to Microsoft for a long period of time and the nature of those conversations absolutely did evolve over time. Is there a preference for the cloud deal? Possibly. But at the end of the day, we want to focus on cloud, and that was the transaction we were comfortable with. So conversations really focused around that over the last 6 weeks or so. I think if I may, I'd talk more generically around these hyperscale customers because obviously, we weren't just talking to Microsoft. I think there probably is a stronger preference from those to be looking at more colocation and infrastructure deals rather than cloud deals. But also is the case that there's an appetite for a combination. So it may be that we do some colocation in the future. Yes, I think different hyperscalers have different preferences. We'll entertain them all. But given the nature of the deal we did with a 20% prepayment funding 1/3 of CapEx and a 35% plus equity IRR, we're feeling pretty good about pursuing AI cloud. Darren Aftahi: Got it. And just as a follow-up with the rest of Childress, is there any significance to the size of the Microsoft deal starting at 200 megawatts? Do they have interest in the rest of the campus? Have you talked to them about that yet? Daniel Roberts: So again, I'm going to divert the question a little bit because we've got some pretty strong confidentiality provisions. So let me talk generically. There is appetite from a number of parties in discussing cloud and other structures well above the 200 megawatts that's been signed with Microsoft. Operator: The next question comes from John Todaro from Needham. John Todaro: Congrats on the contract. I guess just one on that as we dig a little bit more in, any kind of penalties or anything related to the time line of delivering capacity? Just wondering if there's guardrails around that. And then I do have a follow-up on CapEx. Daniel Roberts: There's always a penalty, whatever you do in life, if you don't do what you promise you're going to do. So we're very comfortable with the contractual tolerances that have been negotiated, the expected dates versus contractual penalties and other consequences. I can't comment more specifically beyond that on this call. But the other thing I would reiterate is we have never ever missed a construction or commissioning date in our life as a listed company. So I think you can take a lot of comfort that if we've put something forward to Microsoft and agreed it there and if we put something forward to the market, our reputations are on the line, our track record is on the line, we're going to be very confident we can deliver it and potentially even exceed it. John Todaro: Got it. Understood. And then just following up on the CapEx. That $14 million to $16 million on the -- I think it was the data center side. Just wondering if there's anything kind of additional in there that would get it north of the colo items other folks are talking about, if maybe there's some networking or cabling included in that or any contribution from tariffs are being considered there? Kent Draper: To give some additional color there. So yes, in terms of networking, et cetera, again, as Dan mentioned in his presentation earlier, this is designed -- the Horizon campus is designed to be able to operate 100-megawatt super clusters. Now that does raise a significant level of additional infrastructure that is required over being able to deliver smaller clusters. And so certainly, some of the costs that are in the number that you mentioned are related to the ability to do that. And that will not necessarily be a requirement of every customer moving forward. So that probably is an element that is somewhat unique. Operator: The next question comes from Stephen Glagola from JonesTrading. Stephen Glagola: On your British Columbia GPUs, can you maybe just provide an update on where you guys stand with contracting out the remaining 12,000, I believe, GPUs of the initial 23,000 batch? And are you seeing any demand for your bare metal offering in BC outside of AI native enterprises? Kent Draper: Yes. Happy to give an update there. We previously put out guidance a couple of weeks ago that we had contracted 11,000 out of the 23,000 that were on order. Subsequent to that, we have contracted a bit over another 1,000 GPUs. And primarily the ones that are not yet contracted are the ones that are arriving latest in terms of delivery time lines. As I mentioned earlier, we are seeing an increased appetite from customers to precontract. But these are GPUs that are a little further out in terms of delivery schedules relative to the ones that have already been contracted. Having said that, we continue to see very strong levels of demand, and we're in late-stage discussions around a significant portion of the capacity that has not yet been contracted and continue to see very good demand leading into the start of next year as well and are receiving an increasingly large number of inbounds from a range of different customer classes. So you mentioned AI natives. Yes, that has been a portion of the customer base that we've serviced previously. But we are also servicing a number of enterprise customers on an inference basis. So it is a pretty wide-ranging customer class that we're servicing out of those British Columbia sites. Operator: The next question comes from Joe Vafi from Canaccord Genuity. Joseph Vafi: Congrats from me too on Microsoft. Just maybe, Dan, if you could kind of walk us through what you were thinking in your head. Clearly, some awesome IRRs here on the Microsoft deal. But how are you thinking about risk on a cloud deal here versus a straight colo deal, which probably wouldn't have had the return, but maybe the risk profile may be lower there? And then I have just a quick follow-up. Daniel Roberts: Thanks, Joe. Look, it's funny. I actually see risk very differently. So we've spoken about colocation deals with these hyperscalers. And if you model out a 7% to 8% starting yield on cost and run that through your financial model, what you'll generally see is that you'll struggle to get your equity back during the contracted term, and then you're relying on recontracting beyond end of that 15-year period to get any sort of equity return. So in terms of risk, I would argue that there's a far better risk proposition implicit in the deal that we've signed and going down the cloud route. And then for the shorter-term contracts on the colo side where you may not have a hyperscale credit, you're running significant GPU refresh risk against companies that don't necessarily have the balance sheet today to support confidence in that GPU refresh. So again, we think about it in business segments, we think about our data center business has got a great contract internally linked to Microsoft as a tenant. And that data center itself is future-proofed accommodating up to 200-megawatt rack densities. And it's also the case that in 5 years, the optionality provides further downside protection. So upon expiry of the Microsoft contract, maybe we can run these GPUs for additional years, which we've seen with prior generations of GPUs like the A100s. But assuming that isn't the case, we've got a lot of optionality within that business. We could sign a colocation deal at that point. We could relaunch a new cloud offering using latest generation GPUs. So my concern with these colocation deals is what you're doing is you're transferring an interest or an exposure to an asset that is inherently linked to this exponential world of technology and demand and the upside that, that may entail and you're swapping that for a bond position in varying degrees of credit with the counterparties. So if you're swapping an asset for a bond exposure to a $1 trillion hyperscaler and you're kind of hoping you might get your equity back after the contracted period, I mean, that's one way to look at it. If you're swapping your equity exposure for a bond exposure in a smaller Neo cloud without a balance sheet, then is that a good decision for shareholders? We just haven't been comfortable. Joseph Vafi: I get it, Dan. I mean we've run some DCF here and on some colo deals here in the last couple of months. And there's a lot to be learned when you do it. There's no doubt. And then just on this prepayment from Microsoft, I know you've got some strong NDAs here, but kind of a feather in your cap on getting that much in a prepayment. Any other -- anything else to say on how -- maybe your qualifications or how Microsoft perhaps and you came to the agreement to prefund the GP purchases out of the box? Daniel Roberts: Look, yes, getting the 1/3 of the CapEx funded through a prepayment from the customer is fantastic from our perspective, and we're super appreciative for Microsoft coming to the table on that. And what that allows us to do is to drive a really good IRR and return to equity for our shareholders. And again, linking back to what Anthony said earlier, we expect 35% equity IRRs from this transaction accounting after an internal data center charge. So trying to create that apples-and-apples comparison for a Neo cloud that has an infrastructure charge. Even after that, we're looking at 35% plus. And also what's really important to clarify is the equity portion of that IRR we have assumed is funded with 100% ordinary equity, which given our track record in raising convertibles, given the lack of any debt at a corporate level is probably conservative again. So from a risk-adjusted perspective, linked to a $1 trillion credit and the ability to fund it efficiently, I mean, we're really happy with the transaction. And yes, hopefully, there's more to come. Operator: The next question comes from Michael Donovan from Compass Point. Michael Donovan: Congrats on the progress. I was hoping you could talk more to your cloud software stack and the stickiness of your customers. Kent Draper: Yes, I'm happy to take that one. Yes, to date, the vast majority of our customers have required a bare metal offering, and that is their preference. These are all highly advanced AI or software companies like a Microsoft. They have significant experience in the space, and they want the raw compute and the performance benefits that, that brings, having access to a bare metal offering and then being able to layer their own orchestration platform over the top of that. So that has been by design that we have been offering a bare metal service. It lends itself exactly to what our customers are looking for. Having said all of that, we obviously are continuing to monitor the space, continuing to look at what customers want. And we are certainly able to go up the stack and layer in additional software if it is required by customers over time. But today, as I said, we haven't really seen any material levels of demand for anything other than the bare metal service that we're currently offering. Daniel Roberts: And I think maybe just to add to that, Kent, if you step back and think about it, you contract in with some of the largest, most sophisticated technology companies on the planet that want to access to our GPUs to run their software. It's kind of upside down world to then turn around and say, "Oh, we'll do all the software and operating layer." Like clearly, they're in the position they are because they have a competitive advantage in that space. They're just looking for the bare metal. I think as the market continues to develop over coming years, it may be the case that if you want to service smaller customers that don't have that internal capability or budget, then yes, maybe you will open up smaller segments of the market. But for a business like ours that is pursuing scale and monetizing a platform that we spent the last 7 years building, it's very hard to see how you get scale by focusing on software, which is, I think everyone generally accepts is going to be commoditized anyway in coming years as compared to just selling through the bare metal and letting these guys do their thing on it. Michael Donovan: That makes sense. I appreciate that. You mentioned design works are complete for a direct fiber loop between Sweetwater 1 and 2. How should we think about those 2 sites communicate with each other once they're live? Kent Draper: Yes. I think really the best way to think about it is it just adds an additional layer of optionality as to the customers that would be interested in that and how we contract those projects. There are a number of customers out there who are looking particularly for scale in terms of their deployments. And obviously, being able to offer 2 gigawatts that can operate as an individual campus even though the physical sites are separated is something that we think has value, and that's why we have pursued that direct fiber connection. Operator: At this time, we're showing no further questions. I'll hand the conference back to Dan Roberts for any closing remarks. Daniel Roberts: Great. Thanks, operator. Thanks, everyone, for dialing in. Obviously, it's been an exciting couple of months and particularly last week. Our focus now turns to execution to deliver 140,000 GPUs through the end of 2026, but also continuing the ongoing dialogue with a number of different customers around monetizing the substantial power and land capacity we've got available and our ability to execute and deliver compute from that. So I appreciate everyone's support. I look forward to the next quarter.