加载中...
共找到 39,642 条相关资讯
Operator: Good day, and welcome to the EVERTEC's Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Loyda Montes Santiago, Finance, Property and Investor Relations Senior Manager. Please go ahead. Loyda Montes Santiago: Thank you, and good afternoon. With me today are Mac Schuessler, our President and Chief Executive Officer; Joaquin Castrillo, our Chief Operating Officer; and Karla Cruz-Jusino, Chief Financial Officer. Before we begin, I would like to remind everyone that this call may contain forward-looking statements and should be considered in conjunction with cautionary statements contained in our earnings release and the company's most recent periodic SEC report. During today's call, management will provide certain information that will constitute non-GAAP financial measures under SEC rules, such as constant currency revenue, adjusted EBITDA, adjusted net income and adjusted earnings per common share. Reconciliations to GAAP measures and certain additional information are also included in today's earnings release and related supplemental slides, which are available in the Investor Relations section of our company's website at www.evertecinc.com. I will now hand over the call to Mac. Morgan Schuessler: Thanks, Loyda, and good afternoon, everyone. Before we dive in, I'd like to have a moment to recognize Loyda as our new internal point of contact for Investor Relations. In the third quarter, EVERTEC delivered another strong quarter of organic revenue growth and further advanced our presence and capabilities in Brazil by closing on the previously announced Tecnobank acquisition. On today's call, I'll provide an update of the cybersecurity incident we identified in August, give a brief summary of our third quarter results, including an update on our Puerto Rico and LatAm businesses, followed by our updated outlook for 2025. Before we dive in, I'd like to address an important leadership transition that took effect on November 1. I'm pleased to announce that Joaquin Castrillo has been promoted to Chief Operating Officer. In this extended capacity, he will be responsible for the revenue and management across all EVERTEC's commercial areas. During his tenure as CFO, Joaquin was instrumental in establishing strong relationships with the investment community and his strategic vision has been invaluable to the company's growth trajectory. As he transitions to the role of Chief Operating Officer, Joaquin brings with him a proven track record of financial stewardship and a deep understanding of EVERTEC's business, ensuring continued momentum and seamless continuity in the company's leadership team. Succeeding Joaquin as CFO is Karla Cruz-Jusino, who has been promoted from Chief Accounting Officer. Karla has been a keystone to our finance and accounting organization for 6 years, and I'm confident that her track record, strategic vision and dedication to EVERTEC's mission position her to guide the company's financial strategy through its next phase of growth. Overall, these internal promotions reflect the strength and depth of our finance organization and ensure seamless continuity in our leadership. With the transition noted, let me give a brief update on the cybersecurity incident we identified in August. As stated previously, we detected unauthorized activity in Sinqia's PIX environment in the Brazilian Central Bank or BCB. For context, PIX is a real-time payment system in Brazil governed by the Central Bank, and Sinqia has services that enable financial institutions to access this payment system. Once the unauthorized activity was detected, our teams reacted promptly and in accordance with our cyber incident protocols, we were able to contain the situation. The team worked closely with both our clients and the BCB, reviewed and implemented key security enhancements to our systems and obtained approval from the BCB that allowed our systems to be now up and running for several weeks. Additionally, our financial institution clients have now confirmed that the vast majority of the funds have been recovered, significantly limiting the original exposure. Now that our investigation has nearly concluded, we can confirm that this incident was isolated to the PIX real-time payment system in Brazil and did not impact any other EVERTEC products or services or geographies. Our Q3 results for GAAP purposes reflect the impact from costs incurred throughout the incident as well as an estimate of potential claims related to client losses from funds yet to be recovered as we continue to work with our clients and our cybersecurity insurance provider. Moving now to our third quarter results. I'm pleased to announce solid revenue performance. We delivered healthy growth over the prior year and exceeded our internal expectations as we continue to execute at a high level across all regions and business segments. Beginning on Slide 5, I'll start by covering a few highlights from our third quarter results. Revenue for the third quarter was $228.6 million, an 8% increase over the prior year, while constant currency revenue was approximately $227.9 million, representing growth of 8% as we again saw growth across all of our segments. Adjusted EBITDA increased to $92.6 million, up approximately 6% year-over-year, and adjusted EBITDA margin was 40.5% for the quarter. Adjusted EPS of $0.92 was up 7% year-over-year, driven by the strong adjusted EBITDA growth and lower interest expense, partially offset by higher tax expense. Through the first 9 months of the year, we have generated operating cash flow of approximately $157 million and returned cash to shareholders through $9.6 million in dividends and $3.7 million in share repurchases. Our liquidity remains strong at approximately $518.6 million as of September 30. Let me now provide an update on Puerto Rico, beginning on Slide 6. Merchant Acquiring revenue grew 3% year-over-year, driven by higher sales volume. Payment Services in Puerto Rico grew 5% year-over-year, driven by strong performance in ATH Móvil, primarily ATH Business as well as POS transaction growth. Business Solutions revenue grew 1%, primarily driven by projects completed during the quarter. Economic conditions in Puerto Rico remained favorable through the end of the third quarter with positive trends in total employment, strong tourism performance and other key economic indicators. The unemployment rate held steady at 5.6%, near historic lows, while consumer spending continued to demonstrate strength and stability. Moving to Latin America on Slide 7. Revenue increased 19% year-over-year or 18% on a constant currency basis as we continue to see strong organic growth across the region, fueled by the reacceleration in Brazil and the contribution from the Grandata and Nubity acquisitions. Our pipeline in LatAm remains robust and as anticipated, is now beginning to drive key wins. I'm excited to announce that we have signed a deal to provide acquiring processing and risk monitoring services to Banco de Chile, one of the largest financial institutions in Chile, known for its retail and corporate banking services and extensive national presence. With this win, we now have 2 of the largest banks in Chile on our acquiring platform, validating our strategy of investing in dynamic markets and positioning EVERTEC as one of the top processors in the country. I'm also excited to announce that we have signed a deal with Financiera Oh, a leading financial services company in Peru, known for its innovative credit solutions and strong retail presence. We will provide issuing processing of debit, credit and fraud monitoring solutions. This is a key win that also positions EVERTEC with a marquee name in the very attractive Peruvian market. On the M&A front, I would like to acknowledge the closing of a controlling stake in Tecnobank in October. This acquisition strengthens our financial technology capabilities in Brazil and opens new avenues for growth and scale. And I would like to personally extend a warm welcome to the entire Tecnobank team. In summary, we delivered another quarter of strong results across both Puerto Rico and Latin America. More importantly, the key wins announced in the previously mentioned win of Grupo Aval in Colombia demonstrate our ability to win in key markets where the opportunity for EVERTEC continues to be immense. The combination of strong organic growth in LatAm and the contribution from M&A will continue to drive our diversification into growth markets that will lead to a faster-growing EVERTEC over time. These are exciting times for our company. With that, I will now turn the call over to Joaquin to provide deeper commentary around our third quarter results, followed by Karla, who will discuss our improved outlook for the remainder of 2025. Joaquín Castrillo: Thank you, Mac, and good afternoon, everyone. Turning to Slide 9. I'll start with a review of our third quarter results. Total revenue for the quarter was $228.6 million, up approximately 8% compared to the prior year quarter, reflecting strong organic growth across all of the company segments, continued momentum in LatAm and the contribution from acquisitions completed in the fourth quarter of 2024. Revenue also grew 8% in the quarter on a constant currency basis with a minor tailwind primarily attributable to the Brazilian real. Adjusted EBITDA for the quarter was $92.6 million, up approximately 6% from last year, representing a margin of 40.5%, a decrease of 80 basis points from a year ago, but in line with our expectations. Adjusted EBITDA benefited from strong revenue, the M&A contribution and Brazilian market reacceleration in LatAm as well as benefits from previously announced cost initiatives. Adjusted net income was $59.8 million, an increase of approximately 8% year-over-year, driven by growth in adjusted EBITDA and lower cash interest expense, reflecting the positive impact of repricing our debt. These were partially offset by higher tax expense. As expected, our effective tax rate has been increasing slightly as we find ways to lower our interest expense, which drives certain tax efficiencies as well as the growing contribution from our LatAm operations, which are subject to higher statutory tax rates. Adjusted EPS was $0.92, an increase of approximately 7% from the prior year, driven by the higher adjusted net income. Moving to Slide 10. I will now cover our third quarter results by segment, beginning with Merchant Acquiring. Net revenue increased approximately 3% year-over-year to $46.8 million as we benefited from strong sales volume and transaction growth throughout the quarter. Both were positively impacted by new merchant relationships and the impact from the Bad Bunny residency, which resulted in key verticals within the portfolio seeing increased volumes. We also benefited from tax return payments during the third quarter as we got closer to extension deadlines. The positive impact from volumes was partially offset by a slight decrease in spread as we saw a shift towards more card-present transactions. Adjusted EBITDA for the segment was $18.6 million with an adjusted EBITDA margin of 39.8%, a decrease of approximately 30 basis points as we experienced a lower average ticket that drove higher processing costs. On Slide 11 are the results for the Payment Services, Puerto Rico and Caribbean segment. Revenue in the quarter was $55.2 million, an increase of approximately 5% from the prior year. The revenue increase was primarily driven by another quarter of strong performance in ATH Móvil with mid-teens growth driven specifically by ATH Business, where we continue to sign up new merchants driving higher sales volume and transactions. POS transaction growth was 7%, aligned with the same factors that drove sales volume growth in our Merchant segment, such as the Bad Bunny residency. Adjusted EBITDA was $29.9 million, up approximately 5% from the prior year, and adjusted EBITDA margin was 54.1%, an increase of approximately 40 basis points from the prior year. The increase in margin is driven mainly by revenue growth and operational efficiencies related to POS repairs. On Slide 12 are the results for Latin America Payments & Solutions. Revenue in the quarter was $90.4 million, up approximately 19% year-over-year or approximately 18% on a constant currency basis. We delivered double-digit organic growth across the region, in part driven by the reacceleration in Brazil, where we continue to execute on our modernization initiatives, the favorable impact of contract repricing tailwinds and a strong pipeline. Chile continues to deliver strong growth, including the contribution from the Getnet Chile contract. The segment also benefited from Grandata and Nubity, the 2 acquisitions we completed in the fourth quarter of last year, both of which continue to perform as expected or better. These positive impacts were partially offset by the MELI attrition and a $1.8 million onetime Getnet impact recognized prior year. Adjusted EBITDA was $24.4 million, an increase of approximately 18% from the prior year with an adjusted EBITDA margin of 27%, a modest decrease of approximately 30 basis points. The margin decrease is mainly related to the recognition in prior year of the onetime Getnet revenue that was highly accretive to margin. Moving to Slide 13. Our Business Solutions segment revenue increased approximately 1% to $61.7 million. The increase is due primarily to projects completed during the quarter and higher hardware sales, partially offset by a onetime credit related to a managed services contract. Adjusted EBITDA was $25.1 million, a decrease of approximately 2% from a year ago, and adjusted EBITDA margin was down approximately 100 basis points from the prior year to 40.7%. Margin is down year-over-year primarily due to the onetime credit and the lower margin from hardware sales. Moving to Slide 14, you will see a summary of our corporate and other expenses. Adjusted EBITDA was a negative $5.4 million in the quarter or 2.4% of total revenue, which is slightly lower than expected and lower than prior year as we continue to realize more of the benefits from expense management initiatives that we have been executing throughout the year. Moving on to our cash flow overview for the first 9 months of 2025 on Slide 15. Net cash from operating activities year-to-date was $157 million. Capital expenditures were $67.9 million through the third quarter, tracking in line with our plan of $85 million for the whole year. We paid down approximately $22.4 million in debt, paid approximately $8.9 million in withholding taxes on share-based compensation and returned approximately $13.3 million to shareholders through share repurchases and dividends. Our ending cash balance, excluding cash and settlement assets, was approximately $499.7 million, an increase of $201.5 million from the year ended 2024. This cash balance includes approximately $150 million of cash from our revolver that was used on October 1, 2025 to close on the acquisition of the controlling stake in Tecnobank. Moving to Slide 16. Our net debt position at quarter end was $631.8 million, which includes $1.1 billion in total long and short-term debt, offset by $474.7 million of unrestricted cash. Our weighted average interest rate was approximately 6.24%, a decrease of approximately 47 basis points from the third quarter of 2024. Our net debt to trailing 12-month adjusted EBITDA was approximately 1.8x, down from 2.2x a year ago and slightly below the lower end of our leverage target range of 2 to 3x. As of September 30, our total liquidity, which excludes restricted cash and includes borrowing capacity, was $518.6 million, up approximately $50 million from a year ago. Now I'd like to turn the call over to Karla, who will offer updated 2025 guidance, discuss key modeling points to consider and provide some preliminary thoughts on our outlook for 2026. Karla Cruz-Jusino: Thanks, Joaquin, and good afternoon, everyone. Turning to Slide 18. I'll start with commentary on our updated 2025 outlook. We now expect revenues to be between $921 million and $927 million, representing growth of 8.9% to 9.6%. The updated outlook includes a Q3 overperformance and improved foreign currency expectation in Q4 and the acquisition of Tecnobank. On a constant currency basis, we now expect growth of 10% to 11% year-over-year, above our prior constant currency range of 7.8% to 8.7%. Adjusted EPS is now expected to grow between 8.5% and 10.4% from the $3.28 reported for 2024 and higher than our previous assumption of 4.8% to 7% growth. We now expect our adjusted EBITDA margin to be approximately 40%, and we continue to expect the adjusted effective tax rate to range from 6% to 7%. I will now walk you through the key underlying assumptions considered in our outlook, starting with revenue expectations across our business segments. We continue to anticipate mid-single-digit growth in Merchant Acquiring for 2025 as we expect a Q4 outlook in line with Q3 performance. In Payments Puerto Rico and Caribbean, we now expect mid-single-digit growth as we benefit from the continued momentum in ATH Móvil, partially offset by lower processing services to LatAm segment and the impact from the popular discount that began in October. For Latin America Payments and Solutions, we now expect high teens growth driven by strong organic momentum across the region and the contribution from the Tecnobank acquisition completed at the beginning of the fourth quarter partially offset by the headwind of foreign currency mainly in Brazil. On a constant currency basis, growth is not expected to be in the low 20s. As a reminder, we will anniversary both the Grandata and Nubity acquisitions in Q4. Finally, in Business Solutions, we continue to expect low single-digit revenue growth, primarily reflecting the 10% discount to Popular that became effective in October, impacting approximately $18 million annually estimated to be $4 million in Q4. Turning to overall margin. We anticipate approximately 40% for the full year. As we start to shift focus to 2026, while we are not providing guidance, I would like to share key items intended to help you frame your modeling assumptions and provide clarity on the strategic priorities driving our outlook for next year. Beginning with Puerto Rico, the 10% discount on selected MSA services with Banco Popular became effective in October 2025. As we head into 2026, this discount represents an estimated headwind of approximately $14 million, impacting mostly our Business Solutions segment with a more modest impact on our Payments Puerto Rico segment. Additionally, the CPI for September was announced at 3%. And as a reminder, this is capped at 1.5% for our MSA agreement and 2.5% for our ATH processing agreement with Popular. Beginning on October 2026, the CPI escalator will now allow increases above 2%, capped at a maximum of 2%. Specifically, as we look at our segments, while the Merchant Acquiring segment benefited from pricing initiatives through the first half of 2025, these tailwinds are expected to normalize in 2026. Additionally, the boost in transaction volumes linked to the Bad Bunny residency will create a modest headwind. Despite these factors, we remain optimistic about the segment's trajectory and are anticipating implementing key merchants that should continue to drive positive growth in 2026. For our Payments Puerto Rico, we expect a slight impact from the 10% discount to Popular to be offset by the continued strength in ATH Móvil and anticipated growth in POS transactions. In Latin America, we expect continued momentum in 2026, supported by a mix of organic growth and strategic M&A, including Tecnobank. Additionally, while we are very excited about the key wins [indiscernible], these are not expected to have a meaningful contribution to 2026 as these will be either ramping up or under implementation for most of the year. Finally, in Business Solutions, we expect a top line reset driven by the incremental $14 million impact as a result of the 10% discount to Popular that began in October, partially offset by the CPI impact already mentioned. Moving to margins. To offset the impact of the 10% popular discount and the lower margin contribution from Latin American organic growth, we remain focused on executing targeted cost efficiencies initiatives across our business segments. Interest expense is projected to decline year-over-year, supported by successful debt repricing and lower SOFR rates. However, this benefit will be partially offset by incremental debt related to the Tecnobank acquisition. Lastly, regarding taxes, we expect a higher adjusted tax rate reflected increased EBITDA contributions from LATAM and a reduction in interest expense, a key driver of tax efficiency in 2025. In summary, we delivered a strong third quarter and are well positioned to deliver strong top line growth in 2026. We remain focused on executing our strategic priorities and cost initiatives to support long-term value creation. We look forward to sharing more updates on our progress in early 2026. On behalf of Mac, Joaquin and myself, we appreciate your continued support, and I hope to connect with many of you at upcoming conferences over the next few months. Operator, please go ahead and open the line for questions. Operator: [Operator Instructions]. Your first question comes from Jamie Friedman from Susquehanna. James Friedman: Congratulations, Joaquin and Karla, on your respective promotions. And I hope we continue to work together in the future, Joaquin, I learned a lot from you over the years. So Mac, maybe I'll ask, first of all, in terms of LatAm, up 19% year-over-year. This growth seems quite durable. You're signing incremental deals, Banco Chile, et cetera. So any perspective that you could share now as to what you're finding relative to when you began the expansion in LatAm? Is it -- are you resonating? Are you gaining the mind share that you had anticipated? And what's so far surprised you down there? Morgan Schuessler: Yes. So I mean, if I look at long term over the course of the company, I think what we've been able to do is build products through acquisitions so that they're now some of the best products in the region. So if you look at the deals we just announced, Banco de Chile is using our acquiring platform, which is now our second big deal in Chile. If you look in Peru, we now have this deal where they're using our issuing platform. So I think what we've done is we've built these products now that we're scaling across the region. And as you'll see, we're getting good margins. The other piece, I think, that's pretty important was the Sinqia deal. We got that deal. It's now growing at a rate that we're very happy with now that we've integrated. And it also gives us the ability to make other acquisitions like Tecnobank. So those are the 2 big things that I think we've seen is our products are now scalable across the region. We're winning business to demonstrate that. And now we have sort of a cornerstone of our strategy to continue to invest in Brazil through the Sinqia acquisition and the infrastructure we have there. We're super excited about the future, as Karla talked about 2026 and the continued growth that we think we'll see in LatAm. James Friedman: And also about that, Karla, you were talking about the -- return of COAs. I remember that was a theme earlier in the company's history. It sounds like that's coming back. So what typically can be the contribution from those sorts of cost of living adjustments in a typical year? Joaquín Castrillo: Jamie, I don't think that we couldn't hear you clearly. Morgan Schuessler: You're talking about the cost of living adjustments. You're talking about the CPI adjustments on [indiscernible] contract. James Friedman: CPI, what I'm trying to say, CPI, yes. Morgan Schuessler: Yes. No, I got it. So yes, yes. So do you want to talk about the CPI adjustments? Karla Cruz-Jusino: Yes, we did call out that the CPI in this for September was announced at 3%, and it's now currently capped at 1.5% for our MSA agreement with Popular and at 2.5% for ATH processing agreement. Now beginning in 2026, we have mentioned in the past that, that escalator will permit an increase in the CPI above 2%, but now capped at 2%. Operator: [Operator Instructions]. Your next question comes from Marc Feldman from William Blair. Mark Feldman: I'll echo my congratulations to both Joaquin and Karla. I guess, first off, could you talk about potential cross-sell opportunities between Tecnobank and Sinqia's, given Sinqia's presence in the consortium model in Brazil? Morgan Schuessler: Yes. So look, as we tuck in assets to the Sinqia acquisition, it's exciting to have an organization and management team that can manage these investments. Tecnobank has cross-sell opportunities because we do business with a lot of the financial institutions and the financial institutions are primarily -- and the consortiums are primarily the customers of Tecnobank. So there's tremendous cross-sell opportunities where Tecnobank customers can use other products that we already have and vice versa. So there's some Sinqia customers that don't use Tecnobank today. It's a great business on a stand-alone basis, but the cross-sell opportunities, we think are relevant. Mark Feldman: Great. Appreciate that. And then I guess just one more. I know the situation is dynamic, but with the government shutdown and your benefits business and then also the Puerto Rican economy in general, can you talk about any trends that you've seen thus far and what we should be considering for the fourth quarter? Joaquín Castrillo: Sure. So this is Joaquin. Look, so far, no direct impact. Obviously, we're monitoring it closely just like everybody is because the Puerto Rico economy does rely on certain federal funds. One of the biggest impacts could potentially be around the NAP and SNAP programs. A big portion of the Puerto Rico collection does rely on welfare. Having said that, we know that at least through November, that has been funded. So we do have a little bit of runway here to continue to monitor before it starts to have any impact. Operator: Your next question comes from John Davis from Raymond James. John Davis: I'll add my congrats to Joaquin and Karla. Mac, just big picture here, the security incident within Sinqia. Just curious, I understand it's kind of been ring-fenced at this point, but have you seen any adverse impact on business momentum, pipeline, anything like that? I'd just be curious kind of on the state of the momentum at Sinqia more broadly as well. Morgan Schuessler: Yes. At this point, we haven't seen an impact to the commercial business. It was primarily just 2 banks that were impacted. And those 2 banks, we've been able to work through all the issues with those guys. We also think that we can now demonstrate -- I also want to say just -- I don't know that everyone has perspective. This happened to multiple technology companies. So there were criminals trying to take advantage of the PIX system through multiple companies in Brazil. So if you pull the press, this didn't happen to just us. It was several. What I would say is that we believe now that we've really been able to harden our systems that we've been able to demonstrate we have better systems, and we're going to work to make this an advantage versus a disadvantage. But we haven't seen any negative commercial impact at this point. John Davis: Okay. Great. And then Joaquin or Karla, just margins more broadly, I think they're down about 80 basis points year-over-year in the third quarter. I think that's before the changes, the contract changes in [ BPPR ]. But just curious, I heard like average ticket was called out. But more broadly, were those -- I know you guys don't guide margins by quarter, but was that largely in line with your expectations or anything that surprised you on the margin front in the third quarter specifically? Joaquín Castrillo: Yes. I mean, look, when we look at it on a year-over-year basis, John, remember, and we called it out, we had a big one-timer last year in LatAm that was highly margin accretive. But if you look at the sequential growth of our margin, it is aligned to our expectations, right? We had said we were going to start at kind of 39s, grow to like mid-40s and then come back down, right? And that's the trajectory that's been reflected. In the case specifically of merchant acquiring, yes, we did have a slight decline in margin, which is coming because yes, the average ticket is coming down. We have a lot more transactionality than necessarily sales volume, although we did have very good sales volume as well. So I think it's just the nature of how that business moved this past quarter. We need to continue to monitor both trends as it relates to merchant acquiring specifically going into the next quarter. John Davis: Okay. And then last one, Mac. Just on capital allocation, balance sheet is in good shape. I know the Tecnobank deal just closed. But just curious, appetite, you thinking kind of more tuck-in deals, thoughts on potentially buying back stock with the pullback frankly across the whole space. Just curious on updated thoughts with where the stock is trading and also kind of appetite on the M&A side. Morgan Schuessler: Sure. So I mean, what I would say is, look, after -- into the next quarter, we'll be above -- a little bit above 2, right, Karla? Karla Cruz-Jusino: Correct. Morgan Schuessler: So I mean, we'll be between 2 and 3, but on the lower end of sort of what's tolerable. We do recognize where our stock price is, and we are sort of evaluating the pipeline. We still have a good pipeline. And every quarter, we'll take a look at capital allocation and try and make the right decision. But as you know, it's something we're very, very focused on, and we'll balance where the stock price is, but also the M&A opportunities that we have. Karla Cruz-Jusino: Mac, I would add there that we do have $150 million available still under our share repurchase program, and that ends in 2026. So this is another point. Operator: [Operator Instructions]. There are no further questions at this time. I'll now hand the conference back to management for any closing remarks. Morgan Schuessler: Again, I want to thank everybody for joining the call. Again, I want to congratulate all of my colleagues on the call with me, and we look forward to seeing you in the future at investor events. Have a good night. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Third Quarter 2025 E.W. Scripps Company Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Carolyn Micheli, Head of Investor Relations. Please go ahead. Carolyn Micheli: Thank you, Didi. Good morning, everyone, and thank you for joining us for a discussion of the E.W. Scripps Company's financial results and business strategies. You can visit scripps.com for more information and a link to the replay of this call. A reminder that our conference call and webcast include forward-looking statements based on management's current outlook, and actual results may differ materially. Factors that may cause them to differ are outlined in our SEC filings. We do not intend to update any forward-looking statements we make today. Included on this call will be a discussion of certain non-GAAP financial measures that are provided as supplements to assist management and the public in their analysis and valuation of the company. These metrics are not formulated in accordance with GAAP and are not meant to replace GAAP financial measures and may differ from other companies' uses or formulations. Reconciliations of these measures are included in our earnings release. We'll hear this morning from Chief Financial Officer, Jason Combs; and then Scripps' President and CEO, Adam Simpson. Here's Jason. Jason Combs: Good morning, everyone, and thank you for joining us. We are pleased to be reporting a third consecutive quarter of results that met or exceeded expectations on nearly every reporting line, fueled by our Scripps Sports strategy and strong sales execution as well as tight expense controls. On the M&A front, we've been moving ahead with our plans for our station swaps with Gray and the sale of Fox affiliate WFTX in Fort Myers, Florida. And last week, we announced the sale of WRTV in Indianapolis. We were very pleased with the valuations we received on the Fort Myers and Indianapolis stations. Both sale prices represent multiples well above current local broadcast station transactions, 9.2x to your blended EBITDA for WFTX and 8.5x for WRTV in Indie and actually 9.2x if you adjust for the impact of the Pacer Finals run last June. These 2 cash sales will total $123 million, creating significant cash inflow that will improve the health of our balance sheet and provide for some modest delevering. During the quarter, we closed on the placement of $750 million in new senior secured second lien notes. We locked in a very good rate of 9.78%. Proceeds were used to pay off our senior notes set to mature in 2027, to pay down more than $200 million of our 2028 term loan and to pay off part of our revolving credit facilities. We have since paid off the remaining balance on the revolver, a full quarter ahead of our guidance. We'll get back to debt reduction in a moment. But first, let's review third quarter financial results and fourth quarter guidance. During the third quarter, our Local Media division revenue was down 27% due to the absence of political advertising revenue compared to the prior year. Core advertising revenue was up nearly 2%. We grew national advertising revenue, driven by an increase in our largest category, services. Our sports strategy helped to drive that Q3 performance as well. Local Media distribution revenue was flat. Expenses for the division were down more than 4% year-over-year, aided by lower employee-related costs. Local Media segment profit was nearly $53 million compared to $161 million in Q3 of last year's political cycle. For the fourth quarter, we expect Local Media division revenue to be down about 30%. We expect core revenue to be up about 10%, bolstered by our sports strategy, specifically our newest NHL partnership with the Tampa Bay Lightning as well as the comparison to last year's political advertising displacement of core. We expect Local Media expenses to be flat-to-down low single digits, inclusive of the new sports rights expense for the Lightning. Now let's review the highlights for the Scripps Networks division third quarter results and fourth quarter guidance. In the third quarter, Scripps Networks revenue was $201 million, about flat compared to the year ago quarter. Along with other companies in the National Networks business, we dealt with economic uncertainty, and yet we look to have delivered significantly better results than others. Connected TV revenue was up 41% year-over-year. Just a reminder that our Networks division CTV revenue comes from the extensive streaming distribution of our national networks. Advertising demand continues to be strong for our quality networks programming. In addition, inventory for both WNBA and National Women's Soccer League games commands premium advertising rates. The division's expenses for the quarter were down 7.5% due to lower employee-related costs and operational reductions we made last fall at Scripps News. Scripps Networks segment profit was $53 million, and the segment margin was 27%. For the fourth quarter, we expect Scripps Networks division revenue to be down in the low-double-digit range. This is being driven by a number of factors. We had more than $10 million of networks political revenue in last Q4. We have a lower percentage of upfront advertising compared to the year ago quarter, and our usual Q4 Medicare open enrollment advertising is lower right now, partially due to the government shutdown. We expect Scripps Networks expenses to be down low double digits. Turning to the segment labeled other. In the third quarter, we reported a loss of $7.6 million, about the same loss as Q3 2024. Shared services and corporate expenses were $21.4 million. For the fourth quarter, we expect that line to be about $21 million. For the third quarter, we reported a loss of $0.55 per share. The quarter included a $7.6 million loss on extinguishment of debt, $6.5 million of financing transaction costs, a $1.4 million write-off of deferred financing costs and $2.7 million in restructuring costs. Those items increased the loss by a total of $0.15 per share. In addition, the preferred stock dividend has a negative impact on earnings per share even when we don't pay it. This quarter, it reduced EPS by $0.18. I have an update to a full year guidance number that shows improvement over our previous guidance. We now expect our cash interest paid to be between $165 million and $170 million. This reduces the projected cash we need for interest. Coupled with the improvements we announced last quarter to lower the cash we need for taxes and CapEx, this will drive significantly better cash flow this year than originally anticipated. Turning to our 2 financing transactions this year. We were able to refinance all of our 2026 and 2027 maturities and a portion of our 2028 debt, while limiting the increase in our cost of capital to only 1% despite the current elevated rate environment. We expect to pay off the remaining reduced 2028 term loan balance through cash flow before it comes due, leaving us with no other bond or term loan financings to address until our 2029 senior notes. At September 30, we had no borrowings outstanding on our revolving credit facility and cash and cash equivalents totaled $55 million. Net leverage at the end of Q3 was 4.6x, a significant improvement from 6x in Q2 of last year. Our capital allocation priorities remain the same. We're focused on using cash flow to reduce the amount of our debt, and we place our highest priority on the reduction of our debt and the lowering of our leverage ratio. And now here's Adam. Adam Symson: Thanks, Jason. Good morning, everybody. Thanks for joining us. If you've been waiting for proof that our strategies are working, our strong third quarter results, our fourth quarter guide and the full-year performance they signal should make it abundantly clear. We are seeing real measurable progress at Scripps. We're delivering exactly what we have promised in recent years. We're growing our Sports and Connected TV revenue streams. We are closely managing expenses, resulting in improved margins. We are executing swaps and station sales to improve our local station group margins and pay down debt with more likely to come. And we have been using cash flow to reduce our debt and improve our leverage ratio with more certain to come. We're delivering an outsized ad sales performance compared to local and network peers, and we can credit 2 Scripps growth strategies in particular. These strategies reflect how our mission of deepening our connections with audiences and advertisers is driving business value. First was our decision, unique among local broadcasters to launch Scripps Sports. Over the last 3 years, we have charged full speed into partnerships with the WNBA, the National Women's Soccer League and a host of sports teams and other leagues. Ahead of the market, we saw the opportunity in women's sports, and we carved out a leadership position there for ION. At the same time, we developed a new model for local broadcasting and sports rights. In both cases, we saw where the momentum was building because we understood the passion sports fans have for their teams and because we recognize the value of that authentic connection for our brands and for our advertisers. As you can see from our results, this strategy has been a tremendous success. On the national network side, revenue from the WNBA on ION nearly doubled this season, which is an amazing pace, especially when you consider Caitlin Clark was off the court for much of the season. The WNBA is a big draw for our clients in the advertising upfront, commanding premium ad rates and increasing volume by about 90% this year over the previous upfront with total sports volume up over 30%. Advertisers aren't just taking notice of women's sports, they're competing for this inventory because they understand the demographic and cultural moment we're capturing. The WNBA, the NWSL, our recent successful premiere of the women's professional track competition, Athlos and the upcoming women's college basketball, Fort Myers Tip-off are helping to differentiate ION and the Scripps networks in the ad market. On the local station side, we now have full season agreements with 4 national Hockey League teams, the WNBA Champion Las Vegas ACES, and NWSL team and the Big Sky College Conference. These partnerships are driving up core advertising revenue by several percentage points a quarter, again, real measurable growth. Given the successes at Scripps Sports and with sales execution, we expect to get bolder in our pursuit of sports, following the framework that has paid off so well for us. Affordable and sometimes overlooked national professional leagues, women's sports and other local teams that need to reach their full geographic markets. This has been our winning formula, and we plan to continue to build on it with the same discipline that got us here. We won't chase rights we can't afford, but where we see opportunity to create value, we'll be aggressive. The second strategy we can credit as important as sports was our aggressive pursuit of distribution on streaming services for our networks. Audiences are turning to ION, ION Mystery, Bounce, Grit, laugh, Court TV and Scripps News on nearly all of the major streaming and virtual MVPD services and platforms. That distribution has given us an advertising revenue stream that went from 0 to a projected 2025 amount of more than $120 million in just a few years. Think about that. We created a 9-figure revenue line by being early and aggressive in securing Connected TV distribution. Streaming now constitutes 20% of all Scripps Networks viewing, and we continue to increase our offerings with more streaming content. We're building upon our beachhead with new FAST channels and new distribution like the partnership we announced last quarter that integrates the Scripps Networks into Peacock. We have plenty of room for ongoing double-digit growth in Connected TV revenue. While you can track the impact of our revenue growth strategies in the results, our focus on expense management and transformation should be just as plain to see, with a consistent downward trend this quarter, even including incremental sports rights, which benefit us with revenue growth. On the local side, importantly, network fees are flat and reflect the important change in the network affiliate dynamic we have been foreshadowing for some time, a trend we expect to continue in the right direction going forward. On the Scripps Network side, we expect to deliver a 400 to 600 basis point year-over-year margin improvement through efficiency initiatives and a leaner expense base. Fiscal discipline is a key part of the financial improvement plan, and you can expect it to continue as we balance expense management with strategic growth investments. But expense control only gets you so far. The Scripps transformation office led by Laura Tomlin is spearheading significant initiatives that will make a sustained and measurable impact across the enterprise. We're leaning hard into technology and AI in pursuit of meaningful return on investment, both in the back office and in our operating units. Early results are pointing to real value. In our newsrooms, we're already leveraging automation and AI to strengthen our core mission of local journalism, while improving the economics. These workflow tools allow our journalists to spend more time out in our communities, developing relationships, gathering information and reporting the news. Likewise, automation and AI are helping our sales teams more efficiently identify new prospects and advertising categories, allowing them to spend more time building relationships. This is just the beginning. I expect to share a lot more on the important work of our transformation office early next year. Finally, I'll close with some commentary on our M&A strategy. As I've said from the start, we are totally focused on optimizing our portfolio of stations to structurally enhance performance and economic durability in service to our vision to create connection. We're meeting the moment with a bold plan that will remake our portfolio for the future and improve our balance sheet given the premium sales multiples we've commanded. We've already announced the station swap deal with Gray, where we are exchanging 2 Scripps stations for 5 Gray stations, a transaction that improves our market positioning and creates immediate efficiency opportunities. We also announced station sales in Fort Myers, Florida and Indianapolis for cash. The sale prices represent premium multiples for the industry. These are quality stations we agreed to sell only at strong valuations and the cash we receive will go directly to delevering. And I'm committed to continuing this work. So you can see that we're realizing strong success in executing our ongoing plan to balance fiscal discipline with revenue growth to the benefit of shareholders. We're not just talking about improvement, we're delivering it quarter-after-quarter. The connections we're building with audiences through sports, news and strategic distribution are translating directly into advertising revenue growth. The operational discipline we're exercising is expanding margins and the capital allocation decisions we're making are strengthening our balance sheet. We are heading into 2026 with significant momentum. The midterm election looks to yield record spending across the advertising ecosystem. We will capitalize on our growing portfolio of revenue-driving sports assets and our strategic streaming distribution agreements position us well to capture expanding revenue in the CTV marketplace. Our strategies, our results and the opportunities ahead give you every reason to believe in the Scripps company, its management team and its future. Operator, we're now ready for questions. Operator: [Operator Instructions] And our first question comes from Dan Kurnos of the Benchmark Company. Daniel Kurnos: Yes. Obviously, a good print from you guys good execution across the board. Adam, maybe just more of a higher level, and obviously, Jason, you can pitch in. 2, you guys have done really well with kind of what you said on some of the -- I mean, you call them noncore asset sales, but some of the TV station stuff that you've gotten for really high multiples here. How much more would do you guys think there is to chop there? Obviously, there's got to be some sort of level where you think the portfolio still needs scale, but you're finding good value in the marketplace. And subsequently, there are still other people out there in the marketplace potentially looking for dance partners. So do you think that's still an option that's on the table? And then I have a follow-up. Adam Symson: Yes. I mean, broadly speaking, I do think there's significant opportunity there still for us to identify accretive opportunities for us to buy, sell and swap stations. We've been engaged in discussions around these opportunities to optimize our portfolio. We think opportunities that are going to continue to be available to us and that we'll continue to pursue. Relative to sort of, I think, the larger question around transformational opportunities, I'll say sort of what I've said many times before, we are absolutely committed to doing the work necessary to unlock and maximize shareholder value, period. I just don't think I could be any clear there. There's no question that transformational M&A at this moment can be really accretive in addition to the work we're doing with optimizing our portfolio, and we'll continue to operate in that marketplace. Daniel Kurnos: Very helpful color. And then just on the network side, I appreciate the political call out. So it sounds like that's about 4.5 points of the growth delta. Look Adam, you obviously talked about CTV ramping. I know it's still a relatively smaller portion but growing very rapidly. So can you guys just kind of parse out the impact of the government shutdown, what's going on with scatter, what's going on in DR and then also what you're seeing trends near term in the CTV component just so we have a better understanding of the mix? Jason Combs: Yes. So I can try to unpack that a little bit. So we guided to down low double digits, a lot of different things factoring into that. You alluded to one of the meaningful ones in there, the political more than $10 million last year that's not going to occur again this year. I will say we also have seen some weakness in DR pricing as we entered the quarter. Tariffs continue to really impact that revenue category and the uncertainty around that or just the impact that many companies are seeing from them. Pharma is a little volatile right now given some of the ongoing regulatory discussions. That's creating what I would say is an increasingly fluid marketplace within pharma. And I think this is the first quarter, where you're really seeing sort of the new upfront roll through the P&L and generally outside the sports programming, this wasn't as strong as an upfront as we had the prior year. Adam Symson: Yes. Relative to the upfront, Dan, just obviously, because it's impacting the fourth quarter guide. The story was a little bit mixed. I mean between the power of sports to drive demand and premium CPMs, we saw significant wins across our networks group in the upfront on linear and CTV. As I said in my prepared remarks, total sports volume up 30%, WNBA, in particular, saw significant increases of 90%. All of that drove our upfront CPMs to modest growth for the overall upfront. But there was generally some softness related to macro uncertainty, including with pharmas, as Jason said, I think a lot of advertisers still holding back some of their spend from the upfront and allocating to scatter, which may have accounted for some of the softness in volume. Jason Combs: And maybe just to add on because you typically asked about the CTV outlook as well. Really strong growth year-to-date. I think we're looking to be for the full year, greater than 35% growth for the full year. We kind of alluded to the whole number there in the script. I think there continue to be new entrants in there that does put some pressure as we move forward. We continue to identify new ways to unlock value in that space. And I think as we said in the script, we think it's going to continue to be a double-digit growth engine for us. I will just remind people, as you look at the way that falls because of the value we see in CTV tied to our sports assets generally, you're going to see more growth in the middle part of the year tied to WMA and NWSL then in a quarter like Q1 or Q4 that have very little sports. Operator: And our next question comes from Steven Cahall of Wells Fargo. Steven Cahall: So firstly, just a follow-on on networks. You've got that really strong margin improvement in 2025. I guess is based on some of what you talked about with the upfront and some uncertainty in the market revenues probably implied down next year. Do you think you can still expand margins and kind of continue on this cost journey that you've been on at networks. And then, Adam, just on M&A, kind of a strange question, but I think one thing the investors are trying to figure out is, with the family trust as kind of the voter on strategic M&A. How do those processes come together? Is management lead? Does the Board lead? Does the family lead? Just trying to get a sense of like what the level of engagement and proactivism is and how it works, since there is this kind of seems like once in a decade opportunity for transformational M&A which, as you say, could be really accretive. Adam Symson: Yes. Sure, Steven. I'll take both of those questions. So first, as you pointed out, I'm really happy with the progress our team is making with Networks revenue and margins in a really difficult advertising and economic environment. We are absolutely set to deliver on our promise to increase the margin this year by 400 to 600 basis points. But I would tell you, our work isn't complete. We're really focused on continuing to expand in sports to drive revenue growth and profit. And we're addressing some opportunities with our programming and our distribution, we expect to expand our leadership in fast and Connected TV to fuel revenue growth and identifying new ways to run the business with greater efficiency. So to sort of boil that down, all of this really leads me to be confident that we'll continue to see growth in the margins for Scripps Networks. We're not done yet with Scripps Networks and margin expansion. Relative to the family, look, I don't speak for our controlling shareholders. This is a management-led process obviously, our Board of Directors is very, very involved. And then from there, we bring the Scripps family in I can reiterate what I've said before, over the long history of this company, the family has always acted in the best interest of all shareholders and is committed to doing what is best for the company that creates the greatest shareholder value. Look, just to be very, very clear, this isn't some kind of hobby for the Scripps family. This is a business. It's an investment, and it's their American legacy, and I know they are committed to doing what creates the greatest value for all shareholders. Operator: And our next question comes from Avi Steiner of JPMorgan. Avi Steiner: 2 questions here. Maybe to start, would love your thoughts on the YouTube TV, Disney dispute, what it might mean for the local affiliate group more broadly. And can you remind us what is coming due on the distribution front in '26? And how -- I don't know, you can't size it obviously, but any help color there would be great. And then I've got one more for Jason. Adam Symson: Yes, sure. I'll start with the YouTube TV, Disney dispute and then Jason can talk to you about what I had for next year. Like all ABC stations, we remain dark as a results of the YouTube TV, Disney dispute. I think there's a lot of economic value for Scripps and ABC ahead when that gets resolved. But with that said, the protracted disruption is one of the reasons why we, as local broadcasters believe strongly that we need to seat at the table. We need to directly negotiating with the virtual MVPDs in order for us to ensure that our local audiences are able to access sports and news. It's just that clear for us. There's already been some softness, I would say, in the ratings as a result of the YouTube TV, Disney dispute. Not necessarily, we're seeing that in local, but you can see that in some of the national reports. That's obviously got trickle-down impact. But the reality is because of fragmentation, YouTube TV is only one way our consumers actually consume our content, especially our linear content. And so we're not seeing direct evidence of it impacting our revenue performance or our bottom line. Jason Combs: Avi, on the affiliate renewals. So we have 3 of our 9 CBS is up at the end of this year. And then in '26, we have ABC up at the end of Q2. So that's 18. That's our largest affiliate partner, 18 stations. Avi Steiner: How about on the distribution side, any meaningful retrans potential [ sub-Q ] revenue potential next year? Jason Combs: We have 70% of our retrans traditional MVPD subscriber base renewing mostly in the first half next year. There's a little bit in third quarter, but mostly going to slip between end of Q1 and end of Q2. Avi Steiner: That's very helpful. And then one more maybe for you. I think the premium asset sale multiples was kind of thrown around a couple of times, which is great to hear. Is that the same on an after-tax basis or any after-tax proceeds you can help us think through? And if you could remind us how the proceeds have to be applied to the term loan tranches that would be much appreciated. Jason Combs: Yes. So -- so the multiples we announced were sort of on a gross basis from a tax perspective, there was a $6 million tax payment tied to -- or it will be tied to the Fort Myers sale and $13 million tied to RTV in Indie. From a proceeds perspective, so we have a 12-month reinvestment period, after which time those cash proceeds will be split 70-30 between our B2 and our B3 term loans. We intend to use those proceeds to pay down debt. We also do have the ability to allocate a portion of them accretive M&A if that opportunity were available. But I think what you've seen so far and what you saw with our real estate sales we had last year was that we were very focused on driving those towards debt paydown and delevering of the balance sheet. Operator: Our next question comes from Shanna Qiu of Barclays. Gengxuan Qiu: I was wondering, if you guys could give any kind of early indicators on how you guys are thinking about political in 2026 relative to 2022 midterm? And then just a clarifying question on the asset sales. The 2 that you announced the stations, could you give a little bit more color on how they came to be, I guess, were those marketed through a competitive process after you guys look through your portfolio optimization? Or did you get inbounds from buyers there? Adam Symson: Thanks, Shanna. I'll talk a little bit about political first. This is Adam. I think next year is going to be a compelling year for us relative to political revenue. We've got 7 governor's races, 7 states with high stakes, house races and a Senate race that all look to be very competitive right now. We have a really deep footprint in Arizona, Colorado, Michigan, Nevada, Ohio and Wisconsin and Tennessee, all markets with, I think, significant elections ahead I obviously absolutely expect broadcasting to take the lion's share of the ad revenue spending for the midterm and I think our portfolio is very well positioned. So I'm looking forward to next year. I think it's going to be a very good year. It's part of why I referenced the momentum, the tailwinds that I see as we head into 2026. Jason Combs: So from an M&A perspective, we've talked about our strategy, our buy-sell swap strategy and the fact that we've identified certain assets that we would view as less strategic. From a process perspective, I mean, I think generally, there are inbounds and there is a proactive approach as well. We know our markets. We know who potential buyers are of our markets. And so I can't say definitively, it's one or the other I think, it's probably a little bit more nuanced than that. I think the big takeaway there, Shanna, is just the prices, those multiples, pushing 9x in Fort Myers and north of 9x in Indie when you back out the MDA lift. I think that's one question we've gotten before is on those individual station sales, can you really drive a premium multiple. And I think we have 2 deals now that clearly show that we can. Gengxuan Qiu: Great. Just one more clarifying question for me on the Disney, YouTube TV. For the 4Q guidance, any impact from that blackout in the guidance that you put out? Adam Symson: There is not. In fact, I mean, if you look at our core -- if you sort of think about our core guide, it's -- we're crushing it. So I'm really happy about where we see local revenue as we head into the end of the year. Operator: And our next question comes from Craig Huber of Huber Research Partners. Craig Huber: Jason or Adam, can you just comment a little bit further on the advertising environment right now, how you're feeling about it versus, say, 6 months ago? Obviously, roughly 6 months ago, we were in the midst of tariffs and so forth. People seem like they're more comfortable with it now. What's going on in that front, but you did allude to a tough environment. Just what's your overall sense now versus how you felt 6 months ago, say? Jason Combs: Yes. So I'll maybe kind of segment this out and I'll talk about the local core space first. And I think that, as you look at the results we had for Q3, up nearly 2%, the guide we gave, plus 10%. We're seeing some strength and some momentum there. We saw our categories build as the third quarter progress, and we continue to both see a nice snapback in the political crowd out, continued benefits from our sports strategy, driving growth within our local brand and just excellent sales execution, that is really driving, I mean, those numbers that I just quoted there, up 2% and up 10% in the fourth quarter. Those dramatically beat all of our peers. And so, I think from that standpoint, we're seeing momentum on the local side. I think on the network side, I talked about this a bit earlier. I think you have a bit of a mixed bag, where you continue to see growth through our sports strategy. You continue to see growth through our Connected TV strategy. But you do see in that national ad marketplace, some challenges right now across a variety of fronts, direct response pricing is weak as we started this quarter, Pharmaceuticals are a little weaker, given the uncertainty in regulatory. And so I think that's sort of why, if you look at kind of our Q4 guide, you have a little bit of a different story between local and networks right now. Craig Huber: Okay. And second question, I don't know, if you have this at your fingertips, but just curious, what's your sense on how the viewership is breaking down right now in your local markets and also your Scripps networks between over-the-air streaming, et cetera? Adam Symson: I don't -- this is Adam. I mean Jason might be looking up some of the little stuff, but I did say in my remarks that about 20% of our viewing for networks is now through streaming. And we have been very, very focused on monetizing that 20%, and that's what's also powering the revenue growth there. So we're really pleased with the share of audience that we're driving in the Connected TV marketplace. I think it's a testament to the value of our brands and the value of our programming strategy. And the reality is we probably represent one of the very few platforms that brings premium live sports into the streaming or the free ad-supported television marketplace and that's helping to drive significant CPMs also from our streaming. We saw that play out in the upfront as well. Significant growth in upfront opportunity with Connected TV for us. Jason? Jason Combs: Yes. The only thing I'd add on to that, specific to kind of you pointed out OTA there, I mean, I think that from an OTA perspective, Adam gave that 20% is CTV and networks, the other 80% being linear. We've seen growth in sort of the OTA only percentage of that, 25% watched one of our networks during Prime through OTA during the most recent quarter. And so, I think we're seeing some momentum there. I think the other thing to point out on the local side, and I'd just like to give this reminder because I think sometimes people get very focused on prime and how much that contributes to our core. I'd like to remind people, 50% of our revenue in local comes through our news product and an ever-growing percentage comes through sports, and I would say both of those viewing genres continue to be extremely durable from a ratings and a delivery perspective. Adam Symson: And that, I mean, I think powering our continued ability to attract teams leagues that want more reach is their acknowledgment and recognition that with distribution through Scripps Sports locally and on networks they reach more fans than ever before, especially given the declines in the cable only marketplace. With us, they're reaching them on OTA, paid TV and SaaS. And that's significant additional reach for those leagues and teams. Craig Huber: I appreciate that. You don't happen to have the breakdown for the over-the-air, what percent that is roughly for both segments? Adam Symson: We don't. Jason Combs: We don't right now and it's staying within networks, it does vary greatly from one -- one channel to the next. Adam Symson: Yes. Craig Huber: Okay. Understood. And then also, you guys are pretty plugged in Washington on the regulatory front. Obviously, the government shutdown is delaying things here. But what's your sense on timing of dealing with this 39% ownership cap out there? And how do you think that will get resolved? And do you think the whole thing will get pushed aside here. So it's no longer in place here, but how long you think it might take to get this through? Assuming the government shutdowns ends fairly soon? Adam Symson: Well, I don't know that the government shutdown ends early soon, Craig. I mean, to be perfectly frank, I would have thought that 2 weeks ago, once the government shutdown ends, I fully expect that the FCC will take action on the prohibition against groups like ours owning 2 stations in -- 2 big force in 1 market. that now should be fairly simple and quick. And then the FCC will move forward, I believe, on eliminating the national cap. Craig Huber: And would you be surprised if it took beyond the middle of next year to get rid of the ownership cap, again, I assume the shutdown does end? I know it's... Adam Symson: Yes. I would be very surprised if it took beyond the middle of next year. I think, Chairman [ car ] is committed and doesn't waste a lot of time. Operator: And our next question comes from Michael Kupinski of NOBLE Capital Markets. Michael Kupinski: Just a couple of quick questions. I just want to clarify, you mentioned that the Scripps Networks declined in Q4, somewhat related to the government shutdown. I was just wondering if you can clarify what that revenue decline -- if you can quantify that revenue impact? Adam Symson: Yes. I mean it's a smaller piece. It's a part of the puzzle. I mean you've got the political crowd out from last year. You've got the general softness in DR, and then you've got the impact of the government shutdown on processing the open enrollment for the Medicare Advantage which is impacting demand and buying from our networks a little bit. Michael Kupinski: Okay. In terms of changes in the advertising categories, can you just kind of talk a little bit about any ad categories that might be sensitive to interest rates and the Fed action, maybe from the third quarter to the fourth quarter, maybe even from the first quarter, particularly categories like auto, home builders, real estate and so forth. Any particular changes as we -- from third, fourth, maybe even as the pacings into the first quarter? Jason Combs: Yes. So the first thing I'd say there is it's really hard to really take a lot out of the trends right now because of the amount of political crowd out like everything is up significantly as you kind of exited Q3 and as you get into the beginning of Q4 because of that political crowd out. Certainly, there are some categories more materially impacted that. Automotive, has been a category that's not just interest rate also sort of inflationary and tariff-related has been a struggle for us the last, call it, 4 to 6 quarters. Q3 was -- it was a little bit stronger than it's been probably the smallest year-over-year decline we've seen in a while. I think other categories around retail and around services, which includes things like mortgage-based services certainly can be impacted depending on sort of the outcome of the next rate cut. Michael Kupinski: This is just more of a macro question. Typically, for someone who's been following several decades in the industry that -- the industry for several days. I was just curious, the Fed rate cuts typically have kind of spurred some national network advertising and in some cases, 6 months advance of the Fed rate action. And of course, the Fed rate action has only been pretty modest cuts. But notwithstanding those small rate cuts you would think that there would be a lot more active advertising environment. And I was just wondering, do you feel like advertising would have been a little bit more robust and given the economy that's been a pretty decent economy, do you think that there might be more of a secular issue? Or is there some sort of anomaly here or why isn't there much more of a robust advertising environment, certainly on a national front? Jason Combs: So I think a couple of things. I mean, absolutely, there's some secular component. That is why we are leaning into certain growth strategies around Sports and Connected TV because we're looking for growth opportunities to offset and drive growth as we see some secular challenges. I also do think frankly, the pace of rate cut is not matched up with most people's expectations kind of coming into the year. And I think that, that has negatively impacted the ad markets. And I do think, if we've seen more aggressive rate cuts, that we would see a better ad marketplace right now. Adam Symson: Yes. I would add, although uncertainty is not the end market trend. Uncertainty and economic uncertainty doesn't help consumers. And when things are difficult for consumers, it doesn't help the R advertising. It makes brands and agencies hold on to their dollars for longer because they're unsure of what's next. Now we've got a government shutdown where we're unclear on what the job numbers are like. We're not sure what the Fed is going to do. The Fed's actions thus far have been relatively weak. And so, I think we've got to get past this period of uncertainty and once we do, I think we'll begin to get a better -- a clearer sense of how the advertising market comes back as brands and agencies drive sales. Michael Kupinski: Got it. Well, hopefully, we have a building environment in 2026. Operator: And now we have a follow-up from Craig Huber of Huber Research Partners. Craig Huber: I know you guys talked about AI to some degree. But can you just talk a little bit further there about when you might start seeing material benefit maybe on the cost side of things in the operations at your company? And then also, I guess, Jason, you guys are always turned over every stone here for years to try and make the company more and more efficient on the cost side. Do you feel at this stage that you have a lot more to go in each of your segments and taking out costs here to help the margins? Adam Symson: Yes. I'll take both of those questions, Craig. And they're really the same. I mean, I think we're going to be in a really good position next year to provide you with more information on how a transformation driven by technology really allows us to operate as a much more efficient, effective and growth-oriented company. And I would expect to have more to say about that come February. Operator: I'm showing no further questions at this time. So this concludes the question-and-answer session and today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good morning, ladies and gentlemen and welcome to the Constellation Energy Corporation Third Quarter Earnings Call. [Operator Instructions] As a reminder, this call may be recorded. I would now like to introduce your host for today's call, Emily Duncan, Senior Vice President, Investor Relations and Strategic Initiatives. You may begin. Emily Duncan: Thank you, Olivia. Good morning, everyone, and thank you for joining Constellation Energy Corporation's third quarter earnings conference call. Leading the call today are Joe Dominguez, Constellation's President and Chief Executive Officer; and Dan Eggers, Constellation's Chief Financial Officer. They are joined by other members of Constellation's senior management team, who will be available to answer your questions following our prepared remarks. We issued our earnings release this morning along with the presentation, all of which can be found in the Investor Relations section of Constellation's website. The earnings release and other matters, which we discuss during today's call contain forward-looking statements and estimates regarding Constellation and its subsidiaries that are subject to various risks and uncertainties. Actual results could differ from our forward-looking statements based on factors and assumptions discussed in today's materials and comments made during this call. Please refer to today's 8-K and Constellation's other SEC filings for discussions of risk factors and other circumstances and considerations that may cause results to differ from management's projections, forecasts and expectations. Today's presentation also includes references to adjusted operating earnings and other non-GAAP measures. Please refer to the information contained in the appendix of our presentation and our earnings release for reconciliations between the non-GAAP measures and the nearest equivalent GAAP measures. I'll now turn the call over to Joe. Joseph Dominguez: Thanks, Emily, and thanks Olivia, our operator this morning for getting us started. Thanks to all of you for your continued support, for your interest in the company and for joining us today at the end of a very busy week for all of you. As always, I want to start by thanking the incredible women and men at Constellation for delivering another quarter of strong operational and financial performance. Powering America is a 24/7 business, and our continued success derives from the simple fact that our folks are exceptional at what they do. This summer, our nuclear plants delivered near-perfect reliability. Our power fleet of gas and renewables answered the bell when dispatched and our commercial and retail teams have once again proven why they are some of the best in the business. I'm going to turn to Slide 5 to get us started with our financial results. We delivered third quarter GAAP earnings of $2.97 per share and adjusted operating earnings of $3.04 per share, higher than the third quarter of last year. Our commercial and generation teams delivered outstanding performance and the stock has performed tremendously again this year, benefiting you, our owners. But this great performance also benefits our people through stock compensation plans that we have aligned with your interest as owners. This year, because of the magnificent performance over a number of years, these plans are triggered and create some nonrecurring O&M headwinds that Dan will cover in his section. But notwithstanding these onetime events, what I don't want you to miss is the continued growth and strong performance of our business. On the data economy front, our team has never been more active with serious and knowledgeable customers. I know in the last call, I hinted that we are far along on a transaction, making use of a baseball metaphor that we were past the seventh-inning stretch. That remains true, and we continue to progress. But as we have recently witnessed in real life baseball and as I'm sure, Dodgers and Blue Jays fans, especially can attest, some of the later innings can seemingly drag out. Nonetheless, we're confident in our ability to complete these transactions, and we will let you know just as soon as we can. But perhaps more important to you than any set of transactions is what we are seeing in the broader data economy market. Our general observation is that the market is hotter now than ever. And the real big difference we're seeing is buyer maturity. In the earliest days, we had a great deal of interest from a lot of customers. But I think it's fair to say in retrospect that many customers in the early days were exploring options, kicking tires, as some might say. Sometimes, they were wondering whether nuclear energy would fit into their own sustainability plans. And even the most serious buyers were still on the shallow part of the learning curve when it came to understanding our markets and the interconnection of really large loads. Today, we're seeing a far more sophisticated and aggressive customer walk through our door. They have done deals. They understand pricing and term. They know they want nuclear. They understand the accounting and the collateral needs of a large transaction. They understand the interconnection process. Most importantly, they walk in our door with a strong understanding of what we can offer and what we need to secure on behalf of our owners and therefore, how to best execute. At the end of the day, we are often paced by the speed of interconnection in these deals. But in terms of our own commercial terms, the negotiations move much more quickly than ever before. Now with regard to the interconnection process, we were encouraged to see the letter from Secretary Wright to FERC, ordering FERC to initiate a rule-making proceeding to develop a standard approach for quickly connecting large loads to the transmission system. It was a clear message from the administration. If America is going to maintain a leadership position in artificial intelligence, we need practical reforms to make it easier to connect large loads to the grid. As you know, this is something we have been saying for a long time. We look forward to FERC's quick action. They have a docket in PJM that is complete with evidence and with arguments. It's ready for decision. Turning to other developments this quarter. We reached a landmark agreement with the state of Maryland and other key stakeholders that lays out the path for the continued operation of Conowingo Dam for the next 50 years. On Slide 5, you can see a picture of the stakeholders that gathered together with Governor Moore and others to celebrate this outcome. You see the handsome guy in the middle of the photograph and to my right, is Governor Moore. This was a win-win outcome. It brought together previously opposed coalitions to create a long-term solution that helps and protects the bay, while ensuring the continued operations of a vital source of Maryland Clean Energy for the region. I want to thank Governor Moore and Attorney General Brown for their leadership. We look forward to continuing to work with them and other elected officials to explore energy options for Maryland and the region. Lastly, Calpine remains on track to close in the fourth quarter. The DOJ is our final approval, and we presently are not seeing any effect on their work from the government shutdown. We're looking forward to getting the transaction closed, and to start working as a combined company to bring coast-to-coast solutions for our customers and to create value for you, our owners and for our communities. Turning to Slide 6. The momentum and support for nuclear has never been stronger. Nearly 3/4 of the public now supports nuclear energy. But it doesn't stop there. 9 out of 10 people think that the licenses on existing nuclear plants should be extended, and you know we're doing that work. And 2 out of 3 people believe we should be building more nuclear plants in the U.S. This is a tremendous level of public support. The public gets it and so do the policymakers. I'd point out to you that just in the last 10 days, the Trump administration and Westinghouse announced a public private partnership with the goal of building 10 gigawatts of new nuclear reactors. And the government is pledging $80 billion to help ensure it happens. Our nation recently announced a trade deal with Japan and the centerpiece of that was the investment of more capital in nuclear and the data economy. And then finally, NextEra, a company known for renewables announced the restart of Duane Arnold, all enabled by another contract with hyperscalers. And that's just what happened in the last 10 days, and it builds upon the bipartisan support that we've seen for nuclear tax credits that not only support new nuclear, but crucially support the existing fleet so that it could continue to operate, uprate and relicense. States are also leading the way through ZEC and other programs to ensure that clean, reliable nuclear power continues to benefit their citizens. Under Governor Hochul's leadership in New York, the state is looking to build 1 gigawatt of new nuclear built on a foundation of the new -- of the existing nuclear fleet that has been so successful for New York. The Public Service Commission has called for the extension of the ZEC programs, and we are involved in that proceeding. All of these developments are wonderful and a great affirmation of what I think has been the core principle of this company from its beginning. Nuclear energy is the most valuable and important energy commodity in the world today, and Constellation produces more of it than any other private sector company in the world. But our advantage doesn't just stop with the existing fleet. I think the most valuable asset that we have, that presently isn't fully recognized is the nuclear sites themselves. This is the place where nuclear was built. It's the place where we have the infrastructure, the land, the capability and the talent to build the next generation of nuclear plants. These land assets that Constellation owns more than anyone provides unique value that is difficult, if not impossible, to replicate. And what it means to me is that the path to new nuclear in many places is going to walk through Constellation. Turning to Slide 7. Constellation has had an excellent track record, as you know, of working with stakeholders to find solutions. And we once again stepped up to meet the needs of the grid by answering Maryland's call with options for the state to consider that would bring new dispatchable generation resources to the state as well as the continued operation and expansion of the world's best 24/7 clean energy resources. As part of the Next Generation Energy Act of 2025, the Maryland Public Service Commission solicited applications for dispatchable generation and large capacity resources that could proceed through an expedited process known as a CPCN or Certificate of Public Necessity. In response, we're providing Maryland options to potentially bring up to 800 megawatts of battery storage and more than 700 megawatts of low-carbon natural gas to help Maryland meet its future energy needs. Being part of the solution is who we are at Constellation, and no other company is doing more to bring and secure power for our communities than Constellation. As you know, we've committed to bring 835 megawatts through the restart of the Crane Clean Energy Center. We continue to provide nearly 600 megawatts from the relicensing of Conowingo that we spoke about a moment ago. We are bringing 160 megawatts of new nuclear uprates online at Byron and Braidwood beginning next year, and we're doing far more than this. As we talked about last quarter, we're collaborating with customers to pioneer about 1,000 megawatts of AI-enabled demand response capacity. We're targeting 500 megawatts under contract this year and another 500 next year. And we have identified an additional 900 megawatts of uprates at our sites, including 190 megawatts at Calvert Cliffs in Maryland. Constellation has and will continue to support reliability everywhere and operate in our competitive markets, effectively and performing well. And we have seen that over a decade since deregulation with generators, the competitive market has provided the best solutions to customers. With that, I'm going to turn it over to Dan for the financial results. Daniel Eggers: Thank you, Joe, and good morning, everyone. Beginning on Slide 8, we earned $2.97 per share in GAAP earnings and $3.04 per share in adjusted operating earnings in the third quarter, which was $0.30 per share higher than last year. In the third quarter, we saw fewer nuclear outage days, both planned and unplanned compared to the same period last year. These results reflect the outstanding efforts of our teams whose dedication and skill have driven higher generation volumes and help us operate more efficiently than ever with lower O&M expenses on a year-over-year basis. Last quarter marked the first period where we recognized a full 3 months of higher PJM capacity revenues following the breakout 2025, 2026 capacity auction. With our plants currently near or above the top end of the PTC zone, the non-CMC units captured almost all of the benefit of higher capacity prices. This capacity upside is partially offset by a reduction in PTC revenues compared to last year when more of our plants were in the PTC zone. Additionally, ZEC prices in both the Midwest and New York were lower compared to the third quarter of last year. As a reminder, for the full year 2025, our Illinois ZEC revenues are about the same as last year, but the timing is different since we booked banked ZECs last quarter, whereas in 2024, more of the ZECs were booked across the quarters. Moving to Slide 9. Our nuclear team continues to execute at levels of reliability and with a commitment to excellence that yields differentiated operating performance. During the third quarter, they once again hit that mark with a fleet-wide capacity factor of 96.8%. Our team consistently delivers a capacity factor about 4% higher than the industry average, which at our fleet size is the equivalent to having another reactor's worth of power on a full year basis. Our renewable and natural gas fleets performed near plan during the quarter, with renewable energy capture at 96.8% and power dispatch match at 95.5%. Consistent, reliable and excellent operations across our generation fleet, especially during the critical summer months, are a testament to the thousands of tasks and hours of planning, our teams complete on an ongoing basis to make sure we can meet our commitment to provide clean, firm and reliable power. Turning to Slide 10. Our commercial team continues to meet the needs of our customers, delivering tailored energy solutions that meet their evolving needs. This collaborative approach is driving strong performance with sales margins above the long-term averages we use in our forecast and above the margins we anticipated at the beginning of this year. The renewal rates for both power and gas remained strong. The quarter-over-quarter decline we experienced in our C&I gas renewal rate is almost entirely driven by the loss of one very large, low-margin customer and expected part of the normal ebbs and flows of the business. Our relationships with long-standing customers remain strong and our scale and ability to deliver products to meet the needs of our customers remains a competitive advantage. Continuing on Slide 11. We are narrowing our full year stand-alone adjusted operating earnings guidance range to $9.05 to $9.45 per share. The commercial and generation businesses have had another outstanding year. Our commercial team's ability to optimize the portfolio and deliver value beyond targets is a key driver again this year. Additionally, the world-class operating performance of our nuclear fleet has also contributed upside to our gross margin. This operational strength reinforces the reliability and consistency of our company's earnings profile. Our stock has appreciated over 50% year-to-date, significantly benefiting our owners, but also creating O&M headwinds from stock compensation, which is offsetting much of the gross margin favorability this year. Finally, as a reminder, our revised guidance is stand-alone to Constellation and does not include any impacts from the Calpine transaction. Speaking of guidance and looking to 2026 with the Calpine deal, we get a lot of questions on what to expect. We plan to provide combined company guidance and modeling tools on or around our typical fourth quarter call in late February. We expect to fold Calpine into our current base and enhanced EPS constructs. And as you all revisit your models in the interim, let me remind you when we announced the transaction in January, we provided preliminary expectations for EPS and free cash flow accretion. Those expectations were based on forward power prices and spreads that look relatively similar to today despite the market having moved around a lot since last December. Calpine also has a history of locking in sales or hedging its fleet like other generators to ensure meeting its financial commitments. So near-term open exposure is relatively limited. And the guidance included our view of expected synergies, which, as we talked about, were not a major value driver for this deal, but were anticipated based on what we knew about putting the 2 companies together, and recognizing Calpine was long held by private equity outside of the public markets. It also reflected estimates for accounting policy harmonization adjustments and purchase accounting with fair value calculations, which are inherently difficult to model from your seats. We will fill in all the details when we get to early spring. But I know it has been a little while since the deal was announced. So we thought a quick refresh back to our original conversation would be helpful for all of you. Turning to Slide 12. In September, we executed a renewal and upsizing of our credit facilities, positioning us for the close of the Calpine transaction. Combining the expanded revolver with the other liquidity tools that we use, we'll have $14 billion of liquidity after the deal closes, underscoring the strength of our balance sheet and the strategic flexibility afforded by our investment-grade credit rating allowing us to move forward with confidence. We're also asked regularly about our capital allocation strategy after the deal closes, and it remains unchanged. With the significant free cash flow the combined company is expected to generate, our priorities remain clear. We will maintain a strong balance sheet and high investment-grade credit ratings targeting a return to our metrics by year-end 2027, deliver at least 10% annual dividend growth, pursue growth opportunities that meet our double-digit unlevered return threshold, and return capital to shareholders with $600 million remaining on our existing buyback program. Our goal remains the same: to deliver long-term value for our owners. The philosophy behind our capital allocation strategy is consistent even as we evolve into a larger, more diversified company with even greater opportunities. With that, I'll turn the call back to Joe for his closing remarks. Joseph Dominguez: Thanks, Dan. So folks Constellation performed very well during the third quarter and throughout the year. But we've got 2 months basically to finish it up. And so we've got a lot of work going on in the business, and we remain focused on closing the Calpine transaction and bringing together these 2 great companies. We're looking forward to proving that 1 plus 1 will equal 3. And that the size and scale of the combined company will deliver value for our customers and for our nation that neither company could have done on its own. We're working hard to execute transactions with our customers in the data economy. And we're working with the states and regulators to provide sensible solutions for meeting this moment where new generation and new capabilities are going to be needed to allow America to lead as it should on AI. Constellation is built on a foundation unlike any other company in the energy sector. That foundation enables us to consistently deliver value to our owners year after year. We generate strong cash flow and base earnings supported by a nuclear production tax credit, which continues to enjoy broad and growing bipartisan support. We have a strong earnings growth profile through the decade, and we are in the middle of strategic transactions or PPAs with hyperscalers, which we expect to complete, which will be additive to both our growth and our base earnings. We benefit uniquely from higher inflation, which causes the PTC floor to automatically adjust and further strengthens the economics of our nuclear fleet. We're well positioned to capture value from the opportunities ahead, selling our megawatts at a premium through long-term contracts with customers, including those in the rapidly expanding data economy, which we've talked about quite a bit during this call. As overall power demand grows and new generation resources are required, our existing fleet is ready to meet the needs with clean, reliable and available today energy, and our land gives us a great opportunity to participate in future development. With that, I look forward to your questions. Operator: [Operator Instructions] Our first question coming from the line of Shar Pourreza with Wells Fargo. Shahriar Pourreza: Joe, just on your hyperscaler comment. I mean, obviously, we've seen a lot of BTM deals being done ironically with nonpower companies. Couldn't quite tell from the baseball analogy, but are you still kind of confident with announcing another hyperscale deal by year-end? Or should we assume early next year. And despite FERC, should we still assume that this deal or any deal will be structured in front of the meter? Joseph Dominguez: Yes. As to the last question, yes, right now, as I've indicated on prior calls, we're really focused exclusively on front-of-the-meter deals, which is why this interconnection process ends up becoming, to a certain extent, the gating function on these deals, and we often have to wait for other parties. Shar, my expectation is that deals will be completed soon. I think it will happen before we talk again. But I don't -- there are these approval processes that customers have to go through that sometimes are time consuming. And I don't want -- I can't guarantee the work of other parties. But we're quite close here. So I'm hopeful that this stuff will get done soon and certainly before our fourth quarter call. Shahriar Pourreza: Okay. No, that's actually helpful. And then just lastly, just from a contracting pricing perspective, I mean, we obviously -- we have a proxy right now in Texas for BTM deal with significant backup gen. Are you seeing FOM and BTM pricing kind of converge in your conversations, especially since you're focused more on the FOM side? And just what about gas versus nuclear, especially as you're closing the Calpine deal? Joseph Dominguez: Yes. I think gas has some capabilities in this space. Just to answer that part of your question. I think the real issue with gas for the customers is twofold. One is, does it meet their longer-term sustainability goals? For some customers, it's okay. For other customers, it isn't. And then separately, in the case of gas, it's sometimes more difficult to predict the kind of long-term pricing. So when you're asking me to compare pricing for gas, whether that's behind the meter or front of the meter to a nuclear deal, we end up having to speculate about what future gas prices are going to be, say, over 20 years, we end up having to speculate whether or not there are going to be other compliance costs associated with carbon emissions from gas. So really hard to do that. Oftentimes, the gas deals leave those issues open to different inputs for either a carbon price, a change in policy and of course, for the underlying cost of gas. So hard to compare the 2 things. And generally speaking, the deals that you're alluding to that have been done really haven't been done with new clean resources that allow for the comp. So a bit hard to say. I do think that from an economic perspective, what we're offering, and I think it's part of the heat that we're seeing in terms of the inflow of customers through the door is very attractive pricing relative to other options, and pricing that's firm and sustainable for a long-term period and something that they know from their own environmental pledges and sustainability goals is going to be compliant for them. Shahriar Pourreza: Got it. But just -- I guess, just focusing a little bit on just nuclear FOM versus BTM pricing. Is there a material difference? Are you seeing when those conversations just honing in on nuclear? Joseph Dominguez: Shar, I think it's hard yet to fully understand what the new nuclear pricing is going to be. I mean, that's -- the bottom line is we do a tremendous amount of work on that. And I think it's far from settled what that's going to look like. Obviously, what we could offer is significantly more economic. And most importantly, it's available right now. Operator: Our next question coming from the line of Steve Fleishman with Wolfe Research. Steven Fleishman: I guess, first, just a question on the Calpine. There were some stories about a potential delay in the asset sale process by you? Just is there anything that we should read into that? Joseph Dominguez: Probably a couple of things, Steve. One is we kicked off the asset sale process because we weren't sure how much time we were going to be given to divest needed assets. And so we're feeling more confident that we're going to have a reasonable amount of time to execute the divestiture post regulatory approvals. And secondly, as we complete the regulatory approvals, it is, as you know, DOJ and FERC utilize different tests. And so we want to make sure we're targeting the exact right assets to divest. Biggest point here is that we just don't feel like we need to be in a hurry to complete an asset sale transaction, and we want to take our time. The market is very supportive of sales of these assets right now. Steven Fleishman: Yes. And I guess there'll be others that have pending ones that will be done later on maybe. That could be buyers. Okay. So the other question is more just high level, I mean for the last several months, we just keep hearing different new entrants to the Power business, whether it's oil companies, gas companies, new technologies, et cetera. And then obviously, huge focus on time to power. But then at the same time, it seems to take a very long time to work out deals for those same customers with the assets that are there already. And maybe you can just help connect the dots of what's going on and your conviction level that you'll be able to kind of execute on the ability to capture these new customers? Joseph Dominguez: I think the excitement and interest in new generation is just really a reflection on how durable this growth cycle is going to be. We're seeing these -- the investment in new data centers just grow over year-over-year, and we're now seeing capital deployment projected to be $0.75 trillion on building data centers. And notably, that's probably twice as large as the 3 largest publicly traded power companies in the United States. So we're seeing an investment in the data economy that's simply enormous, and it's going to call for all hands on deck. And I'm always pleased to see that they believe in it so much that they're lining up power needs that are really going to come on 5 or in certain cases, maybe up to 10 years down the road. So I think that's all indicative of the size of the opportunity that we're seeing. Steve, I'd just simply stand by my earlier comments that the amount of interest we have, the number of deals that are being negotiated is far different now and far bigger and more serious now than it's been before. And so that's what gives me confidence we're going to be able to continue to execute the strategy. And I think we provide something uniquely and that's available now, power, with a predictable opportunity to scale that. Operator: Our next question coming from Jeremy Tonet with JPMorgan. Jeremy Tonet: We just wondered if you could provide a little bit of color on Three Mile Island, it seems like progress is going well there. Just wondering if you could provide any updated thoughts? Joseph Dominguez: Well, just what you said. I mean the progress is going well there. We've had a number of critical items that we've completed just recently. The plant looks really well. We talked at the beginning of this whole project that we are going to need a couple of components, the main transformer being one of them. Fuel was another gating item, getting the people ready to operate the site. That was a gating item, Bryan, who's here and his entire team have just done an exceptional job getting the plant ready and really tackling some of these challenges that we identified. Most importantly, we're not seeing new challenges emerge, right? So as we continue to do our work, there's always going to be some discovery that comes along with the inspections of the plant. And what gives me great confidence is that we're not unearthing anything that we didn't anticipate. And in point of fact, the condition of the plant is better. Jeremy Tonet: Got it. Very helpful there. And just wondering if you might be able to comment a little bit as well separately on power markets. We've seen energy prices moving up recently and just wondering thoughts you have on these moves where it could go, and do you see this having any, I guess, impact on conversations when you're discussing contracts? Joseph Dominguez: Well, I think it has 2 impacts strategically for us. One, right, is the -- questions I think we've already gotten here. Are we seeing some sort of convergence that causes us to think we're not going to achieve our pricing expectations? And I would say the opposite is true. And then secondly, we're going to have to sell some assets here to get through regulatory approvals. And I think the impact there, again, is favorable and that the environment for the sale of assets is more constructive now than probably when we started the -- when we announced the Calpine deal. But let me ask Jim McHugh, who's here to kind of weigh in on what he's seeing in the power markets and their durability. James McHugh: Yes. Yes. Thanks, Joe. I'd break it into a couple of components. One is maybe short term, we've seen a small rebound in the nearby, just kind of the nearby months, maybe gas rebound a little bit, that's had somewhat to do with power upward pressure that we've seen. But actually, the power upside has been longer duration than that, and it's been stronger in the outer years. And it's really outperformed gas. I think we're seeing expansion -- heat rates expanding and spark spreads expanding, mainly due to the data growth we're talking about, the load growth in general that we're talking about. We'll have continued -- some continued retirements down the road. There's less line of sight right now, as we've talked about, to additional megawatts in the grid except for all these wonderful opportunities that we've talked about in -- that Joe talked about in the call earlier as well as what we're seeing in terms of our corporate PPAs, bringing on new generation too. But really, it's -- over the last few months, it's been the realization and positive developments on load interconnection and the reality of load growth happening where I think the power markets are pushing stronger. It's still rather tight on the supply-demand fundamentals in general. And it's really about the expectation that we'll see higher energy prices to go with some of the upward pressure we've seen on capacity prices in these markets, too. Operator: Our next question coming from the line of David Arcaro with Morgan Stanley. David just withdrew his question. Our next question coming from the line of Andrew Weisel with Scotiabank. Andrew Weisel: A few questions for you. First, in Maryland. You talked about the 700 megawatts of natural gas capacity. I believe that's existing assets and you mentioned relocated turbines. Can you get a little more specific, where would those be coming from? And maybe on timing, how quickly would those be available to come online? Joseph Dominguez: They're physically located in buildings in the Midwest and in New England. And they're -- I would describe them as incredibly lightly used assets that we could relocate relatively quickly to Maryland. But in terms of their performance capabilities are relatively speaking, state-of-the-art in terms of their heat rates. And we have taken measures to refurbish those units and get them ready for rapid redeployment. So that, I think, is the answer to your question. Andrew Weisel: Great. Then on new nuclear. I know I'm pretty new to the story, but I know that you sounded pretty cautious about new nuclear construction, given the high cost and risks. But with the announcements from the federal government, has that changed your comfort level or given -- has that changed your appetite? And what would it take you to get you to move forward? Whether you need government support and the customer contracts? I know you've talked about exploring potentially 2 gigawatts near Calvert Cliffs in Maryland. And New York is considering adding a gigawatt, as you mentioned. Maybe just high-level thoughts on all of that? Joseph Dominguez: First and foremost is a PPA, right? We need a durable PPA. And the second thing is, we need clear pricing that we're going to be able to achieve with constructability. And that means good partners that bring the technical capability and the ability to construct along with that. We also think, as I alluded to in my prepared remarks, we also think the land value that we offer is the secret sauce to this whole thing. I think you're not going to build nuclear plants in the places we do business with the exception perhaps of Texas, in communities that have never had nuclear before. And I think there's a huge value to having that talent, having the big water, the rail, all the infrastructure and most importantly, the community acceptance. So what I'm looking to do is to monetize the value of that land and that set of capabilities that we bring and convert that into a position that gives us some of the output of the new units. The next thing we're trying to do is make sure that whatever gets operated on our land because we have operating units, gets operated by us, not by others. So an operating services agreement will have to be part of it. In terms of what enables it, I talked about the importance of a PPA. I think the involvement of the administration and the way that they're talking about with Westinghouse likewise is going to be critically important. And I commend President Trump for his incredible leadership on nuclear. We still need to see the details, and we still need to see, as I said, earlier, some very, very clear cost numbers and some very, very clear commitments to deliver those costs on time and on schedule with an operating unit before we are going to put significant capital at risk for these things. I like the way things are evolving. I have been cautious, and I remain cautious, and I will always be cautious because it's a lot of your money that we are talking about here. But I am gaining confidence daily as more and more qualified players are coming forward. And as we're seeing things like the Westinghouse announcement. We still need to get all of the details to really fully understand it, but it is no doubt a positive. Operator: Our next question coming from the line of David Arcaro with Morgan Stanley. David Arcaro: Could you maybe also reflect on your demand response efforts and the initiative that you're pursuing there? And I know you've talked about flexibility of data centers in the past. Are you seeing progress there in terms of data center willingness to go that route? And just the update on that initiative across different markets? Joseph Dominguez: Well, let me start on what I'm seeing in terms of flexibility from a technical capability. And then I'm going to turn it over to Jim McHugh, again, who runs our commercial team to talk about this exciting work we're doing on demand response. So we have been, since the very beginning, one of the core participants in EPRI and their DC Flex or data center flex capability. And we're seeing a lot of great capability to use backup generation and flex compute. I don't want to overstate that, however, I don't think we're going to get to a point where we could flex on and off the full output of data centers. I think it's going to have a meaningful impact, but it's going to have an impact at the margins. That's why we began to explore using AI to see if we can attract some of our other customers to actually providing the relief or the slack on the system during the key hours, and they would then use their own backup generation or curtail their own consumption of energy during peak hours. And we could play this kind of well, middleman role between the hyperscalers and the data center owners and operators and our other customers through this commercial agreement that gives them the ability to call on our other customers to curtail during high-demand events. So Jim will talk about the work that we've done to start developing that and the exciting progress we've made. James McHugh: Yes. Thanks, Joe. It kind of started with what we were doing in the market prior to kind of the recent dynamics. We still had a large amount of our customers who are interested in peak response programs and managing their energy usage. But really with the dynamic shifting towards supply needed in the capacity markets, we saw the opportunity that some of these customers may be interested in being demand response providers and supply to the capacity markets. So we're partnering with Grid Beyond and who is going to help us do a lot of the execution on the operations side with our demand response customers, but we're seeing interest from our industrial customer base to participate in this demand response product. And what's a little unique about the product we're offering is we've gone to customers to get longer tenors or longer-term commitments and they're interested in potentially longer-term deals with good pricing associated with it and we're providing some floor pricing capability in that too for them to be incented to sign up for these longer duration. So we've found kind of this unique opportunity. We're trying to be innovative around the product structure itself. And the pipeline looks really strong right now. We started executing the deals that Joe talked about working towards 1,000 megawatts or so between now and the next couple of capacity auctions. So things are going well. Joseph Dominguez: And David, what's cool about that is when you think about that 1,000 megawatts at the electric load carrying capacity or through that computation that PJM does, that looks like a new nuclear plant. It's not like a 1,000 megawatts of battery, for example, that would look like at the end of the day, 1/10 of a new nuclear plant. But this portends to look like a full nuclear units worth of output in terms of demand response. So I think we're still in the early days of this, but I think the combination of the two things you talked about in your question, the ability to flex at the top of peak by the data centers themselves in combination with new commercial arrangements to get others to pull back consumption during these hours is really going to open up a lot of room on the system and really pave the way for easier interconnection. David Arcaro: Yes. Understood. Okay. Great. That's helpful color. Then I was wondering if you could just touch on what you're seeing in terms of retail margins in PJM. One of your peers suggested that margins in PJM might be somewhat more competitive. I'm wondering if that's reflective of what you're seeing. Joseph Dominguez: Jim? James McHugh: Yes, I think on the retail side, our margins are on the upper end of the range that we've always talked about. We've certainly seen on the wholesale auction, load auction and polar procurements. So we've seen some new participants coming in, that's gotten a little bit more competitive, but we're still seeing stronger margins than the historical averages there. On the retail side, really on the upper end of the ranges we've always talked about. And I want to -- I would have -- I'd be remiss if I didn't add since we're seeing a lot of success with some of these sustainability products and CFE and other types of solutions that are sustainability related, those margins tend to be stronger than pure true commodity margins, too. Operator: Our next question coming from the line of Angie Storozynski with Seaport. Agnieszka Storozynski: I'm just wondering, and again, somewhat of a playing the devil's advocate here. I mean you have a huge portfolio of generation assets, especially pro forma Calpine. There's this growing chatter about bringing your own generation. And I'm just wondering if you're feeling a bit unease about how many of these units you will be able to sign and granted that solar power curves are rising, but it's not just about earnings, right? It's also about the visibility and the quality of earnings. And so we do need more of your units to have that long-term visibility into their earnings power? Joseph Dominguez: Yes, Angie, and I'll just -- my comments during the call were informed by all things, including what we're seeing in terms of policy regulatory, we still believe that we're going to be able to execute transactions. I think this product offering that Jim just talked about with demand response is a bit of an anticipation isn't it, some of what you're talking about, which is to try to make sure we have BYOG or bring your own generation equivalent as we think about demand response as we think about the turbines that we have on the sidelines as we think about our ability to offer up rates. And we also think that policymakers fully understand that relicensing, while not exactly a new megawatt, is the continuation of megawatts beyond the period that they might otherwise shut down. So we think that there's great awareness of that issue. I think in large measure, it was that issue and other compelling arguments that caused PJM to pull back from their bring-your-own generation kind of requirements that they had in other places. I think we might see some voluntary BYOG. But I'm frankly not concerned with where it is right now in the States. And we're marching forward on these transactions, and that has not been an issue for us right now. Agnieszka Storozynski: Okay. And then so it's been mentioned by you in previous questions that we have seen a lot of announcements from other companies vaguely associated with power for power plants. And I'm wondering, is it -- do you think those are comparable deals like quality-wise, firmness wise, to the ones that you guys are working on? I mean some power companies suggest that those deals are more equivalent to LOIs than firm take-or-pay power contracts that public power companies announce? Joseph Dominguez: Look, I think there's probably room for a bunch of different contracting. But Angie, I feel and I could only gauge this from the customer interest in what we're offering. I feel that what we have and what we're offering outcompetes just about any other opportunity in the space. Operator: Our next question coming from the line of James West with Melius Research. James West: Curious, given all this demand from the data economy and the data centers, how are you thinking about the portfolio of generating assets that you would like to or would be comfortable locking into long-term PPAs versus keeping available for normal generation markets? Joseph Dominguez: Great question. I think -- and you're certainly hearing this from Angie's question and others, I think there's more room to run on the long-term deals that we want to get executed. But there will be a point, and there will be a point where 1 or 2 things is going to happen. Either we're going to slow it up or we're going to change our pricing to more aggressive levels to reflect, frankly, the scarcity value of what we'll be able to offer. We're not quite there yet. But -- look, our incentive is to provide sustainable long-term and growing earnings for our owner base. That's what the company is set up to do. And so in the short term, what we're trying to do is get these deals done. We're happy with the kind of atmospherics in the market being quite positive for us. But we're not at a point where we're even entertaining the discussion of, hey, are we going to stop selling long term? I think it's in our interest, it's in our customers' interest, it's in the nation's interest, for us to meet this demand for this incredibly important load that's coming on the system. And so we're going to continue to execute in that space. And I appreciate your question, but I think it's probably more theoretical than practical at this point. Operator: Our last question coming from the line of Paul Zimbardo with Jefferies. Unknown Analyst: Joe, the powerbroker, that was a nice piece recently, I got to say, nicely done. Let me follow up a little bit... Joseph Dominguez: Well, it's one of those embarrassing things that happens when you're in the middle of something like this, but thank you for noting it. Unknown Analyst: Absolutely. Not too shabby. Look, let me follow up on a couple of things here real quickly. First, with respect to uprates, you've alluded to it, both on scale and scope here. I mean can you speak to the opportunity generically? I'll take note of the Pennsylvania governor's disclosure on costs relative to the 340 megawatts at Limerick. I mean, are there more Limericks out there in terms of effectively providing an upgrade that's tantamount to the size of an SMR? And specifically, as it pertains to Limerick, can you elaborate a little bit on where you are on the transmission interconnect process there? I mean it seems like there's some public disclosure about some potential data center there, if you can? Joseph Dominguez: Yes. So [ Julien ], I apologize for the Paul thing. I now see the 2 of you guys as the same person apparently, sorry about that. We identified about 900 extra megawatts. And so the big chunky ones there are LaSalle and Limerick, which are effectively kind of the same size, but have different costs. LaSalle is a bit easier to execute than Limerick. And I don't think we've published costs on that. And then we've got Calvert Cliffs, 190 megawatts that I talked about. So all told, we're looking at about 900 to 1,000 megawatts that we've completed engineering work on and feel pretty confident about. So that's the answer to the upgrade question. In terms of -- I think you were talking about Crane interconnection. Is that what you asked about? Unknown Analyst: Well, I was thinking about Limerick, right? I mean it seems like there's some transmission, yes, go for it. Joseph Dominguez: Yes. So there's a good deal of demand going in that area. So we're quite hopeful that any new megawatts at Limerick would be welcomed and fairly easy to interconnect. That's a big growing area of Pennsylvania in terms of the data economy. That, and of course, the PPL zone. In terms of what's being done by customers to interconnect data centers around Limerick, I think I'm going to just kind of decide not to answer that question. Unknown Analyst: Don't worry, maybe I'll give you another one to follow up on here. You talked about the cost of new nuclear here, both for yourselves as well as the industry. I mean cost of these uprates though seems to be materially cheaper than any new nuclear costs we're seeing out there, even if it's more relevant than what we've seen historically. Would it be fair to assume that the next round of efforts on your front, especially with this focus on additionality would focus on these -- leveraging these uprate sites first and foremost? I mean, obviously, we've seen your restarts here take a lot of the limelight at the outset, but the uprates seem to be the next wave here of where you could really win on additionality and in contracting, it would seem, right? Joseph Dominguez: Yes. Although [ Julien ], I tend not to think about these things as binary, i.e., you're not going to not do something because you're doing uprates. But in terms of the economic merits of the uprates, you're spot on. Those are great investments for us. They have the advantage of not just being additional. We think the relicensings are additional as well. But they also have the ability to be something that's really well within our wheelhouse to execute. We've done a lot of this work historically. And Bryan, the team do really great work in that regard. As I said, we've done the engineering work. It's in communities that already like this stuff. And most importantly, when you're talking about an uprate like this, reason the economics are so attractive is you're not adding people, you're not adding O&M. The plant is just getting more output, but you don't have either an O&M drag from people and you don't have an O&M drag on extra fuel. So it's hard to compare kind of the capital numbers for an uprate to a brand-new plant, which would, of course, require you to have a whole bunch of additional O&M. And I think let me just -- not to drag this out, but I think sometimes when people are talking about the cost of new nuclear and whether it's going to be competitive as a solution for contracts, so on and so forth. They tend to look at it from a capital cost perspective, and I certainly understand that because that's the way people have become accustomed to looking at things like renewables and storage and even new gas fire generation. But there's a huge O&M piece with nuclear that has to be carefully understood that factors into the ultimate price of that resource. Folks, I think that brings the end, Olivia, right? That's the end of the call list here? Operator: Yes, sir, there are no further questions. Joseph Dominguez: All right. Well, terrific. So we'll bring the conversation for this morning to a close. Thank you again for your interest in Constellation for your time during this busy week, and we look forward to catching up with you at the end of the fourth quarter. Operator: Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.
Operator: Greetings, and welcome to the Main Street Capital Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Zach Vaughan. Thank you. You may begin. Zach Vaughan: Thank you, operator, and good morning, everyone. Thank you for joining us for Main Street Capital Corporation's Third Quarter 2025 Earnings Conference Call. Joining me today with prepared comments are Dwayne Hyzak, Chief Executive Officer; David Magdol, President and Chief Investment Officer; and Ryan Nelson, Chief Financial Officer. Also participating in the Q&A portion of the call is Nick Meserve, Managing Director and Head of Main Street's Private Credit Investment Group. Main Street issued a press release yesterday afternoon that details the company's third quarter financial and operating results. This document is available on the Investor Relations section of the company's website at mainstcapital.com. A replay of today's call will be available beginning an hour after the completion of the call and will remain available until November 14. Information on how to access the replay was included in yesterday's release. We also advise you that this conference call is being broadcast live through the Internet and can be accessed on the company's homepage. Please note that information reported on this call speaks only as of today, November 7, 2025, and therefore, you are advised that time-sensitive information may no longer be accurate at the time of any replay listening or transcript reading. Today's call will contain forward-looking statements. Many of these forward-looking statements can be identified by the use of words such as anticipates, believes, expects, intends, will, should, may or similar expressions. These statements are based on management's estimates, assumptions and projections as of the date of this call, and there are no guarantees of future performance. Actual results may differ materially from the results expressed or implied in these statements as a result of risks, uncertainties and other factors, including but not limited to, the factors set forth in the company's filings with the Securities and Exchange Commission, which can be found on the company's website or at sec.gov. Main Street assumes no obligation to update any of these statements unless required by law. During today's call, management will discuss non-GAAP financial measures, including distributable net investment income or DNII. DNII is net investment income or NII, as determined in accordance with U.S. generally accepted accounting principles or GAAP, excluding the impact of noncash compensation expenses. Management believes that presenting DNII and the related per share amount are useful and appropriate supplemental disclosures for analyzing Main Street's financial performance since noncash compensation expenses do not result in a net cash impact to Main Street upon settlement. Please refer to yesterday's press release for a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures. Two additional key performance indicators that management will be discussing on this call are net asset value or NAV and return on equity, or ROE. NAV is defined as total assets minus total liabilities and is also reported on a per share basis. Main Street defines ROE as the net increase in net assets resulting from operations divided by average quarterly NAV. Please note that certain information discussed on this call including information related to portfolio companies, was derived from third-party sources and has not been independently verified. And now I'll turn the call over to Main Street's CEO, Dwayne Hyzak. Dwayne Hyzak: Thanks, Zach. Good morning, everyone, and thank you for joining us. We appreciate your participation on this morning's call, and we hope that everyone is doing well. On today's call, David, Ryan and I will provide you with our key quarterly updates, after which we'll be happy to take your questions. We are pleased with our performance in the third quarter, which resulted in another quarter of strong operating results, highlighted by an annualized return on equity of 17%, favorable levels of DNII per share and new record for NAV per share for the 13th consecutive quarter. We believe that these continued strong results demonstrate the sustained strength of our overall platform, the benefits of our differentiated and diversified investment strategies, the unique contributions of our asset management business and the continued depth and quality of our portfolio companies, particularly our existing lower middle market portfolio companies. We are also pleased that we further strengthened our capital structure during the quarter, which Ryan will discuss in more detail. We continue to maintain a very strong liquidity position and conservative leverage profile, and we are well positioned for the continued growth of our investment portfolio. We remain confident that our unique investment income and value creation drivers, together with our cost-efficient operations and conservative capital structure will allow us to continue to deliver superior results for our shareholders in the future. Our favorable results for the third quarter, combined with our positive outlook for the fourth quarter, resulted in our most recent dividend announcements, which I will discuss in more detail later. Our NAV per share increased in the quarter primarily due to the impact of net fair value increases in both our lower middle market and private loan investment portfolios, which Ryan will discuss in more detail. The continued favorable performance of the majority of our lower middle market portfolio companies resulted in another quarter of strong dividend income contributions and significant net fair value appreciation in our lower middle market equity investments. Based upon our current views of these investments and feedback from our portfolio company management teams, we expect these contributions to continue to be strong for the next few quarters. We also continue to see significant interest from potential buyers in several of our lower middle market portfolio companies, which we expect will lead to favorable realizations over the next few quarters and which we believe further highlights the strength and quality of our portfolio companies and their exceptional leadership teams. We're also excited about the new and follow-on investments we made in our lower middle market portfolio companies during the quarter, which resulted in the addition of 3 new portfolio companies and a net increase in lower middle market investments of $61 million. Consistent with our guidance last quarter, our private loan investment activity in the quarter continued to be slower than our expected normal quarterly activity resulting in a net decrease in private loan investments of $69 million. In addition to the potential for favorable investment realizations in our lower middle market portfolio, we also recently exited one of our private loan portfolio company equity investments and have a second exit in process, subject to customary closing conditions and regulatory approvals with these activities representing total realized gains of at least $35 million, both at meaningful premiums to our quarter end fair values. David will discuss our investment activity in more detail. Given our conservative capital structure and strong liquidity position, we remain very well positioned to continue the growth of our investment portfolio for the foreseeable future, and we are excited about the current opportunities we are seeing. We also continue to produce positive results in our asset management business. The funds we advised through our external investment manager continued to experience favorable performance in the third quarter resulting in significant incentive fee income for our asset management business for the 12th consecutive quarter and together with our recurring base management fees, a significant contribution to our net investment income. We remain excited about our plans for the external funds that we manage as we execute our investment strategies, and we are optimistic about the future performance of the funds and the attractive returns we are providing to the investors of each fund. We also remain excited about our strategy for growing our asset management business within our internally managed structure. As part of these efforts, we remain focused on growing the investment portfolio of MSC Income Fund, a publicly traded BDC advised by our external investment manager and our largest asset management business client, which maintains meaningful current liquidity and will benefit from a significant increase to its regulatory debt capacity at the end of January 2026. In addition to deploying the fund's current liquidity into new private loan investments, we also continue to focus on maximizing the benefits of the fund's legacy lower middle market investment portfolio and are excited about the near-term expectations for additional realized value creation over the next few quarters. Based on our results for the third quarter, combined with our favorable outlook in each of our primary investment strategies and for our asset management business, earlier this week, our Board declared a supplemental dividend of $0.30 per share payable in December, representing our 17th consecutive quarterly supplemental dividend and an increase to our regular monthly dividends for the first quarter of 2026 to $0.26 per share. These first quarter regular monthly dividends represent a 4% increase from the regular monthly dividends paid in the first quarter of 2025. The supplemental dividend for December is a result of our strong performance in the third quarter and our near-term expectations for additional net realized gains and will result in total supplemental dividends paid during the trailing 12-month period of $1.20 per share, representing an additional 40% paid to our shareholders in excess of our regular monthly dividends. We currently expect to recommend that our Board continue to declare future supplemental dividends to the extent DNII before taxes significantly exceeds our regular monthly dividends paid or we generate net realized gains and we maintain a stable to positive NAV in future quarters. Based upon our expectations for continued favorable performance in the fourth quarter, we currently anticipate proposing an additional significant supplemental dividend payable in March 2026. Now turning to our current investment pipeline. As of today, I would characterize our lower middle market investment pipeline as above average. Consistent with our experience in prior periods of broad economic uncertainty, we believe that our ability to provide unique and flexible financing solutions to lower middle market companies and their owners and management teams and our differentiated long-term to permanent holding periods represent an even more attractive solution to the needs of many lower middle market companies given the current economic environment, and we are confident in our expectations for strong lower middle market investment activity in the fourth quarter. In addition, we continue to have an increased number of existing portfolio companies that are actively executing acquisition growth strategies that we anticipate will provide attractive follow-on investment opportunities for us in the near term and significant value creation opportunities for these portfolio companies in the longer term, consistent with the successes we've demonstrated and experienced with other portfolio companies. We also continue to be pleased with the performance of our private credit team and the significant growth they have provided for our private loan portfolio and our asset management business over the last few years. Our investment pipeline has increased significantly since our last conference call. And as of today, I'll characterize our private loan investment pipeline as above average. With that, I will turn the call over to David. David Magdol: Thanks, Dwayne, and good morning, everyone. As Dwayne highlighted in his remarks, we believe our strong third quarter financial results continue to demonstrate the strength of Main Street's platform, our differentiated investment approach and our unique operating model. We are very pleased to report that the overall operating performance for most of our portfolio companies continues to be positive, which contributed to our attractive third quarter financial results. Despite the continued heightened level of concern and uncertainty in the overall economy, we remain confident in the ability of our portfolio companies to continue to navigate the current climate. Each quarter, we try to highlight a key aspect of our investment strategy and differentiated approach. For today's call, we thought it would be useful to spend some time discussing the support we provide to our lower middle market portfolio companies. In addition to our ongoing investment management activities and the managerial assistance we offer our lower middle market portfolio companies, we are also happy to host an annual event for the leaders of our lower middle market portfolio companies called the Main Street President's Meeting, which we recently hosted for the ninth time. For those of you who are not familiar, our President's Meeting is an annual event that we host for our lower middle market portfolio company leaders to network, build relationships share best practices, learn from each other and from third-party speakers and benefit from being a part of Main Street's family of portfolio companies. Based on post-event feedback from our lower middle market portfolio company executives, the event is highly valued by the participants and the event improves each year as we refine our agenda based on the feedback we receive. Topics covered at our most recent event included artificial intelligence, use cases and best practices disaster recovery planning and enterprise risk management, adding value through executing add-on acquisitions, linking incentive compensation to performance and succession planning. As a result of this annual event, our portfolio companies have increasingly worked together, referred business to each other, utilized each other's operational resources and formed long-term relationships that we believe are invaluable. As an example, one valuable topic we covered this year was best practices for utilizing artificial intelligence in lower middle market businesses. Based on our surveying as part of the event, the vast majority of our portfolio companies are engaged in utilizing AI and are actively seeking additional ways to use AI tools in their businesses. This topic was enhanced by breakout sessions led by several of our portfolio company CEOs who shared specific examples of AI tools they use and the benefits they are achieving from utilizing AI in their businesses. Q&A from the audience was robust, and we are highly encouraged about the benefits that our lower middle market portfolio companies can achieve in the future from their continued adoption of AI. Another panel we received very positive feedback on this year was focused on executing proprietary strategic add-on acquisitions. The panel was comprised of another peer group of our portfolio company CEOs with extensive experience in this area, who led a discussion on the benefits of pursuing add-on acquisitions, developing and executing a successful acquisition plan, strategies for creating shareholder value through these transactions and lessons learned while sourcing and executing an acquisition growth strategy. We are highly confident that the lessons learned shared by the panelists will be very helpful for other portfolio company executives to consider as they execute their own acquisition strategies in the future. The engagement from the audience during both sessions was robust and led to several post-event discussions, including the sharing of key third-party resources and best practices that we believe will ultimately improve the future financial results and operating performance for our portfolio companies. Given our primary focus on our lower middle market investment strategy and the unique benefits it can provide both to us and our management team partners at our portfolio companies, we are excited to bring together the key leadership from our lower middle market portfolio companies at our Annual Presidents' Day. We always leave this event very excited about the quality of the individuals leading our lower middle market portfolio companies and the future value creation that we expect they and their teams can generate for a mutual benefit in the future. We left this year's event more excited than ever. Now turning to the overall composition of results from our investment portfolio as of September 30, we continue to maintain a highly diversified portfolio with investments in 185 companies spanning across numerous industries and end markets. Our largest portfolio companies, excluding the external investment manager, represented only 4.8% of our total investment income for the trailing 12-month period and 3.6% of our total investment portfolio fair value at quarter end. The majority of our portfolio investments represented less than 1% of our income and our assets. Our investment activity in the third quarter included total investments in our lower middle market portfolio of $106 million, including total investments of $69 million in 3 new lower middle market portfolio companies, which after aggregate repayments, return of invested equity capital and a decrease in cost basis due to realized losses resulted in a net increase in our lower middle market portfolio of $61 million. Since quarter end, we have closed an additional lower middle market platform investment, representing an additional $81 million of invested capital, and we have several other expected near-term investments. Driven by the capabilities and relationships of our private credit team, we also completed $113 million in total private loan investments during the third quarter which after aggregate repayments and a decrease in cost basis due to realized losses resulted in a net decrease in our private loan portfolio of $69 million. At the end of the third quarter, our lower middle market portfolio included investments in 88 companies representing $2.8 billion of fair value, which is over 28% above our cost basis. We had 86 companies in our private loan portfolio, representing $1.9 billion of fair value. The total investment portfolio at fair value at quarter end was 18% above the related cost basis. In summary, Main Street's investment portfolio continues to perform at a high level and deliver on our long-term results and goals. Additional details on our investment portfolio at quarter end are included in the press release that we issued yesterday. With that, I'll turn the call over to Ryan to cover our financial results, capital structure and liquidity position. Ryan Nelson: Thank you, David. To echo Dwayne's and David's comments, we are pleased with our operating results for the third quarter which included favorable levels of NII per share and DNII per share and another increase in NAV per share. Our total investment income for the third quarter was $139.8 million, increasing by $3 million or 2.2% over the third quarter of 2024 and decreasing by $4.1 million or 2.9% from the second quarter of 2025. Interest income decreased by $7.3 million from a year ago and increased by $2.4 million from the second quarter of 2025. The decrease from prior year was principally attributable to a decrease in interest rates, primarily resulting from decreases in benchmark index rates on our floating rate debt investments and decreases in interest rate spreads on existing debt investments and an increase in investments on nonaccrual status, partially offset by the impact of increased net investment activity. The increase from prior quarter was driven primarily by the impact of increased net investment activity and a decrease in investments on nonaccrual status. Dividend income increased by $8 million when compared to a year ago, including a $600,000 increase in unusual or nonrecurring dividends and decreased by $6.6 million from the second quarter including a $4.2 million decrease in unusual or nonrecurring dividends. The increase in dividend income from prior year is primarily a result of the continued underlying positive performance of our lower middle market portfolio companies. The decrease in dividend income from the second quarter is primarily due to nonrecurring dividends received from one of our lower middle market portfolio companies in the second quarter. Fee income increased by $2.2 million from a year ago and was consistent with fee income from the second quarter. The increase from prior year was primarily due to higher closing fees on new and follow-on investments and an increase in exit and prepayment fees from investment activity. Fee income considered nonrecurring increased by $900,000 from a year ago and by $500,000 from the second quarter of 2025. The third quarter included higher levels of income considered less consistent or nonrecurring in nature in comparison to the prior year, including interest income from accelerated prepayment repricing and other activity, accelerated fee income and dividends from our equity investments. In the aggregate, these items totaled $4.3 million and were $2.1 million or $0.02 per share higher than the third quarter of 2024. Income considered less consistent or nonrecurring in nature decreased from the second quarter by $3.8 million or $0.04 per share, primarily due to a decrease in dividends from one of our lower middle market portfolio companies. The current quarter's less consistent or nonrecurring income was in line with the prior 4-year average. Our operating expenses increased by $1.1 million over the third quarter of 2024 and decreased by $300,000 from the second quarter. The increase in operating expenses from the prior year was largely driven by increases in cash compensation related expenses and share-based compensation expense, partially offset by a decrease in interest expense. The decrease in interest expense from a year ago was primarily driven by a decrease in the weighted average interest rate on our credit facilities resulting from decreases in the benchmark index interest rates and a decrease in the applicable margin rates resulting from the amendments of our credit facilities in April 2025, partially offset by an increase in average borrowings to fund the growth of our investment portfolio. The ratio of our total operating expenses, excluding interest expense, as a percentage of our average total assets, was 1.4% for the quarter on an annualized basis and 1.3% for the trailing 12-month period and continues to be among the lowest in our industry. Our external investment manager contributed $8.8 million to our net investment income during the third quarter representing an increase of $900,000 from the same quarter a year ago and was consistent with the contribution to our net investment income in the second quarter. Our investment manager ended the quarter with total assets under management of $1.6 billion. During the quarter, we recorded net fair value appreciation, including net realized losses and net unrealized depreciation on the investment portfolio of $43.9 million. This increase was primarily driven by net fair value appreciation in our lower middle market and private loan investment portfolios, partially offset by net fair value depreciation in our external investment manager. The net fair value appreciation in our lower middle market portfolio was largely driven by the continued positive performance certain of our portfolio companies. The net fair value appreciation in our private loan portfolio was primarily driven by several specific portfolio companies and decreases in market spreads. The net fair value depreciation of our external investment manager was primarily driven by decreases in the valuation multiples of publicly traded peers, which we use as one of the benchmarks for valuation purposes, partially offset by increased incentive fee income. We recognized net losses of $19.1 million in the quarter. The realized losses recognized were primarily the result of the restructures of 2 private loan investments and the full exits of 2 lower middle market investments. which were partially offset by a realized gain on the full exit of a lower middle market investment and the partial exit of another portfolio investment. We ended the third quarter with investments on nonaccrual status comprising approximately 1.2% of the total investment portfolio at fair value and approximately 3.6% at cost. Net asset value, or NAV, increased by $0.48 per share over the second quarter and by $2.21 per share or 7.2% when compared to a year ago to a record NAV per share of $32.78 at quarter end. Our regulatory debt-to-equity leverage calculated as total debt, excluding SBIC debentures divided by NAV was 0.62x and our regulatory asset coverage ratio was 2.61x, and these ratios continue to be more conservative than our long-term target ranges of 0.8 to 0.9x and 2.25 to 2.1x, respectively. We continue to be active this quarter on capital activities, aided by our strong relationships as we continue to manage our near-term maturities and overall capital structure diversity and efficiency. In August 2025, we issued $350 million of unsecured investment-grade notes maturing in August 2028 with an interest rate of 5.4%. In September 2025, we repaid the $150 million due on our December 2025 notes prior to their maturity and without any fees or penalties. Given our current liquidity position and recent investment activity, we continue to be less active during the third quarter in our ATM program, raising net proceeds of $6.7 million from equity issuances. After giving effect to the capital activities in the third quarter of 2025, we entered the fourth quarter of 2025 with strong liquidity, including cash and unused capacity under our credit facilities totaling over $1.5 billion with a near-term debt maturity of $500 million in July 2026. We continue to believe that our conservative leverage, strong liquidity and continued access to capital are significant strengths that have proven to benefit us historically and have us well positioned for the future. allowing us to continue to execute our attractive investment strategies despite the current market uncertainty. Because of the market uncertainty, we expect to continue to operate over the next few quarters at leverage levels more conservative than our long-term targets. Coming back to our operating results. DNII before taxes per share for the quarter of $1.07 was $0.01 higher than DNII before taxes per share for the third quarter of last year. and $0.04 lower than DNII before taxes per share for the second quarter. Looking forward, we expect fourth quarter of 2025 DNII before taxes of at least $1.05 per share with the potential for upside driven by portfolio investment activities during the quarter. With that, I will now turn the call over to the operator so we can take any questions. Operator: [Operator Instructions] Our first question comes from Arren Cyganovich with Truist Securities. Arren Cyganovich: In your prepared remarks, you indicated that the pipeline for investment activity is actually above average for both and that's a notable change for the private loan portfolio. pipeline from last quarter. Maybe just talk a little bit about the sustainability of that and what necessarily kind of changed in the private loan part of the focus of the middle market? Dwayne Hyzak: Sure, Arren, I'll give a few comments, and I'll let Nick add on if he has anything he wants to add. But I'd say this quarter, we've just seen the pipeline grow significantly. I think overall, from a market standpoint, from our perspective, you've seen an increase in overall activity, and we've seen that come in both at the front end of the funnel and in transactions that we're working on that we expect to close either in the fourth quarter or the first quarter. So overall, I think it's been driven by more market activity. I think the quality of the transactions, consistency of the transactions with what we've done historically continues to be the same. So I think it's really driven more by market activity. But I'll let Nick add on any additional color. Nicholas Meserve: Yes. I think what I would add there is it probably started the week after the last earnings call. So it's been picked up for a decent amount of time now and I think we expect it to continue into '26. And I'd say it's both in volume and the number of deals and the overall deal sizes. And each transaction, just overall the pipeline feels like it's more live and actually going to close and get to a finish line versus, I'd say, over the last year, a lot of deals felt like they weren't to get anywhere, and we were kind of just performing back and forth on [LOIs]. We don't really feel like you get to a closed transaction. Arren Cyganovich: Got it. You you an improvement in credit quality in the quarter, at least from a statistical standpoint, maybe you could talk a little bit to give us a little bit more color about what was driving that? Dwayne Hyzak: Yes, Arren, I wouldn't say there's anything specific. I think overall, in both the lower middle market and private loan portfolios, the companies are doing well. There's always some outliers both in terms of companies doing exceptionally well and some underperforming when you've got a large diversified portfolio like we have. But I wouldn't say there's anything specific quarter-over-quarter that changed. It's just overall the portfolio continues to perform at a high level. Operator: Our next question comes from [indiscernible] with Raymond James. Unknown Analyst: Going back to the private loan portfolio. Can you talk a little bit more about what was driving the $69 million net decrease? Was it primarily driven by elevated repayments, the slowing deal flow or just less attractive opportunities in the current market environment? Any like additional color you can provide there? Dwayne Hyzak: Sure. I'd say it was a combination probably of all 3. I think in general, as we had communicated on the last call, for the third quarter, our investment activity was a little bit below our expectations. We also had more than expected or more than normal repayment or prepayment activity. So I'd say it was a combination of those 2 factors that drove the decrease. I think as Nick said, we feel good about the pipeline today in addition to the new origination activity being higher from an expectation standpoint. I think some of the prepayment activity is a little bit lighter. So I think it's just kind of a point in time in the third quarter, you had both the lower originations and higher repayments that both occurred in the same quarter. Nicholas Meserve: The only thing I'd add out there is there's probably a handful of deals that we expected to close late in the quarter that really got pushed into the fourth quarter, and they're still going to close. It just got pushed into this quarter versus the third quarter. Overall, there was a lighter origination, but some of it is just timing. Unknown Analyst: Okay. And do you see any of these like trends shifting going into 4Q? Or is it more of the same? Dwayne Hyzak: I think overall, as Nick said, I think we feel good about the new investment expectations for Q4. I think we also feel pretty good about expectations for Q1 just given the strength of the pipeline, both in the early stages and in the more developed stages. Looking out longer than that, it really is going to come down to how active the private equity industry as a whole is. But I think for the near term, I think we feel pretty good about it. Operator: [Operator Instructions] Our next question comes from Doug Harter with UBS. Cory Johnson: This is Cory Johnson on for Doug. The compensation expense was a little bit higher this quarter. And in the press release part of what you attributed to that was an increase in headcount to support the portfolio and asset management activities. Can you talk a little bit about what type of roles those are? And I guess what -- should we expect the headcount to continue to grow into this year and the end of this year and also into next? Dwayne Hyzak: Sure, Cory. Thanks for the question. Thanks for joining us this morning. I'd say that across the platform on the investment side, both lower middle market and private loans, we have been and continue to look for ways to grow our teams and our investment professionals. I think we view both market opportunities to be very attractive. The lower middle market is very people heavy or people intensive, just the nature of the activities, more of a private equity type investment strategy. So we are always looking to add resources there, and we continue to be in that position today. So some of that headcount and comp increase would be concentrated there. But we've also grown our private loan team significantly, not just for Main Street's portfolio and balance sheet. But as you know, we've got an asset management business that we have been and we expect to continue to grow going forward. That growth is going to be almost exclusively focused on the private loan, private credit side. So we've also been working -- Nick and his team have been working to grow our team there. So I'd say it's on both sides. Nicholas Meserve: All right. And then I guess do you happen to have any targets for your RIA in terms of like AUM for 2026 that you could possibly share? Is there a range or anything at all that you're looking to hit? Dwayne Hyzak: Yes. We haven't shared any specific guidance, Cory. I think our goal and our expectation is that we will grow AUM. We'll grow it 2 ways. Right now, as you likely recall, we have our largest asset management business client, MSC Income Fund, which is a publicly traded BDC. It has the opportunity at the end of January 2026 to have a significant increase in its regulatory leverage capacity. We would expect to expand the leverage capacity there. Those -- that capital or those proceeds would be invested in the private loan private credit space. So we think that will be the biggest catalyst going forward into 2026. We also have our second private fund MS Private Loan Fund II that's still kind of in the earlier stages of its investment deployment activities that should ramp up significantly in 2026 as well. But outside of giving guidance, that those are the 2 catalysts, we have not given specific guidance for how much we expect the AUM to grow in 2026. Cory Johnson: And if I could just ask one more. You spoke about how your LMM companies are sort of talking about AI and sort of how to integrate that. Have you seen, I guess, in those conversations, have companies been mentioning that AI is making significant efficiency gains? And are they showing up at all in like the valuations that perhaps that you might be able to realize either now? Or do you expect that to possibly make a difference in upcoming quarters, something soon? Dwayne Hyzak: Sure, Cory. I'd say it's more forward-looking. I don't think we've seen significant benefit from AI from a historical standpoint or any of the valuations that we have today. I do think we're excited as our portfolio companies and their management teams are that there's a lot of opportunities through the implementation of AI. So I think we're excited about that, but it would be more forward-looking as opposed to historical. Operator: This now concludes our question-and-answer session. And I would now like to turn the floor back over to management for closing comments. Dwayne Hyzak: I just want to say thank you again to everyone for joining us this morning. I think it will be a few months before we talk to you again. So hopefully, everyone has a happy holidays, and we look forward to talking to you again with our next update call in February after the results for the fourth quarter and the year-end for Main Street. Thank you. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning, ladies and gentlemen, and welcome to Trinseo's Third Quarter 2025 Financial Results Conference Call. We welcome the Trinseo management team, Frank Bozich, President and CEO; David Stasse, Executive Vice President and CFO; and Bee Van Kessel, Senior Vice President and Corporate Finance and Investor Relations. Today's conference call will include brief remarks by management team, followed by a question-and-answer session. The company distributed its press release along with its presentation slides after closing market on Thursday, November 6. These documents are posted on the company's Investor Relations website and furnished on Form 8-K filed with the Securities and Exchange Commission. [Operator Instructions] I will now hand the call over to Bee Van Kessel. Please go ahead. Bregje Roseboom-Van Kessel: Thank you, Calvin, and hello, everyone. [Operator Instructions] Our disclosure rules and cautionary note on forward-looking statements are noted on Slide 2. During this presentation, we may make certain forward-looking statements, including issuing guidance and describing our future expectations. We must caution you that actual results could differ materially from what is discussed, described or implied in these statements. Factors that could cause actual results to differ include, but are not limited to, risk factors set forth in Item 1A of our annual report on Form 10-K or in our other filings made with the Securities and Exchange Commission. The company undertakes no obligation to update or revise its forward-looking statements. Today's presentation includes certain non-GAAP financial measurements. A reconciliation of these measurements to corresponding GAAP measures is provided in our earnings release and in the appendix of our investor presentation. A replay of the conference call and transcript will be archived on the company's Investor Relations website shortly following the conference call. The replay will be available until November 7, 2026. Now I would like to turn the call over to Frank Bozich. Frank Bozich: Thanks, Bee, and welcome to our third quarter 2025 earnings call. I'd like to begin by sharing some information on trade flows in our chemistries as we believe this is instructive for understanding how the end markets we serve have reacted to tariff uncertainties. We've included some of this information on Slide 4 of our presentation materials. In general, we saw a sharp increase in imports of Asian polymers to both the U.S. and Europe beginning in Q1. We believe this was a reaction to the threatened tariff levels that ultimately were announced in early April and an attempt to fill supply chains in the U.S. ahead of the tariffs being implemented. And a redirection of trade flows to Europe from Asia because of slowing demand in China. With respect to the U.S. on Slide 4, you can clearly see a significant increase in imports of ABS, primarily from Asian producers beginning in the first quarter to get ahead of the tariff implementation. Exports from the U.S. of both ABS and PMMA decreased versus prior year, and the decrease was most pronounced in the exports to Canada and Mexico. A similar dynamic occurred in Europe, where Asian material that is typically consumed in China was redirected to the European market, putting margin pressure on the more standard grades of ABS and PMMA. These industry trade flow dynamics continued into the third quarter, resulting in lower volumes versus prior year, but similar volumes quarter-over-quarter. Whether these new levels of demand are transitory or structural remains to be seen. However, late in the third quarter and into the fourth quarter, we are seeing an increased run rate of sales of our more formulated, higher-margin products that is higher than the year-to-date average and prior year levels. In the case of our more formulated PMMA resins, the year-over-year increase in volumes was over 10% beginning in late Q3, and this has continued into Q4. We do believe there is a drive to reshore demand even at slight premiums to the import parity price to derisk longer Asian supply chains and address potential tariff impacts in both Europe and the U.S. Concerning our focus on sustainability, I want to highlight the fact that the European Parliament finalized its vehicle end-of-life directive in September. This mandates that new vehicles must contain 20% recycled plastic within 6 years, 15% of which must come from end-of-life vehicles and this increases to 25% within 10 years. This action formalizes the EU's drive for greater product supply chain circularity. We have remained committed to pursuing investments to scale up our technology for our circular recycled content containing platforms and expect these regulations to drive demand in the near term. Our pilot plants for recycled polycarbonate, ABS and MMA are sold out. The volumes are still small, but will become more meaningful as we ramp up. Year-to-date, our recycled content containing plastic sales grew 2% across all applications with our recycled solutions in Engineered Materials growing at 12%. Before I hand the call over to Dave, let me comment on our press release from the 6th of October, in which we announced the discontinuation of Virgin MMA production in Italy and the intention to close our polystyrene production facility in Germany. We took this difficult decision after carefully considering our options and the impact on our employees. However, it is clear to us that these assets will not be competitive in the long term. Our Rho, Italy site will remain focused on PMMA resin production and will also be the site for our investments in recycled MMA. Pending works council negotiations in Germany, these projects should lead to $30 million of EBITDA improvement next year, and the cash savings will exceed restructuring costs beginning in 2026. Now I'd like to turn the call over to Dave. David Stasse: Thanks, Frank. We ended the third quarter with $30 million of adjusted EBITDA, which was impacted by $9 million of unfavorable raw material timing and negative equity affiliate earnings from Americas Styrenics due to an $8 million headwind from repair and other costs related to an unplanned outage that occurred in June. At the segment level, Engineered Materials adjusted EBITDA was flat versus prior year as fixed cost improvements and slightly higher volumes in PMMA resin for building and construction and automotive applications were offset by lower volumes in medical. On Medical sales, I want to remind you that we reported increased sales last year related to the closure of our Stade polycarbonate site and customers stocking up prior to the shutdown. Latex Binders adjusted EBITDA was $9 million below prior year, mainly driven by lower volume in Europe paper and board applications as well as significant pricing pressure in Europe and Asia. Our higher-margin targeted growth platforms in CASE and battery binders continue to outperform the market. Sales volume in battery binders were up 27% versus prior year for the quarter as we continue to enhance our portfolio, including new customer wins in anode binder applications. We're currently working closely with 5 of the 15 largest lithium-ion battery producers in the world. Lastly, Polymer Solutions adjusted EBITDA was $19 million below prior year, driven by $9 million of unfavorable timing, lower ABS volumes and unfavorable mix related to the closure of our polycarbonate plant. Third quarter free cash flow was negative $38 million, and we ended the third quarter with $346 million of available liquidity. The fourth quarter is typically our seasonally strongest quarter for free cash flow due to a working capital release. We expect our free cash flow in the fourth quarter to be positive $20 million and our year-end liquidity to be over $350 million. Now I'll turn the call back over to Frank. Frank Bozich: Thanks, Dave. Looking forward, we expect fourth quarter 2025 adjusted EBITDA of roughly $30 million to $40 million, and as Dave mentioned, positive free cash flow of $20 million. This forecast assumes a continuation of the year-to-date market dynamics and a somewhat exaggerated seasonal year-end effect as well as $5 million to $10 million of negative raw material timing. We will remain intensely focused on what's under our control, including improving our free cash flow in the short and long term through continued inventory management, restructuring activities and other actions. Additionally, we continue to believe that there are at least 5 triggers that could improve the demand environment. First, trade certainty in any form would improve consumer confidence and provide a landscape for new investments. Second, a continuation of Federal Reserve interest rate cuts, which will lower our own interest expense and improve demand for housing and consumer durables. Third, a resolution of the conflict in Ukraine. Fourth is a rationalization of higher cost, less environmentally sound chemical assets in Asia; and lastly, stronger support for the EU chemical industry as outlined in the EU chemical industry action plan. Thank you and now we're happy to take your questions. Operator: [Operator Instructions] Your first question comes from the line of Alex Kelsey of Wells Fargo. Alex Kelsey: I wanted to start with Slide 4 on the trade flows. I think one of the dynamics we've seen among another -- a number of chemicals companies is just structurally higher imports of China products into Western markets that's just structurally depressed pricing and influence demand. So I'm just curious, is it your view that this is transitory in nature, truly just getting ahead of tariffs? Or are you seeing just a structural difference in how China is behaving with regard to your markets? Frank Bozich: So yes, thanks for the question. Actually, the -- we don't know whether it's structural or transitory. It's too early to tell, as we said in the prepared comments. But I would tell you that the -- in our chemistries, the biggest, I guess, the more problematic dynamics. So the countries that are -- we're seeing the most increase in inflows are actually Taiwan and Korea. And in our chemistries, we believe that those -- their domestic markets don't support the significant capacity that's been built over the years. And where they used to have an outlet to supply China, that volume or that surplus capacity is now being redirected to Europe and North America. And I would point out that at least our analysis would indicate that those are higher cost assets in these chemistries. The other thing I would point out that's problematic from a trade flow standpoint is the use of using imports of resin produced in China and Korea into Mexico that can be compounded relatively lightly compounded locally and then brought into the U.S. under the USMCA tariff convention, tariff-free. Now our understanding is from our trade associations and our discussions that this sort of pathway or loophole in USMCA is a goal to be closed by the administration, but that would be helpful in our value chains. And that's where China -- Chinese products, we see more of the impact of Chinese flow into Mexico. Alex Kelsey: Do you have any perspective of like within PMMA and ABS, maybe this is a tricky one, but how much of the market Taiwan/Korea/China represents today versus, I don't know, 12 months ago, 24 months ago, whatever the right time frame might be? Frank Bozich: Well, I can't precisely answer what share of the market that they represent. But what I would tell you is that the import volumes on, for example, the percentage increase in imports to, for example, from -- into Europe from South Korea in the first half of 2025 was up 18% over prior year. And in Q2, it went up to 26% increase over prior year. And they are by far the biggest importer of ABS into Europe. In the case of PMMA, imports from South Korea were up marginally in the first half into Europe. But in the case of imports into the U.S., the biggest import increase in imports sorry, the biggest imports -- increase in imports came from South Korea and Taiwan for ABS, where it was approximately 23% increase, but then Mexican product increased 75%. So that was that pathway that we were talking about. Now I want to point out though that remember, we make mass ABS and these are basic -- generally basic grade or standard grade polymers that are coming in under these conventions that are more broadly used in the less specified or formulated products. Alex Kelsey: Got it. Okay. And then on the PMA comment, the formulated PMA comment, I thought the commentary about seeing sequential ramp into Q4 was positive. One, has just something changed in that market from a supply or demand dynamic to suggest we're at trough and rising off trough levels? And then within the EM segment, like what percentage of that is [ Air quotes-formulated ] PMMA? Frank Bozich: So yes, I think it's too early to -- we don't know that the market dynamic is changing necessarily. It's too early to tell. And like I said, this is a late Q3, early Q4 dynamic that we observed, and we're watching it and trying to understand it. We believe that there is an effort on behalf of many of the customers in North America and Europe to derisk their supply chain from a complexity standpoint and also with regard to potential tariffs or trade barriers in North America and Europe. So I guess at this point, that's -- we're watching it. But again, it was good to see that increase over prior year. Alex Kelsey: And then to that second question that I asked in terms of however you want to define it, like what percentage of revenue/EBITDA/volumes in EM would you define as formulated? Frank Bozich: Yes, I wouldn't disclose that specifically. It's a material part of our EM segment and -- but we wouldn't share that information generally. Alex Kelsey: Okay. And then on AmSty, I have one question maybe accounting related. But if the shutdown unplanned maintenance was taken in Q2, I'm curious why there's an impact on Q3 EBITDA? And then more generically, can you just talk about what's being done within AmSty to sort of rightsize that business, just given how underperforming it's been this year? David Stasse: Alex, this is Dave. So the unplanned outage occurred at the end of the second quarter in June. And it was related to the production of styrene. So what that forces in which is obviously upstream to polystyrene. So what they have to do then is go out and buy styrene, obviously, at a cost higher than what they can make it for. And those increase -- that increased cost of goods sold in this case goes through the P&L in the second -- in the third quarter, right? So there's both repair costs that are included in the -- so the total impact for the year for AmSty was $10 million -- or excuse me, the total impact to our equity income was $10 million, $2 million of it was in June and $8 million of it was in the third quarter. And the composition of that is both the cost of repair, but also the higher cost raw materials from the styrene that they had to buy going through the P&L. So look, related to the second question about what are we doing to rightsize it. I mean, look, I don't think we're doing -- I don't think anything is necessary to rightsize the business. They've got 2 styrene units that are very competitively positioned on the global cost curve for styrene. 70% of the styrene they produce, they consume internally in polystyrene downstream and the other 30% goes into the merchant market. But again, they're on the kind of the left side of the cost curve. So look, I don't think there's anything necessary to do there from a rightsizing perspective. Clearly, styrene is long globally. I mean it's why we exited our European plants. So styrene margins are lower, a lot lower than they used to be. But I don't think a necessary step there is going to be any capacity rationalization. Alex Kelsey: Okay. That's helpful. And then last one for me. If we like -- when we were entering 2025, and I understand things have changed, the expectation was flat volumes kind of started us at $200 million-ish of EBITDA plus cost saves got us to something closer to $300 million, if I'm remembering correctly. I know it's probably early on 2026. But again, it feels like we're lower for longer, maybe troughing. But if you kind of take some of that same analogy, where the business is forecasted to be at the end of 2025, like all else equal in like up 10% volume environment, down 10% flat, any range of outcomes for what we could think about for 2026? Frank Bozich: So yes, maybe let me tackle the last thing first. So we've said this consistently that at 10% volume increase across the portfolio results in about $100 million of EBITDA. And so again, we're not prepared to talk about -- we don't have a view on 2026 or are prepared to give any guidance for 2026. But I think it might be helpful to go back to how we were -- as we entered the year, how we thought about it. And our expectation for significant increase was really in 2025 over '24 was driven by 5 factors. One was stable volume. Number two was the disposition -- the sale of our polycarbonate assets to Deepak. The also known business wins that we had as well as a more normalized earnings from AmSty as well as the cost savings initiatives that we announced last year. What I would tell you is that we got the known business wins or the incremental business wins in our downstream markets. We delivered the cost savings, and we executed on the Deepak sale, where we've had a shortfall versus our expectation was on the more normalized earnings from AmSty and then the volume development that occurred, what we would attribute to really global tariff uncertainty. So again, I think what's in our control, we've done a good job of managing, but that's sort of how this year developed. And again, too premature -- it's premature for us to give you guidance for next year. Operator: There are no further questions at this time. And with that, ladies and gentlemen concludes today's call. We thank you for participating. You may now disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by. My name is Abby, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Essent Group Ltd. Third Quarter Earnings Call. [Operator Instructions] And I would now like to turn the conference over to Phil Stefano with Investor Relations. You may begin. Philip Stefano: Thank you, Abby. Good morning, everyone, and welcome to our call. Joining me today are Mark Casale, Chairman and CEO; and David Weinstock, Chief Financial Officer. Also on hand for the Q&A portion of the call is Chris Curran, President of Essent Guaranty. Our press release, which contains Essent's financial results for the third quarter of 2025 was issued earlier today and is available on our website at essentgroup.com. Prior to getting started, I would like to remind participants that today's discussions are being recorded and will include the use of forward-looking statements. These statements are based on current expectations, estimates, projections and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially. For a discussion of these risks and uncertainties, please review the cautionary language regarding forward-looking statements in today's press release. The risk factors included in our Form 10-K filed with the SEC on February 19, 2025, and any other reports and registration statements filed with the SEC, which are also available on our website. Now let me turn the call over to Mark. Mark Casale: Thanks, Phil, and good morning, everyone. Earlier today, we released our third quarter 2025 financial results. Our performance this quarter again underscores the resilience of our business as we continue to benefit from favorable credit trends and the interest rate environment, which remains a tailwind for both persistency and investment income. These results reflect the strength of our buy, manage and distribute operating model, which we believe is well suited to navigate a range of macroeconomic scenarios and generate high-quality earnings. For the third quarter of 2025, we reported net income of $164 million compared to $176 million a year ago. On a diluted per share basis, we earned $1.67 for the third quarter compared to $1.65 a year ago. On an annualized basis, our year-to-date return on equity was 13% through the third quarter. As of September 30, our U.S. Mortgage Insurance in force was $249 billion, a 2% increase versus a year ago. Our 12-month persistency on September 30 was 86% flat from last quarter, while nearly half of our in force portfolio has a note rate of 5% or lower. We continue to expect that the current level of mortgage rates will support elevated persistency in the near term. The credit quality of our insurance in force remains strong, with a weighted average FICO of 746 and a weighted average original LTV of 93%. Our portfolio default rate increased modestly from the second quarter of 2025, reflecting the normal seasonality of the Mortgage Insurance business. Meanwhile, we continue to believe that the substantial home equity embedded in our in-force book should mitigate ultimate claims. Our consolidated cash and investments as of September 30 totaled $6.6 billion with an annualized investment yield in the third quarter of 3.9%. Our new money yield in the third quarter was nearly 5%, holding largely stable over the past several quarters. We continue to operate from a position of strength with $5.7 billion in GAAP equity, access to $1.4 billion in excess of loss reinsurance and $1 billion in cash and investments at the holding companies. With a 12-month operating cash flow of $854 million through the third quarter, our franchise remains well positioned from an earnings, cash flow and balance sheet perspective. We remain committed to a prudent and conservative capital strategy that allows us to maintain a strong balance sheet to navigate market volatility while preserving the flexibility to invest in strategic growth. Thanks to our robust capital position and strength in earnings, we are well positioned to actively return capital to shareholders in a value-accretive fashion. With that in mind, year-to-date through October 31, we have repurchased nearly 9 million shares for over $500 million. At the same time, I am pleased to announce that our Board has approved a common dividend of $0.31 for the fourth quarter of 2025 and a new $500 million share repurchase authorization that runs through year-end 2027. Now let me turn the call over to Dave. David Weinstock: Thanks, Mark, and good morning, everyone. Let me review our results for the quarter in a little more detail. For the third quarter, we earned $1.67 per diluted share compared to $1.93 last quarter and $1.65 in the third quarter a year ago. My comments today are going to focus primarily on the results of our Mortgage Insurance segment, which aggregates our U.S. Mortgage Insurance business and the GSE and other Mortgage Reinsurance business at our subsidiary, Essent Re. There is additional information on corporate and other results in Exhibit O of the financial supplement. Our U.S. Mortgage Insurance portfolio ended the third quarter with insurance in force of $248.8 billion, an increase of $2 billion from June 30, and an increase of $5.8 billion or 2.4% compared to $243 billion at September 30, 2024. Persistency at September 30, 2025, was 86% compared to 85.8% at June 30, 2025. Mortgage Insurance net premium earned for the third quarter of 2025 was $232 million and included $15.9 million of premiums earned by Essent Re on our third-party business. The average base premium rate for the U.S. Mortgage Insurance portfolio for the third quarter was 41 basis points, consistent with last quarter, and the average net premium rate was 35 basis points, down 1 basis point from last quarter. Our U.S. Mortgage Insurance provision for losses and loss adjustment expenses was $44.2 million in the third quarter of 2025 compared to $15.4 million in the second quarter of 2025 and $29.8 million in the third quarter a year ago. At September 30, the default rate on the U.S. Mortgage Insurance portfolio was 2.29%, up 17 basis points from 2.12% at June 30, 2025. Mortgage Insurance operating expenses in the third quarter were $34.2 million, and the expense ratio was 14.8% compared to $36.3 million and 15.5% last quarter. At September 30, Essent Guaranty's PMIERs sufficiency ratio was strong at 177% with $1.6 billion in excess of apple assets. Consolidated net investment income and our average cash investment portfolio balance in the third quarter were largely unchanged from last quarter due to our share repurchase activity. In the third quarter of 2025, we increased our 2025 estimated annual effective tax rate, excluding the impact of discrete items from 15.4% to 16.2%. This change was primarily due to withholding taxes incurred on a third quarter dividend from Essent U.S. Holdings to its offshore parent company. As Mark noted, our holding company liquidity remains strong and includes $500 million of undrawn revolver capacity under our committed credit facility. At September 30, we had $500 million of senior notes -- senior unsecured notes outstanding, and our debt-to-capital ratio was 8%. During the third quarter, Essent Guaranty paid a dividend of $85 million to its U.S. holding company. As of October 1, Essent Guaranty can pay additional ordinary dividends of $281 million in 2025. At quarter end, Essent Guaranty's statutory capital was $3.7 billion with a risk-to-capital ratio of 8.9:1. Note that statutory capital includes $2.6 billion of contingency reserves at September 30. During the third quarter, Essent Re paid a dividend of $120 million to Essent Group. Also in the third quarter, Essent Group paid cash dividends totaling $30.1 million to shareholders, and we repurchased 2.1 million shares for $122 million. In October 2025, we repurchased 837,000 shares for $50 million. Now let me turn the call back over to Mark. Mark Casale: Thanks, Dave. In closing, we are pleased with our third quarter financial results as Essent continues to generate high-quality earnings, while our balance sheet and liquidity remains strong. Our performance this quarter reflects the strength and resilience of our franchise, while Essent remains well positioned to navigate a range of scenarios given the strength of our buy, manage and distribute operating model. Our strong earnings and cash flow continue to provide us with an opportunity to balance investing in our business and returning capital. We believe this approach is in the best long-term interest of our stakeholders and that Essent is well positioned to deliver attractive returns for our shareholders. Now let's get to your questions. Operator? Operator: [Operator Instructions] And our first question comes from the line of Terry Ma with Barclays. Terry Ma: Just wanted to start off with credit. New notices were a bit lower than what we had, but the provision on those notices were higher. So any color on kind of just the makeup from a vintage or even geography perspective this quarter? Mark Casale: Yes. Terry, it's Mark. I wouldn't say there's nothing really to read out in terms of geography or trends. The one thing for you guys as analysts, we pointed this out a few quarters ago is just our average loan size continues to increase. I mean ever since for years, it was like $230,000. And when the GSEs started raising their limits and it really kind of picked up post-COVID. So our average loan size, if you just look through the stat supplement for the insurance force is close to $300,000. So again, larger loans when they come through kind of into default, it's going to be a larger provision. So I wouldn't read any more into it than that. I think the -- again, the default rate is relatively flattish. And I think from a credit position, there's nothing we're really seeing that concerns us at the current time. Terry Ma: Got it. That's helpful. And then maybe just a follow-up on the claims amount. The number was higher and also the severity. So like anything to call out there, like anything idiosyncratic? Or is there more of a trend? David Weinstock: Terry, it's Dave Weinstock. Yes, there's really nothing to point out there. A lot of that is going to depend on when we get documents in and when the claims are fully adjudicated and ready for payment. And so you're going to see fluctuations based on what the underlying claims are. But at the end of the day, there are not a lot of claims there. And the biggest takeaway really is that the severity continues to be well below what we're reserving at. So we're getting favorable results there. Operator: And our next question comes from the line of Bose George with KBW. Bose George: First, just on the ceded premiums, it was kind of the high end of the range. Is that a good level going forward? Or does that just bounce around depending on the timing of when you're doing the reinsurance transactions? David Weinstock: Bose, it's Dave Weinstock. Yes, it's going to bounce around a little bit based on default and provision activity. So it's seasonal. I think you saw the ceded premium being a little bit lower in the first half of the year, similar to where you see our defaults being more favorable and lower. And this is the seasonal second half of the year, as we've talked about, we definitely -- you generally see an uptick. And so you're going to see a little bit of an uptick in the ceded premium. Mark Casale: Yes. And also keep in mind, Bose, we raised the quota share this year to 25%. So that is going to create a little bit more volatility. At the end of the day, it comes through the wash, right? So in terms of the mix between the provision and expenses and ceding commission, but yes, it will bounce around a little bit more. So I'd be conscious of that in your models. Bose George: Okay. Great. And then just in terms of the tax rate, what drove the higher tax rate? And then just can you remind us just based on how much you're ceding, et cetera, where you think the tax rate is going to be over the next, say, 12 months? Mark Casale: Yes. I mean I think Dave alluded to it in the script, a lot of it is just a little bit of the tax friction moving from kind of guarantee to U.S. up to Bermuda and out to shareholders. So I think 16 and maybe a touch higher going forward. I would think through that with your models, I'd be relatively conservative those. And it really gets back to the fact that we're just distributing a lot more capital back to shareholders. And that's kind of a little bit of a signal that we don't really see it changing much, given where sitting with still $1 billion of cash at the holdco and kind of where the stock is right around bookish value. And I think we pointed this out last time in our investor deck, which will come out kind of post earnings, like the embedded value of the business, we believe, is much higher than kind of where we are today, right? And just again, it's simple math, it's nothing revolutionary. We have $6 billion of cash, $6 billion of equity. We trade right around $6-ish billion. It doesn't really give credit for the $250 billion of insurance in force that we have. And there's a significant embedded value. I think we've proven that over the past 10 years in terms of the cash flow. And just look, again, just we generated $854 million of cash flow over the last 12 months. So based on that and where we're -- just given the capital position, and we're still generating unit economics kind of in that 12-ish to 14-ish range. We think it's the best value. So I think we'll continue to do that. But there, again, it just getting the cash out is -- creates a little friction. But I think from a shareholder perspective, we'll pay a couple of extra bucks on the tax rate. But I think from lowering the share count and kind of delivering value to shareholders, it's a little bit of a no-brainer. Operator: And our next question comes from the line of Rick Shane with JPMorgan. Richard Shane: I'm looking at Exhibit K and one trend that is pretty consistent is the increase in severity rates, and that makes sense given slowing home price appreciation and vintage mix. It was 78% this quarter. I'm curious, long-term where you think that could go? Are we sort of asymptotically approaching the limit there? Or are we -- should we expect that to continue to rise? Mark Casale: Yes. I mean I wouldn't -- I don't know if you would expect it to rise. Again, we -- the provision is at 100, Rick, just so you know. The embedded HPA in the book is still kind of 75-ish. So I mean, in terms of mark-to-market LTV. So some of it is just timing, right? If somebody from the later vintages kind of call it, '23 or '24 goes into default, there's going to be a higher provision or if they go into claim, we're going to pay a higher claim there because they have less embedded value. But taking a step back just at the portfolio level, we're not going to get too fussed about it, Rick. I mean, again, you're talking about a relatively low losses. And remember, just -- and we point this out every quarter or 2, just what the real risk is in our business, right? Take from my seat, Rick, we own that first loss position, right? So call it 2 to 3 claims out of 100. We hedge out from above that kind of into that 6, 7 range, and we reattach above that. That's the risk in the business, right? We are a specialty insurance type business, almost like a cat where our catastrophe is a severe macroeconomic recession. And that's when we hold capital when we think about PMIERs, we think about the different stress tests that we run, whether it's Moody's Constant severity S4, the GFC, that's when we come in and think about it week-to-week or month-to-month. That's -- we're focused really on making sure we're fine there, and we clearly are given the amount of capital that we're using to repurchase share. So getting back to this, again, we clearly look at it. I think we're conservative in how we provision just from a severity standpoint because I think that's -- the severity is an actuarial -- I mean, the provisions is an actuarial-based model. So we don't really mess with it quarter-to-quarter, even year-to-year that much. So again, I'm just trying to -- from a big picture standpoint, sure, you're going to try to point out trends. And Terry pointed out the trends around the new notices, those are all good. That's like you guys have to do that for your models. But I think taken like a step back, the biggest metric for the quarter, Rick, is we produced $854 million of cash over the last 12 months. So again, not trying to get too high level, but I mean, I think it's important to kind of put context around some of these numbers. Richard Shane: No. Look, it's a fair point, Mark. Given how low losses have been for so long, a modest dollar movement looks like a larger -- looks like a significant percentage movement. And I think we're all sensitive to that and trying to sort of, I think, understand what the normalized returns on the business are? And do you think we are approaching those levels? Or -- and look, you've enjoyed an extraordinary period for a long time, for a whole host of reasons that we've all talked about. But as the business normalizes and sort of reverts to the return levels that the two of us spoke about a decade ago? Or do you think we're getting there now? Mark Casale: No, it's a good question. And Rick, we've been studying this. So let's go back in time, right? Let's start with 1990, which is really the beginning of the modern day Fannie and Freddie. And let's just go with the last 35 years. If you take away the GFC, which it's hard to do, but just to stick with me here for a second, the average loss rate on Fannie and Freddie back loans is less than 1%. That, I believe, is actually -- so it's not this, "Oh my goodness, we have such a good run, when is it going to end?" This is it. This is the business. It's a great business. You're talking about, and again, and some of the things that caused the great financial crisis because you don't want to ignore that. And the reason we like the business, coming out of the crisis, you had the Dodd-Frank qualified mortgage rules. So 35% of the loans that were done during the crisis, they no longer qualify. They literally got the RIF-wrapped out of the industry. So that is now either going, it's going to either FHA or it's going to kind of non-QM or they're not being originated, which is the most case. A lot of those borrowers are ending up in single-family rental. It's a great outcome for them, right? So then all of a sudden then you add in the increased, I would say, sophistication of DU and LP at the GSEs, their quality control has gotten significantly better. I mean, over the last 15 years. So all of a sudden, the credit guardrails around our business are exceptional, and we don't see it changing. Unless there's something happens with GSE reform, and clearly, we look at that. But as long as the market is where it is today, this is a very narrow fairway. And so we don't see really credit changing that much. It's hard. I mean, actually, our credit for this -- the last 2 quarters, Rick, was the best FICO's we've had since we started the company. So -- and part of that's affordability, part of it is affordability, like just folks are having a harder time qualifying. But the credit quality in this business is exceptional. And just from a public policy standpoint, 65% of our borrowers are first-time homeowners. I mean, I was with a young guy last week who just got mortgage insurance through one of our clients. He's paying like $65 a month. You put 10% down. I mean you can't beat it. It's a great value to the customer, which you always want to have, right? The borrowers is our ultimate customer, and then I think the math for us. So I would say from -- and some of our longer-term investors kind of know this clearly, I would stop and one of our other analysts has always asked me, Mark, is this as good as it gets? Guys, It's been good for a long time. I mean -- and I don't really -- again, there's going to be some volatility Rick, quarter-to-quarter or year-to-year. Look, If unemployment goes up, we're probably going to pay some losses. But remember, we're kind of capped until we hit until we go through that mezz piece. So it's relatively well boxed. Hence, our confidence in paying the quarterly dividend and right now in terms of where we are returning capital to shareholders has been quite a shift the past 12 months, but part of it was we've just continued to accumulate cash and we've had this retain and invest mentality. We just haven't invested in anything. And so we look at it now and say the best investment we can make is in the company. And if we keep this pace up, Rick, every time you repurchase shares, our long-term owners, which include the senior management team, we own a little bit more of the company. And if I'm going to own a business, this is my favorite business. So we'll see. So sorry for the long-winded answer, but I want to again try to give some of the investors on the phone some context. Richard Shane: No. Mark, look, I appreciate it. And I suspect there are some folks who are listening to this call imagining the 2 of us on rocking chairs debating the stuff. And that's okay, too. I appreciate the answer. Operator: [Operator Instructions] And our next question comes from the line of Mihir Bhatia with Bank of America. Mihir Bhatia: I actually want to follow up on Rick's last question there about just about the guardrails, around underwriting currently. I think there was news yesterday about Fannie removing the minimum credit score requirements. There's been some noise out of Washington about trying to do -- play a more active role in housing or lower increased housing demand, if you will. And I was just wondering from your seat, are you seeing any signs of that? Are originators trying to get more stuff underneath, gets more stuff approved that maybe wouldn't have been -- they wouldn't have tried a couple of years ago. Just wondering what that looks like. Mark Casale: It's a good question. There is a lot of noise around kind of credit scores and Vantage and Fair Isaac and Vantage can qualify more borrowers, all those sort of things. The reality is, Mihir, the GSEs haven't changed their systems yet. So until that happens, there's really not going to be changed. So like a lender would be unable today to kind of "get something past the GSEs." It gets back to my point, the GSE's, their systems are fantastic. And in terms of DU and LP, very sophisticated. And if they do get through it, they're most likely their QC and repurchase program, they're going to put that back to lenders. So lenders have I think lenders have really understood that the game today, and you're seeing some of the bigger lenders do it, the game today is all about lowering and being efficient on origination cost. That hasn't always been the case. So if you go before the crisis, what would happened is if you get a small or midsized mortgage banker, and all a sudden production is down, they immediately go to credit expansion right? I wouldn't normally do that loan, but I have fixed costs, I'm going to try to get that loan in either through the GSEs or to whole loan buyers. You can't do that today. I mean, whether it's -- you're trying to get it through the GSEs, you're trying to go through some of the larger correspondent purchases like PennyMac, whose systems are also excellent. And it's not going to happen. So you're almost -- you have to either you have to manage costs. And again, from a credit provider, that's exactly where we want it. So we're not too worried about it. And if it were to go, we mentioned this last call, if it were to change, right, and I'm not saying it's going. If it were to change and you could have like kind of a wider fairway, so to speak, so more things qualify. The fact that our credit engine doesn't really rely on FICO, we're really -- we're almost credit score agnostic. We're looking at the 400 kind of variables underneath that along with things in the 1003, we're not too worried. We can see through that. In fact, our model works better when things are a little bit more disparate, so to speak. It doesn't work as well in a market like this. It kind of works more from a premium standpoint, picking and choosing, but credit, not -- you almost don't really need it from a FICO standpoint. So again, I think I would look at it that way. I think it's something that we're pleased with, but I don't see any kind of chink in the guardrails to date. Operator: [Operator Instructions] And our next question comes from the line of Doug Harter with UBS. Douglas Harter: Can you talk about your plans to upstream capital from the MI subsidiary? It sounds like you have a lot of capacity left for the year. Do you plan to kind of spill that over or do a large dividend in the fourth quarter? Mark Casale: I think it's pretty consistent with the dividends. It might be a little bit larger in the fourth quarter for sure. I think, again, as we look at kind of PMIERs, Doug and credit and where it's going, we feel comfortable continuing to upstream cash from Guaranty to U.S. Holdings. And as I said earlier, there's a little bit of friction getting it back to the group level, but that's -- and that's not the worst problem to have. And also, we have the quota share reinsurance, that's one of the reasons we took it up to 50% earlier this year. That's another kind of backdoor way to get cash up to the holdco. Douglas Harter: And then you -- obviously, you bought Title a little while ago. Can you just talk about how you're thinking about the benefit of the great business that is MI versus looking to further diversify and have other avenues of growth? Mark Casale: Yes. I mean I think right now, it's a good question. I think Title has performed pretty much in line with what we thought, if we would have thought rates would be this high, to try to be honest with you. I think if rates go lower, we're very levered to rates given the lender focus of the business. We have an underwriter. It's really kind of in it's still small stages growing primarily in Texas and Florida and a bit of the Southeast. That's kind of the purchase angle of the business, but it's small. So the real lever is lenders and refinance. And we've continued to add lenders, we're working on developing a new system. We're still building the business out per se, and we're fine with that. So it's kind of in corporate and other, Doug. And think of that almost as like an incubator. So again, if it gets big enough, it will pop up as its own segment. If it stays small, it stays small. And that could happen. And clearly, Essent Re has some opportunities outside of mortgage. We haven't really done anything yet, but there's things that we look at. So I would look at it as another "incubator". We kind of call them call options. But for the time being, clearly, the focus and where the cash flow is coming in from the MI business. And when we look at investment opportunities whether it's title, other acquisitions that come to us, we still feel at this time, our stock is the best value, and we're kind of voting with our feet there. And I don't really expect it to change absent like some large movement in the stock. And then if there's a large movement in the stock, which it's -- it would be nice per se, but not necessarily. If you're in the business of buying back shares and shrinking ownership, this isn't the worst place to be in. If the stock were to move outside of our range, we would probably do like a special dividend. We'll continue to look for ways to get capital back to shareholders. But given just how good the MI business is today we would need to -- again, there's going to have to be a good reason for us to do it. And I look at it, if you're looking at a way to kind of quantify it, our book value per share today is right around $60. It's a tad below 58-ish. It will finish -- my guess is it will finish the year around $60 Doug. So if we look and say, hey, we're going to grow it, 10%, 12% a year, which we've been doing, that book value per share over the next 4 or 5 years is going to be $85, $90, right? It's big picture, right? Just looking at the numbers. So as we look at an acquisition, it's going to have to either help us increase that book value per share target or achieve that book value per share target sooner, all else being equal or making us a stronger company and things like that. There's other factors in there. That's a pretty high bar. That's a pretty high bar. We kind of know this business well. And like what I've said, just in my response to Rick earlier, this is such a good business. We're a little bit spoiled and in terms of how good the business is, again, there's going to be some bumps along the road. There always are, but that's why you have capital, right? You have capital to withstand those bumps and reinsurance is another form of capital. We expect kind of those expected losses per se. And then you have capital on reinsurance for unexpected losses, they'll come, but that's what we're prepared for. We don't necessarily try to sit down and say, where is the market going? We try to prepare for every different avenue that the market potentially could go down. I mean, that just comes with experience. We've been doing this for quite a while. But that being said, so to sum it up, the investment right now continues to be an asset. I don't expect that to change absent something really special comes along. Operator: And there are no additional questions at this time. So I will now turn the conference back over to management for closing remarks. Mark Casale: Thanks, everyone, for their time and questions. And have a great weekend. Operator: And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.
Operator: Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the LFL Group Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] I would now like to turn the call over to Jonathan Ross, Investor Relations for LFL Group. Please go ahead. Jonathan Ross: Thank you. Good day, everyone. And welcome to LFL Group's third quarter 2025 conference call and webcast. LFL's Q3 2025 financial results were released yesterday. The press release, financial statements and management's discussion and analysis are available on SEDAR+ and on our website at lflgroup.ca. Joining me on the call today are Mike Walsh, President and Chief Executive Officer; and Victor Diab, Chief Financial Officer. Today's discussion includes forward-looking statements. These statements are based on management's current assumptions and beliefs and are subject to risks, uncertainties and other factors that could cause actual results to differ materially. We encourage listeners to refer to the risk factors outlined in our management's discussion and analysis and annual information form, which provide additional detail on the risks and uncertainties that could affect future results. This call also includes non-IFRS financial measures. Definitions, reconciliations and related disclosures for these measures can be found in the management's discussion and analysis and press release issued yesterday. Forward-looking statements made during this call are current as of today and LFL Group disclaims any intention or obligation to update or revise them, except as required by applicable law. All financial figures discussed today are in Canadian dollars unless otherwise noted. With that, I'll now turn the call over to Mike Walsh to discuss our third quarter results. Michael Walsh: Good morning, everyone, and thank you for joining us. This is our first quarterly call, and we appreciate you being here. We're looking forward to using this format to provide more regular insight into our performance, our strategy and how we're thinking about the business going forward. So let's get right into the quarter. We delivered strong top line performance in the third quarter with system-wide and same-store sales up 3.7% and 3.9%, respectively. I am particularly pleased with our continued performance given the broader backdrop. Consumer discretionary spending remains pressured and the retail environment continues to be highly promotional. Canadians are looking for value from retailers they trust and our strategy is built to outperform when value matters most, and we're seeing that play out in the numbers. Even more importantly, we continue to translate our top line momentum into profitability growth. Adjusted diluted earnings per share grew 20.4% year-over-year, reflecting not just sales strength, but disciplined execution across sourcing, category management, promotional optimization and cost control. Underpinning our third quarter performance is the consistency of our execution and the strength of our platform. Our scale enables us to negotiate directly with suppliers and secure advantaged pricing. Our banners are trusted by Canadians coast-to-coast. And our integrated logistics network, including one of the largest final mile delivery systems in the country, gives us a level of service differentiation that's difficult for others to replicate. These are durable strengths that position us to win across cycles and help us continue to take share. Furniture was once again the standout category in Q3, supported by our focused assortment strategy. We've narrowed the range, gone deeper in our best sellers and leaned into categories where we can offer real value. This laser focus on solidifying our leadership in this most important category continues to deliver results. Furniture is our largest and highest margin category and in the current environment represented the most effective opportunity to gain share. Our performance in furniture is a result of the deliberate and disciplined execution of our strategy, prioritizing areas of our business with the greatest near-term opportunity, while continuing to advance our broader categories. While industry-wide traffic headwinds have continued, we maintained our focus on maximizing every customer interaction. Both average transaction value and conversion rate strengthened during the quarter. In our stores, we're seeing more purposeful visits translate directly into purchase activity. Our omnichannel infrastructure is instrumental here. We're strategically utilizing our digital ecosystem, not only as a revenue channel, but as a qualification funnel that delivers customers with clear purchase intent. Once in the stores, our highly trained sales associates and attractive financing offers work together to drive a stronger average transaction size and higher total ticket profitability. Our overall appliance business was also strong in the quarter led by the commercial channel, as has been the case for the past several quarters. We continue to deliver on projects booked over the past couple of years. And while we're mindful that builder pipelines are slowing across the board as we approach 2026, our team is laser-focused on continuing to gain traction in the replacement market, especially with property managers. That's a segment we believe can be a more meaningful contributor over time. And our warranty and insurance businesses remain a key part of our value proposition. These are profitable, capital-light businesses that support the core and extend our relationship with the customer. We also continue to see strong attachment rates and growth in these business lines and we believe there's more opportunity to grow these platforms, both inside and outside the LFL ecosystem. From a capital allocation standpoint, our priorities remain consistent. We're focused on maintaining a strong balance sheet and reinvesting in the business where we see attractive returns. We remain attuned to potential acquisition opportunities that could enhance the long-term value of the company and we continue to grow our regular dividend over time. Our retail store count remained consistent from last quarter at 300 stores, including 201 corporate stores and 99 franchise stores. As we continue to optimize our footprint, it's worth reiterating that our strategy is not about maximizing store count. Our stores are designed to be destinations with larger catchment areas and a focus on delivering a full-service experience that drives meaningful returns. We evaluate every investment through the lens of a 4-wall profitability and long-term value creation. That discipline is reflected in how we approach new locations, renovations and reopenings. It's also why we're comfortable growing selectively rather than chasing unit expansion for its own sake. Now looking ahead to the fourth quarter and into early 2026, we expect consumer confidence and discretionary spending to remain selective. Consumers are being careful with their dollars, but they are spending. The environment remains dynamic. Similar to last year, the Canada Post disruption is creating near-term headwinds during a very important promotional period. While this does affect all retailers that rely on flyer distribution, we remain competitively well positioned. We faced a similar situation late in the fourth quarter of 2024. And while the disruption began earlier this year, we're drawing on last year's experience to adjust quickly. That said, if the strike continues through year-end, we do expect some impact to key promotional events in the quarter. Before I hand it over to Victor, I truly want to thank our associates across banners and regions from our warehouses to our sales floors to our drivers on the road and the customer service folks manning the phone lines. Their execution in the quarter was outstanding. Victor will take you through the financial details and provide some additional context on the quarter. I'll come back with a few closing thoughts before we open it up for questions. Victor, over to you. Victor Diab: Thanks, Mike, and good morning, everyone. As Mike mentioned, we delivered strong top line growth in Q3 with system-wide sales up 3.7%, revenue up 4.1% and same-store sales up 3.9%. From a category standpoint, furniture was a key contributor. We also saw continued strength in appliances, led by our commercial channel, which added to growth this quarter. That strength was driven by the delivery of previously booked projects, particularly in multiunit residential as we continue to fulfill orders tied to developments moving through to completion, despite a softer new construction market. We expect revenue from developers, in particular, to begin moderating as we move into 2026 and we're certainly seeing that across the market. Our team is actively working to increase our share of the replacement business where we're seeing good traction with property managers. But it will take time for that portion of the business to catch up with the new build market, which is lumpier, but can be meaningful as we have seen this year as builders finish up projects. Gross profit margin expanded by 79 basis points year-over-year to 44.6%. This improvement reflects both the impact of higher-margin furniture sales and our continued focus on strengthening sourcing and vendor relationships. We've deepened relationships with our top vendors and increased purchasing penetration through our First Ocean subsidiary, driving improved cost efficiencies and supply consistency. At the same time, disciplined promotional activity and optimized pricing strategies have supported margin performance across categories. As we move into the end of the year and early 2026, gross margin will continue to be influenced by category mix, promotional intensity and our ongoing sourcing work. We're always looking for opportunities to drive improvement, but we also take a balanced and dynamic approach. We'll make the investments necessary to drive traffic and market share when it makes sense to do so. That's just part of how we manage the business. SG&A rate was 35.51% of revenue, an improvement of 14 basis points year-over-year. This improvement was driven by lower retail financing fees due to declining interest rates. This helped offset expected increases in advertising costs due to event timing shifts as well as higher occupancy expenses from the Edmonton D.C. lease commencement and other facility renewals. Adjusted diluted EPS came in at $0.65, up 20.4% compared to last year. We're also pleased with where inventory levels sit today. Freight disruptions that impacted the start of the year are now behind us and our written-to-delivered sales relationship has normalized with a focus on going deeper on certain SKUs, enabling us to improve written-to-delivered timelines. We're in a healthy in-stock position heading into the back half of the year with good availability across key categories, and no material constraints on flow. From a capital allocation standpoint, I'll build on Mike's comments. Our approach remains disciplined and consistent. We prioritize reinvestment in the business where we see attractive returns, maintain a strong balance sheet and return capital to shareholders over time, primarily through growth in our regular dividend. Annual maintenance CapEx is running in the range of approximately $35 million to $40 million annually, which supports our ability to continue generating strong free cash flow. On the balance sheet, we ended the quarter with $549.6 million in unrestricted liquidity, including cash, marketable securities and our undrawn revolver. That level of flexibility is a strategic asset in this environment. It enables us to stay agile, pursue opportunities as they arise and continue investing in the business without compromising our financial strength. Given our 100-plus year track record of navigating cycles and making the right long-term investments, we're comfortable maintaining the financial flexibility. We will continue to be opportunistic in our approach to buybacks, taking advantage of volatility where it aligns with our long-term strategy. We did not repurchase any shares under our existing NCIB during the quarter. Overall, we remain confident in our ability to deliver consistent financial performance in the context of the market and versus the industry. Our scale, disciplined sourcing and promotional strategies and solid balance sheet provide the foundation to continue driving profitable growth and shareholder value over the long-term. Before handing it back to Mike, I'd like to briefly address the previously announced initiatives to create a real estate investment trust. This remains an important strategic priority for us. The timing will be driven by market conditions and regulatory approvals, and we'll share additional updates when appropriate. That's the only update we can provide on today's call. With that, I'll turn it back to Mike for closing remarks before we open the line for questions. Michael Walsh: Thanks, Victor. To wrap up, we're really pleased with how the business performed for the first 9 months of the year. Over that period, we have delivered total system-wide sales growth of 3.5% and adjusted diluted EPS growth of 28.7% in a dynamic consumer and industry environment. What's just as important is how we're delivering that performance. We're seeing stronger conversion in our stores, more consistency in execution across banners and better alignment between what customers want and what we're delivering. That's the outcome of deliberate long-term choices, not quick wins, and it's showing in both our results and how resilient the business has become. We're not immune to the macro, but we are well positioned to navigate it and continue delivering value for our customers and our shareholders. Thanks again for joining us today. With that, I'll pass it back to the operator for questions. Operator: [Operator Instructions] Your first question comes from the line of Nevan Yochim with BMO Capital Markets. Nevan Yochim: Congratulations on a solid quarter and your first conference call. Hoping we could start on the top line here. Are you able to provide an update on quarter-to-date trends? Have you seen the Q3 momentum continue, as well as any detail on your positioning as we move into the important sales and holiday season? Michael Walsh: Thanks very much, Nevan. It's great to talk to you and you're the first person asking us a question on the live webcast. So congratulations. Just a little bit on the third quarter. So the consumer still remains very price conscious Value continues to be a key focus area for us and that's how we think we're winning. The Canadian consumer is still looking for a retailer that they know and trust and is going to be around for after sales service. The trend from the second and third quarter, we're seeing a lot of traffic going to our website and traffic being more like flattish going into the stores. So more qualified customers coming into our stores, allowing our sales associates to spend more time selling the value-added services. We're seeing the attach rates for warranty insurance products are also improving. And so we feel like we're well positioned going into the fourth quarter. There's still some macro headwinds. You've got the coastal strike affected last year starting around November 15th. This year started near the end of September. So we're feeling good about that. It kind of levels the playing field with all retailers but we learned a lot going through the fourth quarter of last year that we're applying this year. Nevan Yochim: And maybe just a little bit more on that Canada Post strike. Are you able to parse out what the impact was last year, maybe just a magnitude? And then, how does that flow through the P&L? Is that solely a revenue impact or are there margin pressures there as well? Michael Walsh: Great question. I don't think there's margin impact to it. But it's definitely very difficult to quantify what the impact is because last year we were having challenges with inventory position as well. So how much of it was a flyer impact, how much of it was the inventory impact. So really difficult to tell. And then as you pivot going to more ,of a digital way, how much of that did you get a pickup on. So really difficult to quantify the impact of the flyers. But for sure, there is an impact to all retailers, especially when you're a high-low retailer and the consumer is looking for the flyer. It definitely impacts the traffic that's coming to your stores. Nevan Yochim: Got it. Maybe just one more for me, maybe for Victor. It's nice to see the SG&A leverage again this quarter. You called out lower POS financing fees. As we've seen the Bank of Canada cut rates as recent as just 1 week ago, does that imply you expect this tailwind to continue into the second half of next year? Victor Diab: Great question. Yes, every time the Bank of Canada cuts rates, there's a bit of a delay in terms of when it translates to our numbers, but we'll get a bit more leverage off of that next year. Obviously, most of the cuts happened over the last year and we've benefited from that this year, and we'll see a little bit more of that next year if rates continue to be cut. Operator: Your next question comes from the line of Martin Landry with Stifel. Martin Landry: It's super helpful. I know it's a little bit more work on your end, but for us, it's very much appreciated. My first question, I'd like to understand a little bit how the quarter has evolved. There‘re some retailers that have talked about a strong July and August and a slower September. I was wondering if you've seen any of that dynamic? Michael Walsh: I would say we were very happy with the quarter as a whole. I think July and August were super strong. September was a little bit weaker, whether that's due to the postal strike, but definitely, we saw some weakness in September. Martin Landry: And that weakness, is it -- have you seen differences per regions? Has it been Canada-wide or more located in the Central Canada where the manufacturing base is? Michael Walsh: Yes. I'd say that the trend continues. Ontario has been softer. And again, the flyer distribution in Ontario is really soft and BC has been soft. Martin Landry: Okay. And then maybe lastly, my last question. I know you mentioned that -- in your opening remarks that the story is not about store openings. But I was just wondering, do you have any plans to increase your network across your banners in the next 12 months? Michael Walsh: I would say we don't have anything pending, Martin, but we do have a focus for Leon's in BC. The challenge has been inventory of retail sites. And to be honest with you, it's the leasing cost in BC. There's just no inventory. The Brick continues to focus on the East Coast, but we don't have anything pending. We've got the one store in Welland that we're building. We're probably going to open that in the spring of 2027. Victor Diab: And Martin, just to build on Mike's comments. We've seen a lot of good success with a couple of the new renovations with The Brick opening up in Richmond, we released the release in Kelowna, and we're seeing a lot of good success with some of those renovations. So we're keeping a close eye on that and it's something that we'll look to do more of. Michael Walsh: I think the last thing on that is we're really excited because we opened up a store within a store in Richmond, BC with Appliance Canada taking up about 10,000 to 12,000 square feet of Leon store, and we're seeing some good success there. And because Appliance Canada is generally in Ontario, they've got a lot of commercial customers in the East and West. And so we're going to do that as a bit of a test and it may be something that we can do on a broader scale. Martin Landry: Okay. That's helpful. And just to be clear, how many renovations have you done year-to-date? Victor Diab: I would say we've done about 3 major renos year-to-date. Operator: Your next question comes from the line of Jim Byrne with Acumen. Jim Byrne: Just maybe on gross margin side. I appreciate the color, Victor. Margins were up about [ 80 ] basis points this quarter and kind of averaged about [ 80 ] so far this year, up over last year. Is that a number that you would kind of expect to continue for the fourth quarter and kind of foreseeable future? Or are there moving parts there that might put some pressure on those margins in the coming quarters? Victor Diab: Jim, thanks for the question for sure. We're very happy with the margin performance year-to-date. A function of 2 things, really very strong furniture mix, that being our highest margin category. When you sell more furniture, you're also selling more furniture warranties, which tends to be accretive to margin as well. And the teams have done a really good job on the rate front from focusing assortment, getting us better leverage with our suppliers, flowing goods, slightly lower freight rates year-over-year. So there's a lot to that. We don't really comment on a quarter-to-quarter basis. We tend to be very disciplined historically around managing within a certain range. So that's a focus for us. We think we're going to end the year strong overall holistically. There may be puts and takes in terms of investing some margin back into certain categories. But over the full year, we expect to hold on to some of those gains for sure. And going into next year, again, it's about continuing to edge our margin rate forward. But there will be -- it's never going to be a linear -- just a straight line, there will be ebbs and flows in terms of when we choose to invest that back into the categories. Jim Byrne: Okay. That's great. Maybe if you could give any updates on kind of the warehouse initiatives and some of the optimization that you've been working on? Michael Walsh: We're still continuing to test and tune and learn. As we spoke about in the previous quarter, we migrated the Mississauga warehouse to surrounding stores and we're still measuring the KPIs on that from customer experience to the time between written-to-delivered. So still going down that path and analyzing that and we may end up doing another test in the first or second quarter of '26. So stay tuned. But definitely, it's not going to be a short-term project. It's going to be something that's more long-term figuring out how many warehouse stores do we still need to keep and what that looks like. So stay tuned on that. Jim Byrne: Okay. And then maybe just, Victor, you kind of mentioned the maintenance cap at $35 million. It looks like you're kind of tracking towards that for this year. It doesn't sound like next year will be much different given the lack of new stores, et cetera. Is that fair to say for 2026? Victor Diab: I think that's fair from like the core CapEx target in line around $35 million to $40 million. I think any strategic initiatives that we do end up moving forward with may be over and above, but we'll keep you posted on that. But I think that's a good target to have in mind for now. Operator: Your next question comes from the line of Ahmed Abdullha with National Bank Capital Markets. Ahmed Abdullah: Q4 seems like an easier comp given the inventory dynamic that took place last year. Are you better prepared from an inventory standpoint to drive sequentially improving growth in 4Q? Victor Diab: Ahmed, I appreciate the question. Thanks. A couple of things that we planned going into Q4, and we thought about, obviously. One , being in a much stronger inventory position, which we are and the teams have done a really good job there, and it's paying off for us. And two, we were hopeful that 1 year later, the Canada Post challenges would be behind us, right? So that unfortunately has kind of been a storyline early into the quarter. Now we will comp being -- having a Canada Post strike later in the quarter but that's certainly going to be an impact there as well. So I think there's different puts and takes. That being said, we feel really well positioned to continue competing for value in the space, but there's a couple of considerations there for you in Q4. Ahmed Abdullah: Okay. That's fair. And just -- I know you've mentioned the customer traffic and basket sizes and conversion rates have improved, but I would like just you to touch a bit more on that. Can you give us some sort of magnitude of how much of this quarter's results was driven by perhaps pricing versus volume or, any more specific color around these factors would be appreciated? Victor Diab: Yes. I think you would have seen sort of our furniture performance was really strong in the quarter. I think that's just really driven off of volume and just being really well positioned for value. I think we've got scale advantages there and we've done a really good job around focusing our assortment and being sharp on pricing and promo optimization. So I just think it's more around our go-to-market strategy. To Mike's point, in-store traffic is softer, but we're seeing really good traffic to and engagement on our websites that are ultimately leading more qualified shoppers into our stores and allowing our folks to drive higher closing ratios. And then, of course, the ancillary businesses along with that, like I mentioned, you're selling more furniture, you're selling more furniture warranty and our attachment rates are going up inside our stores. So it's a function of a bunch of different factors. It's not really on price. We're very focused on being sharp on price and being sharp on our promo strategy, Ahmed. But that's the extent of what I could provide there. Ahmed Abdullah: Okay. That's fair. And one last one for me. Your comments of growth rates like moderating in 2026. Are you still budgeting some revenue growth or more of a flat to down next year? Victor Diab: Yes. Like I think -- it's a interesting question, Ahmed. Like as you think about 2026, right, we never go into a year thinking we're not going to grow. Our mindset is always to grow. But we do think about it more along the lines of a 3 to 5-year horizon, have we sustainably grown the business from a top line and bottom line perspective over that period. And that's what we go -- that's our primary goal is to continue to win share. We still feel really well positioned to compete for value. That being said, a couple of considerations as you think about 2026. We mentioned our commercial business has been on a tremendous run. That's going to normalize a little bit just given the challenges with the development community. So that's something that we're being mindful of. And obviously, at this stage, we're probably going to comp some pretty strong furniture numbers as well. So it's another consideration. But do we believe going into the year we can drive growth? That's always our mindset. But of course, we have to be realistic around some of the considerations I just mentioned. Operator: Your next question comes from the line of Ty Collin with CIBC. Ty Collin: Great to hear from you guys in this format. So just for my first question, can you kind of speak to the different competitive dynamics within your key product categories? It seems like, obviously, mattress and electronics were more promotional, but maybe furniture a bit less so. Can you just help us understand what's going on there? And is the promotional activity being driven by any specific subset of competitors worth noting? Victor Diab: Yes. I mean it's a great question. Look, like we -- over the last couple of years, we've had a really strong focus on the furniture category and being able to position ourselves for value, right? And then -- and we've been seeing really good traction there. I think as it relates to the other categories, we have to be balanced in our approach. So in some cases, it is highly promotional, for example, in retail appliances across the board. More people are doing buy more, save more and things of that nature. That's always been done. It's just being done at a greater magnitude in terms of our observations. And then, as it relates to mattress, the mattress category, again, very promotional, more promotional than we've seen in the past, and you've got a lot more online players as well in that category. So we're being selective in terms of, in some cases, whether we want to participate in being more highly promotional. In some cases we're choosing not to, to protect margin. And just given how our overall business is performing, we're kind of -- we're satisfied not doing that. And in some other cases, we've identified opportunities where we can better position ourselves moving forward. So I think it's a combination of those things, Ty. Michael Walsh: Yes. And I think just to build on that, because there's no other comp we can really look at in Canada, we think we're winning share in the furniture space, although it's a very fragmented -- the competitors are very fragmented. But definitely, we feel like we're winning share there. Ty Collin: Okay. Got it. Yes. I appreciate that color. And then shifting to the commercial business. So yes, I appreciate that you're trying to diversify that business into the replacement channel. But as you alluded to, condo completions really are kind of expected to fall off a cliff after 2026, should probably be a headwind for you guys, which you mentioned. But I guess I'm just wondering, at what point do you think you might be able to sort of fully offset the lower new build business with replacement business? Or should we kind of expect the commercial business to ultimately take a step back after next year? Michael Walsh: Yes, there'll be softening, especially in the Toronto market as it relates to condo, but we still do a lot of housing. We do things other than just condo. And I think we started the thing about 12 months ago migrating to more of the property manager, and we're seeing success at both MidNorthern as well as Appliance Canada. And that's the other reason why we did the store within a store of Appliance Canada. They've got customers in Ontario that are also out West and in the East. And we're feeling pretty strong that they can build on the commercial business as well. So not sure if I can answer the question on timing, but definitely, we started this some time ago. And we think it will be soft in '26 and '27 and then building back up in '28. But definitely, we've been exploring options about how to compensate for any shortfall in the commercial business. Ty Collin: Okay. Got it. And maybe if I could just sneak in one more and kind of press you guys a little bit on capital allocation. So, I mean, the net cash balance does continue to climb up. I know you've talked about the need to hold on to some of that for maybe potential real estate-related investments and just to remain opportunistic. But given that the time line on some of those more opportunistic investments are ultimately unclear. I mean, at what point would you get more comfortable looking at stepping up, returning some of that capital to shareholders either through a special dividend or buyback activity? Victor Diab: No, I appreciate the question. And yes, you kind of hit it on the nail, right? So we really like our cash and liquidity position right now. It is, by design, building up this year to help us navigate any volatility in the market, but also to be opportunistic. And when we say opportunistic, like we're actively exploring what that could mean for us. So we typically go through our capital allocation funnel around, obviously, first and foremost, investing in our core business, evaluating strategic opportunities, whether that relates to the core of our business or potential M&A opportunities. And then we go down the funnel around returning capital to shareholders. In Q2, we increased our dividend by 20%. And we have these conversations with -- as a management team and with our Board all the time. And when we built that -- look, we're sitting on too much liquidity and there isn't something imminent. We're not afraid to return capital to shareholders. We've been very consistent with that strategy over many years. So it's just continuing to go through that decision process. At this stage, we feel good about where we are, but we'll keep you posted otherwise. Operator: Your next question comes from the line of Ryland Conrad with RBC. Ryland Conrad: Congrats on the first conference call. So maybe just continuing that conversation on M&A with the balance sheet in a really healthy spot. Can you maybe just provide an update on the criteria you're looking for and target? Michael Walsh: Yes. I would say that we've been reviewing any M&A opportunity for some time. I think our criteria that we look at is, we look at a company that has strong management team, runway for growth, and then lastly, being able to dovetail part of our ecosystem, meaning warranty and insurance into that business. So that's kind of the criteria we're running with. And again, we're very opportunistic. So we're not just going to do something for the sake of doing it. We're going to do it because it's in the best interest of growing our business. Ryland Conrad: Okay. Great. And then just on the Canada Post strikes, given they're on more of a rotating schedule this year, I believe, are the impacts that you're seeing on flyer distribution, I guess, less meaningful compared to last year? Victor Diab: I -- Yes -- Not -- I would say it's very tough to kind of say because it's just as impactful in terms of being able to get our flyers out. We have to -- when this strike hits, we have to think about alternative routes, right? So whether it's a full strike or a rotating strike, we have to think about, okay, what are different ways we can either get the flyer out or reallocate some of our marketing funds. So, it's a similar impact this year versus last year in terms of just our ability to get the flyer out. Last year, there was a lot of noise just given the core of the holiday season, our inventory position at that point in time. But like we commented last year, we definitely saw traffic to our stores moderate over that period of time and pockets within our network and regions be more impacted than others depending on our ability to get flyers out. Now we're obviously not just sitting on our hands and the teams are working really hard to try and reallocate those marketing funds. It's just -- it's not going to be as high of an ROI relative to the flyer channel, because each channel has its kind of own unique ROI. So if you put an extra dollar in TV, for example, it's not going to do as much for you as $1 in a flyer just given there's diminishing returns with each of the channels. So that's the dynamic that we're competing with. Ryland Conrad: Okay. Very helpful. And then I guess just last for me. Can you talk a bit to your insurance business and just how conversion rates have been trending following the expansion into new categories earlier this year? Victor Diab: Yes. I mean if you -- our insurance business has done really well this year. I think if you look at our year-to-date growth for the insurance business, it's up double-digits. We feel really good about our attachment rates in stores, and frankly, just the traction we've gained growing that business outside of our own ecosystem. The team continues to work really hard to increase penetration of products with some of our existing partners. For example, you'll start off on a typical -- putting insurance on a typical loan product, then you'll talk to some of our partners around putting an insurance product on a mortgage, et cetera, et cetera. So we're deepening some of those relationships with some of our partners and we continue to explore new partnerships. So we feel really good about the attachment in store and what we've seen this year and our ability to grow it outside our network. Operator: There are no further questions at this time. Ladies and gentlemen, this concludes today's call. Thank you all for joining, and you may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to Allbirds' Third Quarter 2025 Conference Call. [Operator Instructions] Now I would like to turn the call over to Christine Greany of The Blueshirt Group. Please go ahead. Christine Greany: Good afternoon, everyone, and thank you for joining us today. With me on the call are Joe Vernachio, CEO; and Annie Mitchell, CFO. During this call, we will be making comments of a forward-looking nature. Actual results may differ materially from those expressed or implied as a result of various risks and uncertainties. For more information about these risks, please review the company's SEC filings, including the section titled Risk Factors in our report on Form 10-Q for the quarter ending June 30, 2025, for a more detailed description of the risk factors that may affect our results. These forward-looking statements are based on information as of November 6, 2025. And except as required by law, we assume no obligation to publicly update or revise our forward-looking statements. Additionally, we will be discussing certain non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for measures of financial performance prepared in accordance with GAAP. A reconciliation of our non-GAAP measures to the most directly comparable GAAP measure can be found to the extent reasonably available in today's earnings release. Now I would like to turn the call over to Joe to begin the formal remarks. Joe? Joe Vernachio: Good afternoon, everyone. Thanks for joining us today. In the third quarter, we demonstrated continued progress and delivered results consistent with our expectations. We believe that great product is the foundation for revitalizing the brand and rebuilding Allbirds place in the hearts and minds of consumers. Allbirds holds a truly distinctive position in the market, one we are uniquely positioned to serve through our core principles of Comfort, Style and Sustainability. It is through this lens that we are laser-focused on returning the brand to growth and driving the business toward profitability. Since we last spoke in August, we delivered a steady stream of compelling products that consumers are clearly responding to. Enthusiasm for our new styles continues to build, and I'll share a few examples in a moment. While the majority of the new products are elevating the brand and performing well, some of our foundational franchises such as the original runner have been slower to rebuild. This underscores that rebuilding our brand perception is a process that will require sustained execution across multiple product cycles. Importantly, the positive momentum we're seeing for new products affirms that we're on the right path. It's undeniable that the products we've introduced over the past several quarters are the strongest we've delivered since the early days of the brand. The team has done an outstanding job creating a line that will serve as the foundation for years to come. One of our most successful launches this quarter has been the debut of the Wool Cruiser in September, a court-inspired silhouette introduced in a spectrum of 19 colors. To mark the moment, we teamed up with the Pantone Color Institute to launch 5 exclusive shades celebrating self-expression. What's interesting is that the most vibrant colors are selling out first. Normally, our natural tones lead in sales. But with the cruiser, it's shades like blossom and citron that are leading the pack. These distinctive colors are becoming a form of branding in their own way, instantly signaling Allbirds. Paired with a comfortable easy-to-wear silhouette and the right price point, the Wool Cruiser is clearly hitting the mark and is poised to become a key franchise for the future. Later in September, we launched our first 100% waterproof collection in 3 silhouettes. And it has quickly become another standout performer. The collection is redefining what waterproof can be, comfortable and stylish while still delivering true performance. In its first month on the market, it is exceeding expectations and proving that Allbirds can offer full waterproof functionality without sacrificing the comfort, style and sustainability people have come to expect from us. In our new Relaxed category designed for life in and around the house, we introduced a slipper collection that is a top seller today. To round out the season, we introduced the Kiwi collection this week, indoor/outdoor styles, including a mule, a clog and a low boot. They're cozy, easy to slip on and intentionally casual, exactly how people dress today. This is an additive collection that builds on our core and shows how much opportunity there is for future growth in this category for us. In the back half of the year, we aligned our marketing efforts to directly support our evolving product engine. We shifted to a steady rhythm of mid- and lower funnel marketing focused not just on driving traffic and conversion, but also on building long-term brand equity. Our program centers on 3 priorities: partnering with the right influencers and collaborators to spark awareness, highlighting product utility to drive conversion and increasing both the volume and variety of the content to accelerate growth. We are deploying a deliberate mix of traditional media, performance marketing, PR moments and brand activations, each reinforcing the other. Notable examples this quarter include our Wool Cruiser launch event with Pantone, a significant increase in influencer activation and strategic celebrity seating, all helping to create a cultural relevance and expand our organic reach. As we deliver on our product and marketing work streams, we are also focused on creating a standout experience for our customers, both online and in-store. We continue to deliver fresh new floor sets to our retail stores. And importantly, we relaunched our website in July, which transformed the look and feel of the site. Our goal is to refine the customer experience at every moment of the shopping and purchasing journey from richer storytelling on the home and landing pages to more utility and clarity on our PDPs. We're also redesigning every communication and touch point in the post-purchase experience to ensure it feels thoughtful, seamless and brand-centric. We are delivering a clearer expression of our values and a greater sense of care with every interaction. In short, we're making it easier and more enjoyable for customers to discover products and complete their purchases. With our product flywheel in motion, we are now positioned to begin executing against a renewed wholesale strategy. For spring 2026, we anticipate the brand will be available in approximately 150 specialty retail stores across the United States. And just last month, we hosted our sales meeting for the fall 2026 season, welcoming both international distributors and U.S. sales agencies to experience the new line firsthand. The collection was very well received and reinforce confidence that both domestic and international channels will contribute to growth as we move into next year. We see this expanded presence in specialty retailer as a powerful tool for increasing overall brand awareness, setting the stage for long-term growth. We see meaningful opportunity ahead. New collections like Kiwi, standout style introductions like the Cruiser are expanding our product footprint, while utility-driven offerings such as waterproof styles help us meet more of our customers' everyday needs. In the near term, we believe we are well positioned to drive improved top line trends in the fourth quarter. The updated guidance we're providing today reflects sales ranging from flat to high single-digit growth versus prior year. This outlook takes into account current business trends, an uncertain macro backdrop and our expectations for a highly competitive holiday shopping period. Throughout the season, we plan to participate in key promotional moments while delivering creative attention-grabbing messaging to engage consumers and keep Allbirds top of mind. Our teams are working with urgency and discipline to accelerate progress on the turnaround in the quarters ahead. In parallel, we are taking steps to reduce costs and recognize the need to enhance liquidity, which could include raising capital. We will consider all opportunities to maximize shareholder value. We deeply appreciate the dedication and commitment our employees have shown throughout our transformation. Thank you for the important work you're doing to reignite the Allbirds brand. We are also grateful for the continued support of shareholders. We remain focused on value creation and look forward to keeping you updated on our progress as we move forward. Now I'll ask Annie to review the financials and discuss our guidance. Annie Mitchell: Thank you, Joe, and good afternoon, everyone. We delivered strong third quarter performance with bottom line results just ahead of our expectations. Third quarter net revenue totaled $33 million, coming in at the low end of our guidance range. The results reflect strong customer response to many of our new product introductions such as the Wool Cruiser and waterproof collections as well as mixed performance from our original icons, all against the backdrop of a challenging macro environment. Gross margin in Q3 came in at 43.2% compared to 44.4% in Q3 of 2024. The year-over-year decline primarily reflects a higher mix of digital and international distributor sales as well as increased duties in our U.S. business, which partially offset higher average selling prices. For the full year, we anticipate that channel mix and tariff impacts will result in full year margin profile similar to Q3 in the low 40s. Looking at expenses, we continue to demonstrate exceptional cost management during the quarter. Q3 SG&A totaled $22 million, down $9 million or 30% on a year-over-year basis. This improvement was primarily driven by lower personnel expenses, occupancy costs, stock-based compensation expenses and depreciation and amortization. Q3 marketing expense came in at $12 million, up 19% to last year as we invested behind our new product launches. We continue to expect that full year marketing expense on both a dollar basis and as a percentage of sales will increase compared to 2024. Our strong gross margin profile and strict cost control enabled us to deliver bottom line performance slightly above the high end of our guidance range despite top line results that came in at the low end of our expectations. Q3 adjusted EBITDA loss totaled $15.7 million compared to a loss of $16.2 million a year ago. Looking at the balance sheet, we ended the quarter with $24 million of cash and cash equivalents and $12 million of outstanding borrowings under our $50 million asset-backed revolving credit facility. Inventories totaled $43 million at quarter end, down 25% year-over-year. Operating cash use totaled $15.2 million. That's up sequentially from Q2 as planned, reflecting higher marketing spend to support our new product launches as well as our seasonal working capital needs. While the financing steps we took midyear provided us with added flexibility, we are exploring options to improve our liquidity position in the quarters ahead. We are diligently managing costs and taking immediate actions to capture incremental expense savings across such areas as headcount, occupancy and technology. Moving now to guidance. We are updating our top line outlook and reiterating the midpoint of our full year guidance range on the bottom line. Full year net revenue is expected to be between $161 million and $166 million. This compares to our prior guidance range of $165 million to $180 million and includes approximately $23 million to $25 million of impact associated with our international distributor transitions and retail store closures. We're also introducing fourth quarter net revenue guidance of $56 million to $61 million, flat to up 9% versus a year ago. Looking at adjusted EBITDA, we are tightening our full year guidance range to negative $63 million to $57 million, which compares to our prior range of $65 million to $55 million. For the fourth quarter, we expect adjusted EBITDA loss to be in the range of $16 million to $10 million, a significant improvement compared to $19 million a year ago. We appreciate your time this afternoon. Now I'll ask the operator to open the call for Q&A. Operator: [Operator Instructions] The first question comes from Alex Straton with Morgan Stanley. Alexandra Straton: Perfect. Can we just focus on the third quarter sales results came in on the low end of what you were expecting. So maybe what kind of disappointed or came in lower than you thought? And then also just with the inflection in the fourth quarter that you're assuming, is that reflective of quarter-to-date trends? Or how do you get there? And then maybe even going forward, just initial thoughts on '26, -- like should we carry forward that sales growth into that year or any initial thoughts there? Joe Vernachio: Alex, thanks for your question. Yes. So it's really kind of a tale of 3 things. First, we've introduced a lot of new product this quarter, and I'm happy to say that all of that product is working and some of it is exceeding our expectations in the formal remarks, I outlined a few of those products. But we're really delighted with how the product is -- the new product is performing. Underneath that, we have some core franchises, particularly the runner, which has a significant amount of business against it that hasn't yet inflected yet. And there's more work to be done to reactivate that style and that model and/or to add -- make up some of those sales in these new products. Even though we -- it feels like these new products have been in the market for a while, it's really only been a handful of months at most. And some of these are literally just weeks. But again, they're performing as planned, if not better than planned. So we're very encouraged by the fact that we've been able to bring in a significant amount of new product that is hitting the mark with the consumer. But underneath that, the third component to it is that we can see that there are macro environment and macro events taking place that is distracting the consumer. 60% of our sales are through a telephone, on their mobile phones. And we know what the distractions are on the phones and trying to break through that with everything that's coming through to people right now is challenging. It is something that we have to continue to work towards. What we are seeing is that when we communicate to consumers either new products that are right on the mark or a promotion program that is advantageous for them, they are converting. It's in these in between times, especially when we see a macro event take place where we see the consumer get really quiet and very considered on the purchases that they're making. So those are the 3 dynamics that are going on that led us to the sales that we're at. Annie Mitchell: And looking forward, many of those trends continue over into Q4. But when we take a step back and look at how Q3 evolved, we were introducing more product each month. And so each month, results got a little bit better, and we're seeing that again as we go into Q4 and some of the early trends so far this quarter is that as we've been introducing this new product. Hopefully, you saw that Waterproof launched on September 30, and we had our Kiwi pack, that cozy at home just launched this week. So -- that is one of the main reasons behind the improvement that we are expecting in Q4 is the building as we continue to put more and more new product into the market. Another piece when we consider Q4 is the structural changes between international distributor transitions and retail door closures really impacted us in the first 3 quarters of this year. I think, Alex, we talked about this previously, the first quarter impacted us by about almost $7 million. Q2 was about $10 million. In Q3, it was about $5 million. And for the last quarter, we expect that to be about $2 million to $4 million. As we go into next year, we have 2 things in our favor. One is, again, the product momentum that we've been building this -- the back half of this year, plus all of the fantastic new product coming starting with spring/summer '26. And then those structural impacts that I just listed off for this year get smaller and smaller. And so that is why we are optimistic about 2026. Operator: And the next question comes from Tom Forte with Maxim Group. Francesco Marmo: It's actually Francesco Marmo from Maxim. I was hoping you could add some color around your inventory composition. I mean, in absolute terms, it looks like -- it looks relatively lean. I was hoping you could give us some comments around what kind of products are in inventory, especially considering all the new product launches and as we head into the Black Friday period and the holiday season, especially because I was looking at your new website, and it feels very kind of new product focus and very brand story focused. So I was wondering what is your strategy for the Black Friday period. Annie Mitchell: Great. Francesco, thanks for joining us today. I'll start out by talking a little bit about big picture inventory, and then I'll turn it over to Joe to add some color for you. When you look at our inventory, we ended the quarter at $43 million. That's down 25% year-over-year and just up slightly from last quarter. Being down year-over-year, it's really driven by 2 things. First is the international transitions. We did our last international transition at the very end of Q2, and that was for the EU region. Now our international transitions are complete. And as you might recall, we talked about this previously, the international distributors, they pick up the product right at source versus before, for instance, like in the EU, we would be holding all of that inventory until it's sold to the end consumer. So one is a structural change. And the second is really just about continued very strong inventory management. It was a priority for us in '23 and '24 to clean up inventory, which we did successfully. And really, it was in service of all of this new product coming. We want to make sure we were as healthy as possible and had great process and rigor around inventory, knowing that we were excited to invest in all of the new product coming. So with that backdrop, Joe, do you want to add some color? Joe Vernachio: Yes. I'm glad that you asked about inventory. It is a big focus of ours. When you bring in a lot of new product, you have to be really cognizant of inventory and make sure you stay focused on that. So that's something that we are very rigorous about and keep our eye on for sure. You talked about the -- what the website looks like. I'm glad that you feel that it looks very brand-centric and is telling a story. That was our objective. We launched the new site in July. And part of it -- a big portion of this was to be able to get our story out there to be able to tell great stories about the product and have a lot more opportunity to share different aspects of the product on the PDP and the landing pages. You asked about what our strategy is going into Q4. We anticipate that it's going to be a competitive marketplace in Q4. We think people are going to be looking for promotions, and we have our normal preparation for all the different aspects of Black Friday, Cyber Monday that we will need. We will have different products that we'll put up and take down in order to create some rhythm to the promotion. We're not going to be precious. We know we need to compete, and we need to be in the market. Otherwise, we will lose our share. So we've got a very rigorous Black Friday, Cyber Monday plan queued up, and we are going to be executing against it. Operator: I am showing no further questions at this time. I would now like to turn the call back over to Joe for closing remarks. Joe Vernachio: Thank you, everyone, for joining. We'll see you at the next quarterly review. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good morning. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Interfor analyst conference call. [Operator Instructions]. Thank you. Mr. Fillinger, you may begin your conference. Ian Fillinger: Thanks, operator, and hello, everyone. With me on the call today are Rick Pozzebon, Executive Vice President and Chief Financial Officer; and Bart Bender, Senior Vice President of Sales and Marketing. Thank you for joining us. Before commenting on the quarter, I want to step back and provide some perspective on how Interfor is positioned and how we're addressing the near-term challenges while setting up for long-term success. As you're all aware, we're in the midst of a prolonged down market with several factors creating significant challenges for our industry. These include economic uncertainty and housing affordability concerns, which are weighing directly on building products demand as well as cross-border trade tensions. Combined effect has been a persistently weak price environment. Against that backdrop, our leadership team remains focused on what we can control, driving out costs, reducing risks and positioning our business for success when the market turns. The top of our list is supply discipline. We've led the industry in taking proactive steps to preserve our position today and to prepare for improving conditions ahead. For Q4, we announced reductions of approximately 250 million board feet of lumber, representing about 26% when compared to Q2 volumes. We've consistently acted early from curtailment announcements this year to the divestiture of our Quebec assets and the indefinite curtailment of 2 U.S. sawmills. These decisions reflect our fundamental commitment to maintaining a responsible operating posture across the portfolio. Interfor has a top-performing platform in North American lumber industry, optimized for both tough times like today, but also for better markets when they return. Our second priority is cost discipline. We already delivered top quartile EBITDA margins and that performance continues to drive our team. Our Canadian platform has remained resilient despite difficult markets and punitive duties. We continue to optimize our portfolio for operations that support industry-leading margins and position us to capitalize what markets recover. Fundamentals exist for strengthening lumber markets, particularly owing to the pent-up housing demand. Economic indicators suggest improvements starting in 2026 with continued upward trends in 2027. While that recovery will take time, we believe we're as well positioned as anyone to benefit once it comes. We're moving forward with a solid foundation. We've significantly strengthened our balance sheet through a recent equity raise that was well supported by long-term shareholders. Combined with the renewal of our credit facility, this gives us flexibility to weather the downturn for several years, if necessary. With that backdrop, I will turn to the most recent quarter, where our results reflect the challenging operating environment that I've been speaking about with pricing down across all regions, particularly in the U.S. South. These conditions and our philosophy of adjusting quickly were the catalyst for lumber production adjustments last month. While prices are fine in ground, we've seen similar curtailment announcements across the industry. The market remains in balance. We'll continue to align our production with market realities in a disciplined and proactive way. Looking ahead, these are undeniably tough times. And like others in our industry, our numbers reflect that, but we're confident in our portfolio, balance sheet and our clear plan to manage through the uncertainty and position Interfor to thrive as conditions recover. With that broader perspective, we see considerable opportunity and long-term value in our company, and we're committed to delivering that to our shareholders. With that, I'll turn it over to Rick for a closer look at this quarter's financial results. Over to you, Rick. Richard Pozzebon: Thank you, Ian, and good morning all. Please refer to cautionary language regarding forward-looking information in our Q3 MD&A. Overall, our financial results for the quarter reflected significant lumber price weakness, especially in Southern Yellow Pine and significantly higher duty rates imposed by the U.S. As Ian alluded to, earnings continued to be constrained by a general oversupply of lumber in the market despite significant production curtailments across the industry since the beginning of 2024. Interfor contributed further to these supply curtailments with recent announcement indicating plans to significantly reduce production across all regions through the end of this year. In August, the U.S. more than doubled the combined rate of antidumping and countervailing duties imposed on lumber shipments from Canada from 14.4% to over 35%. This increased duty rate directly impacts approximately 25% of Interfor's total lumber shipments. With respect to earnings, Interfor generated an adjusted EBITDA loss of $36 million, excluding noncash duty-related adjustments on total revenue of $689 million. Total revenue dropped 12% quarter-over-quarter, driven by a 6% increase in the volume of lumber shipped, a 10% decrease in the average realized lumber price and a slightly weaker U.S. dollar. Decrease in volume reflects production curtailments and lower demand, a portion of which is seasonal. Lumber price declines were led by Southern Yellow Pine, whose benchmark composite average price fell nearly 20% quarter-over-quarter. On the cost side, reported production costs per unit of lumber increased 2% quarter-over-quarter, reflective of the lower shipment volume, partially offset by a slightly weaker U.S. dollar. From an operating cash flow standpoint, $26 million was consumed in the quarter driven by negative cash margins on lumber sales, partially offset by an $18 million reduction in working capital. Beyond operations, we invested $32 million in capital projects and generated $1 million from the sale of assets. Over the remainder of this year and next, we anticipate generating net cash flow from ongoing sale of B.C. Coast forest tenders in the ballpark of $30 million to $35 million. This following quarter end on October 1, Interfor completed a bought deal equity offering, which generated $144 million of gross proceeds. Including this, financial leverage as measured by net debt to invested capital would have been 35.2% at the end of Q3 with available liquidity of $386 million. This equity raise, combined with the credit facility renewal in July have provided Interfor with enhanced financial flexibility to navigate through the ongoing downturn. To wrap up, Interfor's financial results for the third quarter reflect significant lumber price weakness and higher duty rates imposed by the U.S. We anticipate continued lumber market volatility going forward as supply continues to rebalance with demand and trade actions by the U.S., including the Section 232 tariff of 10% implemented in October. Therefore, we'll continue taking actions that position its high-quality and geographically diverse operations to succeed through this volatility and capture the upside when the market returns to strength. That concludes my remarks. I'll now turn the call over to Bart. Barton Bender: Thanks, Rick. Lumber markets remain challenged given the uncertainty we're seeing at both the macroeconomic and geopolitical level, multiyear lows on consumer sentiment, low U.S. home building confidence and elevated mortgage rates all represent headwinds. And that's impacting new home construction, industrial activity and repair and remodel demand. This uncertainty continues to put downward pressure on the demand for lumber, which we expect to see for the balance of this year. Looking ahead to 2026, we anticipate that affordability will begin to improve which should lead to better market conditions. On the supply side, production curtailments are increasing in response to unsustainable pricing in all markets. We expect this to continue until a balance is achieved. Although difficult to be exact, it's our position that end market inventories remain very low, less demand and low lead times have allowed distributors to run comfortably with much lower inventories than normal. The strategy works until it doesn't. Interfor specifically, our diversification of species producing regions and product mix allows for a targeted market approach and access to a broader range of the lumber market, beneficial in times of oversupply. Lastly, Interfor will continue to monitor our customers' needs and adjust our production levels accordingly. With that, back to you, Ian. Ian Fillinger: Thanks, Bart. Operator, we're ready to take any questions at this point. Operator: [Operator Instructions]. Thank you. Your first question will be from Hamir Patel at CIBC Capital Markets. Hamir Patel: And we've seen some more industry capacity closures announced yesterday in British Columbia. How are you feeling about your cost position in the province? And how much additional industry capacity do you think needs to come out? Ian Fillinger: Thanks, Hamir. Yes, our B.C. operations in Adams Lake, Grand Forks and Castlegar as you know, have been modernized over the last number of years and are very competitive on a cost basis and also on a product mix basis, with being much different where some of our competitors are in the North or central interior. So a lot more species variability, product mix that aren't on random length pricing. So in addition to that, all 3 of those operations have extremely high percentage of secure fiber through licenses, et cetera, probably, I would say, in province. So very good opportunity to log from our tenures or if we have to go to an open market, we can be very strategic about that. So very competitive operations in B.C., Hamir. As far as volume goes out, I think the way out of where we're at now is supply. It's the adjustments that industry needs to make to be able to get out of this situation we're in and it's part of our responsibility to do that, and we've been doing that, as you know, usually first and leading in the industry on some of those difficult decisions. Hamir Patel: Great. Thanks, Ian. And Rick, a question for you. I know the company has close to, I believe, $550 million of goodwill on the balance sheet. How should we think about risks of further impairments there? Richard Pozzebon: Our goodwill on our balance sheet is about $500 million today. and that's within the total assets on the balance sheet of about $3.1 billion and a book value per share of about $21 today. So when we think about goodwill testing, it typically happens for us every Q4, it's an annual testing requirement required by IFRS. So the testing, Hamir, involves multiyear discounted cash flow model -- so we're in the process of doing that right now. It would be too early for me to speculate on what the results are. However, I think it's worth noting that the testing uses long-term lumber prices, so long-term trend lumber prices, which haven't really changed year-over-year. And we've made improvements in terms of the quality of our portfolio over the last year, just given some of the asset sales we've made. So I'm feeling good about where we're at with the testing, but it's too early to speculate at this stage. Operator: Next question will be from Matthew McKellar at RBC. Matthew McKellar: In your opening remarks, you talked about continued efforts to drive out cost, are there any recent initiatives you'd highlight or any items on the docket for 2026 that we should be considering? Ian Fillinger: Yes, Matt, kind of in this type of format, we're a little bit reluctant to share the internal plans that we have. We've been running a targeted initiative through the down market each year and readjusting depending upon our outlooks in current conditions. So I would say we're as an executive team, pleased with both the cost side and the product mix side, internal initiatives that we're doing in and I think that's reflective in our benchmarking of our margins compared to our public peers. But yes, it's significant, but would be hesitant to kind of share it in this forum with you, Matt. But I can say that the entire organization whether it's in offices or mills or Woodlands or sales all have very good targets set in place and they're making good progress on all of them. Matthew McKellar: That's very helpful. Last for me, we've seen pretty substantial changes in duties on Canadian lumber new tariffs and significant changes in FX rates this year. With the changes we've seen and I guess reflecting on some of the challenges the European producers are facing as well. How do you expect imports from Europe into North America to trend from here? Ian Fillinger: Yes. Well, we -- as you know, we don't really have operations in Europe to really completely understand that picture. But obviously, with 10% being put on European imports into the U.S. should help North American producers compete against that volume. But yes, we don't really have much more of an insight than you do on that front. Operator: Next question will be from Ketan Mamtora at BMO Capital Markets. Ketan Mamtora: Maybe first question. If I'm looking at this correctly, it looks to me that your lumber production was actually up 1% on a year-over-year basis in Q3. Can you provide some perspective on what is driving that? Richard Pozzebon: Ketan, it's Rick speaking. I think looking at Q3 last year, we had taken significant curtailments a little bit more than we had taken in Q3 this year. And I think that's the main reason. We will expect an increase in curtailments and production reductions in Q4 here based on our announcement that we made in October, Ian referenced in his remarks. Ian Fillinger: Yes. And further supporting what Rick is saying is curtailments, we were winding up a couple of operations in the U.S. South, plus the Quebec mills from last year too where they were at. So -- and we were in that process. So yes, lots of moving parts from last year to this year, Ketan. Ketan Mamtora: Okay. I see. And then recognize that you've announced curtailments for Q4. I'm just curious, given sort of how prolonged this downturn has been and given sort of where lumber prices have been. Can you provide some perspective on how you are thinking about temporary curtailments versus kind of more indefinite or permanent curtailments and sort of what -- how are you all thinking about those 2? Ian Fillinger: Yes, Ketan, we have a model internally where we put in a bunch of obviously factors market being one of them, demand being one of them, inventory levels, pull-throughs on what have you, input costs for logs and conversion costs in that model, which we review on a weekly basis. So we make some of those decisions, which are -- we don't take lightly, obviously, impacts many people, but yes, we do have a robust model that's been built and refined over the last 5 or 6 years. And so to answer your question, we're looking at it every week, we'll make adjustments. We're not shy about doing that. We believe that as difficult as they are, they're needed in these environments. So yes, we're continuing looking at those and ready to make the decision when needed and be proactive about it. Ketan Mamtora: Yes. And Ian, I recognize these are kind of very difficult decisions and to everyone who is affected, I appreciate that. What do you need to see to either kind of make the decision or kind of not make that decision? What factors are we looking at? And recognize it's not just like 1 month or 1 quarter, right? You need to think kind of ahead. But outside of the fact that we've all looked at data around pent-up demand. But outside of that, what are the things that you're looking at to sort of decide this? Ian Fillinger: Yes. Basically, Ketan, the main driver is the lumber demand and lumber price. And so it's a mathematical model on that. But when we do see demand there to support either a shift coming up or a shift or a mill going down. That's a fairly easy decision for us to see with our model. And then on the pricing side, does pricing support at cash breakeven and above? Or does it support cash breakeven and below? And then where those costs inflection points are would drive whether we reduce and curtail or whether we add volume back in. And so we need to see sustained improvement to bring back any kind of production. And on the other side, when it doesn't look great, and we really kind of look out 2 to 3 weeks because that's the best sort of insight and after that, it gets a little bit cloudy. We will make decisions to curtail and it's a real-time model. Operator: [Operator Instructions]. Next, we will hear from Sean Steuart at TD Cowen. Sean Steuart: Ian, another question on the supply response and the thought process that goes into it. And maybe I'm thinking too far ahead here, but is a part of the thinking on the rolling downtime versus permanent or indefinite shuts at this point? We're 3 years plus into an extended trough, which is abnormal. We're probably closer to the end of this than the start, hopefully, at this point. Does the duration of this downturn factor into the decision or the decision against permanent closures at this point, i.e., when things get better, you want to be able to respond. Is that a part of the thought process for the company at all? Ian Fillinger: Well, it is, Sean. I mean these are big decisions when we're talking permanent, and I think that's what your question is driving towards. And so when you look at operations and you kind of see where they're at on the cost curve, product mix and then you look at a trend price. I mean, you kind of got to have that in the back of your mind. But at the same time, the factor for us is our goal has always been to be in the top quartile in any operation we're at. So from the time that you kind of look at a permanent or nonpermanent decision, it also has to factor in what's the time line to move that operation even in a trend market to where we want to be. And so those are the factors that we look at and we got to get comfortable around and then make the appropriate decisions, which, as you've seen, we've done multiple times in the past. Sean Steuart: Yes. Understood on that front. And Ian, can you give us some updated perspective on if it's EBITDA per 1,000 board feet or relative margin metric? I'm not asking for the specifics region by region, but can you give us an idea of how wide the spread is at this point across your platform region to region? Ian Fillinger: Not really, Sean. I think that would be kind of difficult for us to share in this environment. But the one uniqueness and you know this, being in New Brunswick and Ontario and B.C., it really diversifies our Canadian mix. We have an engineered wood product division also, which is helpful and strong and then being in the Pacific Northwest and the U.S. South, as these trade actions against the Canadian lumber continue, we feel that being in Washington and Oregon, is an advantage to maybe some interior BC operations in the Central and North, given our stud production in the Pacific Northwest. So each one of our regions actually is from a product mix, specie and geographical log cost differences really gives us a balanced portfolio, and that's part of our growth strategy over the last 5 years and when the market turns. I think we're in exceptional shape to capitalize. Operator: At this time, I would like to turn the conference back over to Mr. Fillinger. Ian Fillinger: Okay. Thank you, operator, and thank you, everybody, for attending and your questions, and have a great day, and we'll talk to you next quarter. Thank you. Operator: Thank you sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines. Have a good weekend.
Operator: Thank you for standing by. My name is Joe, and I will be your conference operator today. I would now like to turn the conference over to Robert, Chief Financial Officer. You may begin. Robert Wright: Good morning, and welcome to the Delek Logistics Partners Third Quarter Earnings Conference Call. Participants joining me on today's call will include Avigal Soreq, President; and Reuven Spiegel, EVP. As a reminder, this conference call will contain forward-looking statements as defined under the federal securities laws, including statements regarding guidance and future business outlook. Any forward-looking statements made during today's call will include risks and uncertainties that may cause actual results to differ materially from today's comments. Factors that could cause actual results to differ are included in our SEC filings. The company assumes no obligation to update any forward-looking statements. I will now turn the call over to Avigal for opening remarks. Avigal? Avigal Soreq: Thank you, Robert. Delek Logistics Partners had another record quarter. We reported approximately $136 million in quarterly adjusted EBITDA. Due to the strong progress year-to-date, DKL has increased its full year EBITDA midpoint guidance of $500 million to the upper end of the range between $500 million and $520 million. Delek Logistics continue to advance its key initiatives in natural gas, crude and water businesses, further improving its position as a premier full service provider in the Permian Basin. After successfully completing the commissioning of the new Libby 2 plant in the third quarter, DKL advanced its ongoing effort on acid gas injection and sour gas handling capabilities. The AGI and sour gas handling capabilities are enabling DKL to fill the plant to capacity and paving the way for further processing capacity expansions. We are also seeing solid operations in our crude and water gathering segments. Both VPG and DTG crude gathering operations had a strong third quarter with record volume for DTG. This strength has continued in the fourth quarter. Between our two water acquisitions in increasing dedication, our competitive position in both Midland and Delaware basins is increasing, and we expect to continue to build on these strengths. Our well-timed and cost-effective acquisition of 3 Bear, H2O Midstream and Gravity Water Midstream have supplemented our organic growth and enable DKL transition to full suite service provider. We will remain consistent with our strategy of growing the partnership through a prudent management of leverage and coverage. Along with seizing the growth of opportunity we see in our business, we intend to remain good stewards of our stakeholder capital. With that, I'm pleased to announce that the Board of Directors has approved the 51th consecutive increase in the quarterly distribution to $1.12 per unit. This is an extraordinary achievement, and we're extremely proud of our team and the financial prudence that has gotten us in. To conclude, Delek Logistics is making great progress in becoming a strong independent full suite midstream service provider and expect to continue on our value creation path well into the future. I will now hand it over to Reuven, who will provide more details on our operations. Reuven Spiegel: Thank you, Avigal. As Avigal mentioned, we are very excited about DKL's future and are working to increase our advantaged Permian position. I am very pleased with the commissioning and operation of our Libby 2 gas plant. The plant is performing according to expectations, and we are completing the associated sour gas AGI infrastructure to fill the plant in the most efficient manner. The planned CapEx for Libby 2 included investments that will support future expansion of the Libby complex, and our confidence in these expansion opportunity is increasing as we progress our AGI infrastructure. We continue to believe that our expanded gas processing and sour gas handling capabilities provide a unique offering to our customers and provide us with a long runway of growth in the Delaware Basin. Our crude gathering volumes had a record third quarter, and we expect to continue to see this trend going forward as we close out the year. On the Midland side, the integration of the two water gathering systems from H2O and gravity is progressing well, and we expect to use our larger footprint to enhance our combined crude and water offering in the Howard, Martin and Glasgow counties. Finally, we continue to look for opportunities to make our operations more efficient and robust and are looking for ways to increase our margin profile throughout our operations. With that, I will pass it on to Robert. Robert Wright: Thank you, Reuven. As both Avigal and Reuven highlighted, we continue to make meaningful progress in advancing the Delek Logistics growth story. While we drive forward expansion across the partnership, we remain equally focused on achieving our long-term leverage and coverage targets. Over the past 12 months, we've successfully closed two acquisitions, H2O Midstream and Gravity Water Midstream, which were well-timed from a purchase multiple perspective. And we also completed the construction of the Libby 2 gas plant. Our focus now shifts to capturing the full value of these investments by optimizing synergies and realizing the associated EBITDA uplift as we move toward our strategic goals. Importantly, we maintain a strong financial position with approximately $1 billion of availability on our credit facilities, giving us flexibility to continue executing our growth agenda. Moving on to our third quarter results. Adjusted EBITDA for the quarter was approximately $136 million, up from $107 million in the same period last year. Distributable cash flow as adjusted totaled $74 million and the DCF coverage ratio as adjusted was approximately 1.24x. We expect this ratio to continue to strengthen through the remainder of the year as our recent growth projects, including the Libby 2 gas plant begin to make a more meaningful contribution to our financial performance. For the Gathering and Processing segment, adjusted EBITDA for the quarter was $83 million compared to $55 million in the third quarter of 2024. The increase was primarily due to the acquisition of H2O and gravity. Wholesale Marketing and Terminalling adjusted EBITDA was $21 million compared to $25 million in the prior year. The decrease was primarily due to the impact of last summer's amend and extend agreements with DK. Storage and Transportation adjusted EBITDA in the quarter was $19 million compared with $19 million in the third quarter of 2024. And lastly, investments in pipeline joint venture segment contributed $22 million this quarter compared with $16 million in the third quarter of 2024. The increase was primarily due to the contribution from the Wink to Webster drop down in August of last year, in addition to stronger performance by the venture in the current period. Moving on to capital expenditures. The capital program for the third quarter was approximately $50 million. $44 million of this capital spend relates to growth CapEx, which included spend to optimize the Libby 2 gas processing plant. The remainder of the capital spend for the period was other growth projects, namely advancing new connections in the Midland and Delaware gathering systems. Looking ahead to the remainder of the year, as Avigal mentioned, we remain confident in our earnings trajectory and are raising our full year EBITDA guidance to the upper end of our range, now expected between $500 million and $520 million. With that, we can now open the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Doug Irwin of Citi. Douglas Irwin: I was wondering if you could maybe expand on the comments in the press release around producers increasing activity on your acreage ahead of Libby 2 coming online. Just curious how you're thinking about the treating capacity ramp at the year-end as well as maybe some of the benefits you might be seeing across your broader gathering system just as you bring that sour gas offering to your customers? Avigal Soreq: Yes, absolutely. So why don't I take a minute or two to give you a bit broader overview. As you saw on our numbers, crude and water are extremely strong, and we are very happy about that. And I think we also can be proud of the strategy we set to be a premier crude gas and water provider in the heart of the Permian basin. I think that we were pretty much the first one to put that strategy together, and it's starting to give us a very nice yield. That's part of the reasoning that we are increasing our forecast, our guidance for the year, and we are very proud of the timely manner acquisition and build we did. We saw a record crude. We do not see any material change in the drilling activity in our acreage. And with the discussion we have with our producer and we are seeing more and more synergies between the different streams that we are actively managing. And with that, I will let Reuven comment more about the sour progress we are seeing. Reuven Spiegel: The actual construction and start-up of Libby 2 has been above our expectation on time and on budget. Originally and based on producers' forecast that we anticipated to fill up the plant with sweet gas. But as they were drilling, the landscape has changed and the producer needs solutions for sour gas as soon as possible. As a result, we accelerated some sour programs to provide solution in a more rapid time line. We have very high confidence in not only filling up Libby 2, but because of the full suite, sour gas, crude and water solution that we provide, we will need to expand processing capacity earlier than our previous expectations. Douglas Irwin: Got it. That's helpful. And maybe as a follow-up on CapEx. You talked about potentially already having expansion opportunities, but also kind of spend some CapEx this year on Libby 2. I guess where do you see '26 trending in general now that you have Libby 2 online? And I guess, to the extent that it's trending lower next year, how are you thinking about just your flexibility to make you pay down some debt or maybe even buy back some more units from DK next year? Avigal Soreq: Yes, that's a very nice question, Doug. While the macro and the strategy going very well, we still have some tactics to finish for planning for next year and budgeting and we plan to give you another guidance on the next earnings call like we did this year. So we have something to look looking forward. So we'll leave it to that. Operator: Your next question comes from the line of Gabriel Moreen of Mizuho. Gabriel Moreen: I just want to ask on the equity income line. I think Robert mentioned some, I mean, better performance or improving performance. Clearly, that was equity investment line. That was clearly a very strong point in the quarter. Can you just talk about that a little bit? And is this current run rate something that's maybe sustainable going forward? Robert Wright: Yes. Thanks for the question. Yes, as I mentioned in the prepared remarks, most of that line item was impacted by strong performance in the quarter by Wink to Webster. I think when you look at our JV results on an annualized basis, like year-to-date, I think that's a good run rate of what to expect going forward. I think we're pretty happy with our JV results overall. Gabriel Moreen: Great. I appreciate it. Can you maybe also talk a little bit about the water landscape overall? I think Reuven and Avigal, you both mentioned others trying to emulate your 3-stream strategy here. As far as you see with the landscape, are you seeing new competitors, new opportunities? Just curious kind of with some mergers happening and IPO happening, whether anything has shifted in your view? Avigal Soreq: Yes. So that's a very good question. And we should see very important trends that you can see is the gas and oil ratio and the water and crude ratio. Both of them are working extremely well from our position standpoint. And if you go one year back, Gabriel, and you think about the timing that we did the both H2O and Gravity acquisition, we brought that pretty much at half price versus what we've seen the market trending today. So we are very happy about the timing and the trend in the market. Obviously, as you can see in the Delaware Basin, it's almost impossible to get SWDs permitted in a timely manner. So we were very fortunate to have the position we are at, and it's going very well to our expectations. Gabriel Moreen: And if I could just squeeze one more in relative to Reuven's comments about Libby 3 earlier than expectations. I'm just wondering if you'd be able to define what that would mean from a timing standpoint? And then also on the AGI disposal front as well, whether what you've done here to handle the sour gas at Libby 2, whether that gives you really the runway or whatever volumes you're going to need to handle at Libby 3 when the expansion comes on, hopefully. Avigal Soreq: Yes. Obviously, the market is telling us that it needs our sour capabilities and the market tell us that it needs our gas treating and the market tell us that it needs our water treating. All of that are detailed question. Obviously, once we finish the planning session, we will come to you with a very detailed and the execution plan like we did in the past, all the time in the past, we'll do that again this time. And -- but the very good news here that we are on the right timing. And I would say, with the right product basket to give to our customers. Mohit, do you want to add anything? Mohit Bhardwaj: Yes. Gabe, thanks for your question. Just to answer your specific question, we are very happy with our permitted capacity on the asset gas side, and we don't see any near-term restrictions on that. Operator: With no further questions, that concludes our Q&A session. I will now turn the conference back over to Avigal for closing remarks. Avigal Soreq: Thank you, everyone. Thank you to my colleagues around the table. Thank you for our Board of Directors for trusting us. Thank you for the unitholder. We're enjoying a very good return and growth story. And most importantly, thank you for our employees for making that partnership as good as it is. Thank you, guys. We'll talk again. Operator: This concludes today's conference call. You may now disconnect.
Operator: Good day, and welcome to The GEO Group's Third Quarter 2025 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Pablo Paez, Executive Vice President of Corporate Relations. Please go ahead. Pablo Paez: Thank you, operator. Good morning, everyone, and thank you for joining us for today's discussion of The GEO Group's Third Quarter 2025 Earnings Results. With us today are George Zoley, Executive Chairman of the Board; Dave Donahue, Chief Executive Officer; and Mark Suchinski, Chief Financial Officer. This morning, we will discuss our third quarter results as well as our outlook. We will conclude the call with a question-and-answer session. This conference call is also being webcast live on our investor website at investors.geogroup.com. Today, we will discuss non-GAAP basis information. A reconciliation from non-GAAP basis information to GAAP basis results is included in the press release and the supplemental disclosure we issued this morning. Additionally, much of the information we will discuss today, including the answers we give in response to your questions, may include forward-looking statements regarding our beliefs and current expectations with respect to various matters. These forward-looking statements are intended to fall within the safe harbor provisions of the securities laws. Our actual results may differ materially from those in the forward-looking statements as a result of various factors contained in our Securities and Exchange Commission filings, including the Form 10-K, 10-Q and 8-K reports. With that, please allow me to turn this call over to our Executive Chairman, George Zoley. George? George Zoley: Thank you, Pablo, and good morning to everyone. Thank you for joining us on our third quarter earnings call. During the first 3 quarters of the year, we believe we've made significant progress towards meeting our financial and strategic objectives. Since the beginning of 2025, we've entered into new or expanded contracts that represent over $460 million in new incremental annualized revenues that are already under contract and are expected to normalize next year. This represents the largest amount of new business that we have won in a single year in our company's history. We've entered into new contracts to house ICE detainees at four facilities totaling approximately 6,000 beds, which include three company-owned facilities where we announced in the first half of 2025, the 1,000-bed Delaney Hall, New Jersey facility, the 1,800-bed North Lake Facility in Michigan, and the 1,868-bed D. Ray James Facility in Georgia. And more recently, the 1,310-bed North Florida Detention Facility, which is a state-owned facility where we are providing management services under a joint venture agreement that we announced in early October. The Florida contract arrangement demonstrates GEO's ability to provide management services through alternative solutions like the State of Florida's partnership with the federal government. Additionally, during the third quarter, we reactivated our 1,940-bed Adelanto ICE Facility in California, which was previously underutilized due to COVID-related court cases. On a combined basis, these five facilities are expected to generate more than $300 million in incremental annualized revenues at full occupancy as they normalize their financial contributions next year. These facility activations have increased our total ICE capacity to over 26,000 beds, and our current census is over 22,000, which is the highest ICE population we've ever had. In addition to these facility activations, we are reviewing the physical plant at 20 of our ICE facilities to determine our capacity to expand the office space for additional ICE staff and their expanding mission. Our Delaney Hall and D. Ray James facilities will have added ICE office space as part of our new contracts, and we have submitted similar proposal for Moshannon Valley in response to a request from the agency. This effort is representative of our long-standing partnership with ICE and our company's flexibility in adjusting to and addressing the ever-changing needs of ICE. With respect to our secure transportation, we have significantly expanded our footprint for ICE and the U.S. Marshals over the course of 2025. Earlier this year, we signed a 5 -- new 5-year contract with the U.S. Marshals for the provision of secure transportation services covering 26 federal judicial districts spanning 14 states. Throughout the year, we've executed new or amended contracts to expand secure ground transportation services at four existing ICE facilities and at our three new recently activated ICE facilities. Additionally, the services we provide under our ICE air support contract have steadily increased throughout this year. On a combined basis, this new transportation business represents approximately $60 million in expected incremental annualized revenues. We are encouraged by the growth opportunities at the state level as evidenced by the three recently managed-only contract awards from the Florida Department of Corrections, including two facilities we do not currently manage, which are expected to generate approximately $100 million in incremental annualized revenues beginning in July of 2026. Of particular importance, we are very honored to have been awarded a new 2-year contract for the ISAP 5 program at the end of September. We believe this significant contract award is a testament to the high-quality electronic monitoring and case management services, our wholly-owned subsidiary, BI has consistently delivered for over 20 years. There are presently approximately 7.6 million immigrants on the non-detained docket with approximately 182,000 enrolled in the ISAP program at this time. As part of the ICE's alternative to detention or ATD system, many immigrants are placed in the Intensive Supervision Appearance Program, ISAP, as a subprogram within ATD. It's mainly used for people ICE considers a higher flight risk or who have been pending a silent or removal cases but are still allowed to live in the community. The program relies on several forms of surveillance. Some are required to wear GPS ankle or risk monitors that track their movements in real time. Others are enrolled in SmartLINK Mobile App, which relies on facial recognition, voice ID and GPS to confirm a person's location during check-ins. Under the previous 5-year ISAP contract, the participant count started at 91,000 individuals and thereafter doubled ending at 183,000 individuals. The present ISAP 5 participant count is more than 182,000, but the new contract includes pricing for 361,000 participants in year 1 and 465,000 participants in year 2. In order to further assure our success in the rebid competition and provide lower unit cost for further ISAP growth, we've reduced our pricing as in the past on a variety of services, which has resulted in a new financial baseline, which will later be discussed by Mark. We are able to implement this strategy by identifying staffing efficiencies through the program services, along with the continued development of less costly new generation monitoring devices, which also required margin compression. We are optimistic that ISAP ramp-up could begin early next year. GEO has the capability in monitoring devices and case management services to achieve those significantly increased participation levels and far beyond if desired by ICE. But of course, we cannot provide definitive assurance of future ISAP participation levels, which are determined by ICE management. And as I said on our previous call, the focus of ICE at this time has been toward the increase in detention capacity in which we are participating. But what we have seen is a steady increase in more intensive and higher-priced monitoring devices such as ankle monitors and a steady decrease in the less intensive and lower-priced use of phones or phone apps. This new policy seems to be consistent with the objective of more aggressive supervision of the 7.6 million immigrants on the non-detained docket. As the world's largest service provider of electronic monitoring devices, we remain optimistic in the importance and growth potential of the ISAP 5 contract. Going forward, we expect to be able to capture additional growth opportunities. We believe the federal government's objective continues to be to scale up immigration detention to approximately 100,000 beds or more from the approximately 60,000 beds ICE is currently utilizing. This objective of scaling up to 100,000 detention beds is a 270% increase from the 2024 average of 37,000 beds. However, the pace of new detention contracts has been slower than anticipated, which we believe is possibly due to three factors. First, as has been reported in the media, the Department of Homeland Security has implemented a policy that requires Homeland Security Services Secretary to review and approve all contracts above $100,000, which is time and staff intensive. We have been intensely cooperating in this financial and staffing review process toward providing assurance that the government is receiving best value at GEO facilities and services. Second and more recently, the government shutdown has likely delayed the award of new contracts. During the government shutdown triggered by a lapse in appropriations, federal agencies are generally careful about making new contract awards unless the award is related to an accepted activity or is funded by a source other than the regular appropriations. Third is the need for ICE to have more staff to carry out its enforcement efforts, which is indicated by ICE's new recruitment program to double its employees from approximately 10,000 to 20,000, which is also time and staff intensive. Following the resolution of the current government shutdown, we believe ICE will have ample funding to support its priorities. Not only will ICE receive annual appropriations baseline of approximately $8.7 billion, but the agency also has access to $45 billion in incremental funding for detention services, which is available through September 30, 2029. While the exact timing of government actions, including our new contract awards is difficult to estimate, we believe that our remaining idle facilities are likely to play an important role in supporting the objective of increasing overall detention capacity. We have approximately 6,000 idle beds at six company-owned facilities, which remain available. Most of these facilities are formally contracted -- were formally contracted to the U.S. Bureau of Prisons and are of high security, which makes them ideally suited for the current needs of the federal government. On a combined basis, these 6,000 beds could generate more than $300 million in additional incremental annualized revenues. We also believe that increasing detention capacity to 100,000 beds or more will likely require ICE to seek alternative solutions in addition to traditional hard-sided facilities. Based on our best estimate, the current beds available by the private sector at traditional hard-sided facilities would likely provide ICE capacity for approximately 80,000 beds. Thus scaling up to 100,000 detention beds or more will likely require additional partnerships with states or additional temporary soft-sided facilities on a military basis or other sites. We will be exploring opportunities to participate in these new government sites, whether state-sponsored or procured by the military. Meanwhile, our focus is also on the activation on our remaining idle facilities. As evidenced by our recent joint venture agreement in Florida, we believe GEO is well positioned to pursue other state partnership opportunities that increase detention capacity for ICE. Finally, we have and will continue to evaluate the potential acquisition or leasing of third-party-owned facilities, and we have identified approximately 5,000 combined beds that could be added using several options of temporary and permanent facilities at several of our existing ICE sites. We are also pursuing additional diversified opportunities in the field of mental health services, which we exited approximately 13 years ago when we became a REIT and subsequently de-REITed. We are currently participating in a procurement in the state of Florida for the management contract at the South Florida Evaluation & Treatment Center, which we expect to be awarded in Q1 of next year. Our goal with all these efforts is to place GEO in the best competitive position to pursue available growth opportunities. In addition to the steps we have taken to capture quality growth opportunities, we have made significant progress towards strengthening our capital structure by reducing outstanding debt, deleveraging our balance sheet and enhancing shareholder value through capital returns. In 2025, we reduced our total net debt by approximately $275 million, closing the third quarter with approximately $1.4 billion in total net debt with a total net leverage of approximately 3.2x adjusted EBITDA at this time. Our debt reduction efforts were boosted by the successful sale of the Lawton, Oklahoma facility for $312 million or $130,000 per bed, which was a transformative event for our company, allowing us to significantly deleverage our balance sheet and launch a stock buyback program ahead of our prior expectations. Approximately $60 million of the Lawton Facility sale gain was used to purchase the 770-bed downtown San Diego, California facility that we've been operating for 25 years for the U.S. Marshals Service. During the third quarter, we repurchased approximately 2 million shares for approximately $42 million under our newly launched buyback program, bringing our total shares outstanding to approximately 140 million at the end of the third quarter. Given the intrinsic value of our assets and already captured, expected future growth, we believe that our current equity valuation offers a very attractive opportunity. To this end, our Board of Directors has increased our stock buyback program authorization by $200 million, increasing the total authorization to $500 million and extending expiration date to December 31, 2029. We plan to execute our stock buyback program opportunistically, balancing it with our growth, capital needs and our objective to reduce debt and deleverage our balance sheet. At this time, I will turn the call over to our CFO, Mark Suchinski, to review our financial highlights and guidance. Mark Suchinski: Thank you, George. Good morning, everyone. I am happy to report that we had a very solid third quarter. For the third quarter of 2025, we reported net income attributable to GEO of approximately $174 million or $1.24 per diluted share on quarterly revenues of approximately $682 million. This compares to net income attributable to GEO of approximately $26 million or $0.19 per diluted share in the third quarter of 2024 on revenues of approximately $603 million. During the third quarter of 2025, we completed the sale of the Lawton, Oklahoma facility for $312 million and the Hector Garza, Texas facility for $10 million. These two transactions resulted in a $232 million gain on asset sales during the third quarter. Approximately $60 million of the Lawton Facility sale was used to purchase the 770-bed Downtown San Diego, California facility that we have been operating for 25 years for the U.S. Marshals Service. Additionally, during the third quarter of 2025, we incurred a noncash contingent litigation reserve of approximately $38 million in connection with a legal case in the State of Washington involving claims of individuals who participate in the voluntary work program while in ICE detention. The Ninth Circuit Court of Appeals has ruled that the ICE volunteer detainees are entitled to state minimum wage payments, but stayed their ruling pending GEO's appeal to the U.S. Supreme Court. The Ninth Circuit of Appeals ruling is in stark conflict with other federal court rulings on individuals providing work while in confinement. No company has ever paid state minimum wages to individuals working in confinement facilities. While we are appealing the case to the U.S. Supreme Court, due to accounting rules, we recorded this noncash contingent litigation reserve during the recent -- our most recent third quarter. Excluding this noncash contingent litigation reserve, the gain on asset sales and other items, adjusted net income for the third quarter of 2025 was approximately $35 million or $0.25 per diluted share compared to $29 million or $0.21 per diluted share for the prior year's third quarter. Adjusted EBITDA for the third quarter of 2025 was approximately $120 million, up from the approximately $119 million reported for the prior year third quarter. Beginning with revenues. Quarterly revenues in our owned and leased secure service facilities increased by approximately 22% year-over-year, driven by the activation of our new ICE contracts, which drove the census across our contracted ICE processing centers to an all-time high. Revenues for our nonresidential contracts increased by approximately 10% from the prior year third quarter. Revenues for our managed-only contracts increased by approximately 8% from the prior third quarter. Revenues of our electronic monitoring and supervision services and for our reentry centers were largely unchanged from the prior year third quarter. Now let's turn to our expenses. During the third quarter of 2025, our operating expenses increased by approximately 15% due to the start-up of new contract awards and increased occupancies compared to the prior year quarter. Our G&A expense for the third quarter of 2025 increased from the prior third quarter, in part due to the reorganization of the senior management team at the end of last year, higher employee-related benefit costs and support for the revenue growth from our new contract awards. Our third quarter 2025 results reflect a year-over-year decrease in net interest expense of approximately $7 million as a result of the reduction in our net debt. Our effective tax rate for the third quarter of 2025 was approximately 25%. Now let's move to our outlook. We have updated our financial guidance for the fourth quarter and full year 2025. Our updated guidance for the fourth quarter incorporates a new reduced contract pricing for ISAP 5, which, as George mentioned, is being favorably impacted by a steady shift in technology mix as well as higher intensity of case management services and the potential for higher volumes, all of which should improve the economics of the new contract. Based on these variables, the federal government assigned an estimated value to the 2-year contract of over $1 billion. Because the exact scope and timing of the government actions are difficult to estimate and are outside of our control, we have not included any assumptions with respect to favorable mix shift or census growth in the ISAP contracts in our 2025 guidance. Additionally, we are in the process of implementing several cost mitigation measures for the ISAP contract by the end of this year, which we expect to result in cost savings of approximately $2 million to $3 million per quarter beginning in 2026. The fourth quarter was also impacted by additional start-up costs at the Adelanto, California facility, which has required the hiring of 179 additional staff due to its reopening and the increase of overtime costs due to new staff awaiting their final ICE clearance before being allowed to perform their responsibilities. We expect both issues to normalize in 2026. As a result, we expect fourth quarter 2025 GAAP net income to be in the range of $0.23 to $0.27 per diluted share on quarterly revenues of $651 million to $676 million. We expect fourth quarter '25 adjusted EBITDA to be between $117 million and $127 million. Taking into account our updated fourth quarter guidance, we expect full year 2025 GAAP net income to be in the range of $1.81 to $1.85 per diluted share, including the $232 million gain on the sale of the Lawton, Oklahoma and Hector Garza, Texas facilities. We expect full year 2025 adjusted net income to be in the range of $0.84 to $0.87 per diluted share on increased annual revenues of approximately $2.6 billion and based on an effective tax rate of approximately 25%, inclusive of known discrete items. We expect full year 2025 adjusted EBITDA to be in the range of $455 million to $465 million. We expect total capital expenditures for the full year of 2025 to be between $200 million and $205 million, which includes our previous announced $100 million investment to enhance our ICE facilities and services and the approximate $60 million for the purchase of the Western Region Detention Facility. With the already announced contracts that are expected to normalize next year and new opportunities that are in discussions, we could see a path to approximately $3 billion in annual revenues in 2026. Now let's move to our balance sheet. We closed the third quarter of 2025 with approximately $184 million in cash on hand and approximately $143 million in available capacity under our revolving credit facility. We believe we have ample liquidity to support our working capital needs during the current government shutdown. We have received verbal support from several of our banks to provide additional liquidity should the government shutdown continue for a prolonged period of time. We also believe we've made significant progress towards deleveraging our balance sheet. Year-to-date, we've reduced our net debt by approximately $275 million, closing the third quarter with total net debt of approximately $1.4 billion and total net leverage of 3.2x adjusted EBITDA. As a result, we've achieved an annualized reduction in interest expense of over $25 million. Our debt reduction efforts were bolstered by the successful sale of the Lawton, Oklahoma facility for $312 million during the third quarter. We believe this important transaction is representative of the intrinsic value of our real estate assets, totaling 50,000 owned beds, and it allowed us to significantly deleverage our balance sheet and begin to return capital to our shareholders. During the third quarter, we repurchased approximately 2 million shares for approximately $42 million under our recently launched stock buyback program, which our Board has increased by $200 million, bringing the total authorization to $500 million. We expect to continue to execute our buyback program opportunistically within the covenant requirements of our debt agreements. We remain focused on disciplined allocation of capital to enhance long-term value for our shareholders, and we believe that our strong cash flows will allow us to support all of our capital allocation priorities. At this time, I will return the call back to George for some closing comments. George Zoley: Thank you, Mark. In closing, we believe we've made significant progress towards meeting our strategic objectives. So far in 2025, we've announced new or expanded contracts that are expected to generate more than $460 million in new incremental annualized revenues, which will normalize next year and likely achieve approximately $3 billion in total company revenues for 2026. The amount of new contracted revenues is the largest in our history of our company. Going forward, we expect to be able to capture additional growth opportunities. We have approximately 6,000 idle high-security beds that remain available, which could generate in excess of $300 million in annualized revenues if fully activated. With the award of the new 2-year ISAP contract and the investments we've made to stock up on the inventory of GPS tracking devices and development of new generation devices, BI is well positioned to respond to the future demands under the ISAP 5 contract. We are also well positioned to continue to expand our delivery of secure transportation services for ICE and the U.S. Marshals. While the exact timing of government actions, including new contract awards is difficult to estimate, as a management team, we are focused on maintaining a level of readiness to successfully pursue and capture future growth and continuing to allocate capital to enhance value for our shareholders. That completes our remarks, and we would be glad to take questions. Thank you. Operator: [Operator Instructions] Our first question comes from Joe Gomes with NOBLE Capital. Joseph Gomes: I wanted to start off here. I think there's a big question hanging out there with the government shutdown, with the ICE focus on hiring the extra 10,000 people that the rate of ICE population detentions has not been as robust here as originally anticipated. Just was wondering what you guys are seeing out there. Is it flowing at what your expectations were? Or has it come in a little less than what you may have been previously expecting given the current status there with the federal government? George Zoley: No. It's obviously gone slower than we previously expected. And our existing facilities are at almost full capacity, and they're churning out deportations almost at the rate of approximately 100% of their capacity per month. So we've never seen anything like this before. So our existing facilities are on full throttle. We were expecting additional contract awards, but there is a need for additional ICE staff to support additional facilities. That's why they're trying to recruit 10,000 staff. Well, as I said in my remarks, it takes a lot of time and staff-intensive activities to recruit, hire, train and bring on board that ICE staff to support new facilities around the country. We think our idle facilities totaling 6,000 beds are ideal high-security facilities that are available. But just looking at a combination of factors of the government shutdown, the need for additional ICE staff, there have -- those factors have caused the delays that we hope will be concluded by the end of the year, if not the end of this month. Joseph Gomes: Okay. Really appreciate the color there. On the ISAP, congrats on the contract win. I understand there's going to be some puts and takes there, some changes. But historically, if you look at that contract, it's run roughly about a 50% NOI margin. Do you think even with all these puts and takes that stays at least at that level? Or do you think there'll be contraction in that NOI margin? George Zoley: Well, we really don't discuss our margins by business unit to that level of granularity. We made a pricing cut to be competitive in this last rebid as we have done, I think, in two or three times previously. So every time there's a rebid of the ICE contract, there's a lot of competition, and we've reduced our unit pricing, and there's 40 different units in that pricing. So we took a hard look and we identified cost savings opportunities at the corporate level, regarding staffing field level, cost savings on devices, the identification of new generation devices on a less costly basis. So all of that was combined to present the government with the best value in winning the contract. Now the count, as I've said, has been fairly stable which is a little disappointing, obviously. But the mix of monitoring devices is leading towards more intensive devices that cost a bit more and more intensive supervision of case management services with regarding the existing population that will be applied to the increasing population as priced in years 1 and year 2. Remember, year 1 is priced to double the existing capacity and year 2 is almost tripling. So that remains to be seen. It's up to the government as to how do they get to those levels. But right now, I think we've been fairly consistent in saying the focus has been on increasing detention capacity. And that's where the activity has been and the actual participation levels increase. Mark Suchinski: Joe, it's Mark. I would just add that our electronic monitoring business has been and will continue to be our highest margin business. We publish that quarterly. It's -- we're fully transparent about that. And we -- as George indicated, we've made some adjustments, but we're working on the cost side of things, and we expect those actions to be complete by the end of the year and reap those benefits in 2026. Joseph Gomes: Okay. And then one more, if I may. Staffing has always been challenged especially when you're opening so many idle facilities at one time. I'm just wondering how are you guys looking at or seeing the ability to staff up the facilities that you're opening? George Zoley: Great question. I think we've been targeting hiring 1,000 or 1,500 additional staff this year, which is an enormous amount comparatively speaking. And that's been a very costly feature that has impacted our earnings this year, which I don't think a lot of new shareholders are aware of the impact. When you hire people, you have to put them into -- you have to recruit them, you have to do background checks, you have to put them in training. All of that is a cost that's predominantly borne by us and not the client until the facility opens and normalizes. So almost all of that -- those staff are paid according to Department of Labor determined wages. And so I think we're having a good shot at finding the people, but it takes a long time to get them through the ICE clearance process. And that's a costly wait for us. Operator: The next question comes from Jason Weaver with JonesTrading. Matthew Erdner: This is Matthew Erdner on for Jason. So going back to the ISAP, I just kind of want two clarification questions. First, the $1 billion, that is over the 2-year term period. And then I just want to make sure I get the numbers right on the scale up. It was, I believe, $361 million you said in the first year and then $465 million for year 2? George Zoley: Yes. Matthew Erdner: Okay. And then as it relates to that, should we kind of expect that 1/3 of that revenue trickles through over '27 with the remainder kind of coming through in 2027 as that program continues to scale? Mark Suchinski: Well, as we indicated, that's -- we responded to the government's request. And the government had in the RFP, identified those counts for us to respond to. And so we -- today, the counts are at 182,000. We really -- we don't know exactly the exact timing of the change in ISAP participants over time. But I think as George has articulated, their focus right now is on detention. And once we get to 100,000 beds, the pivot will be to ATD. So I think it's hard for us to predict the exact timing of that. But what we do know is that the RFP had allocated significantly higher funding and participant counts than -- as compared to where we are today. And so I think that's what we know. George Zoley: The contract term will go into 2027, obviously. That's part of the answer to your question. The exact counts, we are beyond our control. They are identified in the pricing procurement document that everybody had to bid on. So the counts are as we've discussed, and it remains to be seen if we achieve or exceed those counts. Because as I said in my comments previously, that the count on the previous ISAP 4 awards started at 91,000 and ended at 183,000. If that's any indication of the future, then I think we're going to be on solid ground. Matthew Erdner: Got it. That's helpful. And then touching on the additional growth opportunities and alternative solutions that you guys are still on the table. It's nice to see you guys working with the state of Florida. How big is that opportunity set? And how many states are looking for these kind of management services as ICE continues to try to look for additional beds? George Zoley: There are several, which we can't name at this time. But they're generally beds that would be part of their correctional system, idle beds or refurbished beds and that number typically in the hundreds, possibly getting up to 1,000 beds per location that we're aware of. But we're not fully privy to what DHS is doing or who they're talking to, obviously. Matthew Erdner: Got it. And then looking at that from kind of a margin perspective, would that kind of fit in with the historical managed services margins? George Zoley: It's actually a bit better than that because the staffing levels for this kind of population is different than what we typically seen at our state facilities that were managed only. This is a higher security population requiring more staffing, and we make a margin on the staffing. Operator: The next question comes from Greg Gibas with Northland Securities. Gregory Gibas: I wanted to ask, I guess, regarding your commentary on the mix shift within the ISAP program. Can you confirm that, that mix shift toward more intensive uses is currently happening, but not included in your Q4 guidance? I guess what assumptions with mix are implied by guidance? Mark Suchinski: It's Mark. Let me address that. As George said, we are seeing a shift of a movement towards less usage of an app or a phone and higher participant counts using our ankle bracelets. And so what we've seen to date has been a slow and steady growth on the ankle bracelets, which are higher cost and more intensive as it relates to the case management services. And to a certain degree, we've built that in. What we're saying is we only have a couple of months left in the year. We've factored that into our overall assumptions. But over the coming next 2 years, we're expecting the continued shift towards the higher intensive supervision, which is the higher cost services from a technology device standpoint as well as a case management. So the point we're making is we think there's some opportunities as we've rebid that contract, both on the mix shift and some of the cost actions that we're taking to mitigate things. Obviously, the new pricing went into effect on October 1. It's going to take us a little while to implement the actions that we have, and that had an impact on the fourth quarter. But we're working hard to push through that and potentially take advantage of the shift towards the more intense services. And we think that would continue into 2026, and we'll know better when we provide guidance in February of next year. Gregory Gibas: Got it. That's helpful. And nice to see the increased share repurchase authorization. With where the stock is trading now, could you maybe discuss your thoughts on leaning into it more or considerations of an acceleration of repurchase activity? Mark Suchinski: Well, we're aligned. We think our share price is way undervalued, right? George talked about our business. When we look at our profitability and our cash flows and the growth that we've achieved here, we think our stock price is significantly undervalued. That's why we launched our share purchase program with George's support and the Board's. With where the stock price is, we had another dialogue with our Board at our Board meeting, and we increased the size of that. And we're confident about our cash flows over time here, and we're leaning into this. I think earlier in the year, we talked about shareholder returns. We talked about doing that once we got less than 3x levered. We're over 3x levered, but we're leaning into it, and our banks are supportive of that. So we're going to lean into it. We're going to, as George said, be opportunistic about it and balanced. But where our stock price is, we're going to continue to pursue the buybacks and take advantage of the lower stock price and our cash flows and our ability to go do that. Gregory Gibas: Got it. Makes sense. And I know timing, like you said, is difficult to predict. Just I guess, referring to your prepared remarks, you mentioned being optimistic on ISAP ramping up early next year. I guess I would just ask like what leads you to expect that or support that expectation? Is there anything new you've heard since maybe last quarter? George Zoley: Well, there's millions of people that are on the non-detained docket. And there's going to be a desire to provide more clarity as to where they are, what stage they are in with respect to their hearing process, and making sure they get to their hearing and if they're not qualified to be in the country to deport them. So I think those are all publicly identified objectives of this administration. And I think the ISAP contract will be an important tool toward that -- towards those objectives. Mark Suchinski: And as we've mentioned in the past, once the detention continues to grow, the government has talked about targeting 100,000 beds at that point in time. Once they max out that capacity, and they continue the enforcement efforts that they have, the next logical tool to use is the ISAP program. Operator: The next question comes from Raj Sharma with Texas Capital. Raj Sharma: Quite a few of my questions have been answered. But can I go back to the question on margin and the ISAP program. I guess -- and I know you're not providing that much detail, but could the margins match or exceed your existing or earlier margins at a certain volume of monitored and supervised accounts? How do we sort of model that out? George Zoley: Well, I think it will have to be over time as both Mark and I have said that we have to implement some cost savings with regard to staffing efficiencies and service efficiencies as well as cost of devices. That will -- all of that will take place over the next succeeding months. And if the numbers materialize as they're identified in the pricing that was required of all the bidders, our margins and revenues will exceed what we had previously, I believe. Raj Sharma: Got it. And then on the guide, the fiscal '25 guide, the margins of about 23%, 24%, historical had been 26%. Is this -- should we consider this to be sort of a new base of EBITDA margins? George Zoley: Are you speaking regarding ISAP or? Raj Sharma: No, I'm talking about the overall -- sorry. Yes, talking about the overall margins. This quarter was flat to last year on higher revenues. Anything that explains the EBITDA margins not picking up as much, and should we consider that as the base EBITDA margin going forward? Mark Suchinski: No, I think we tried to articulate it. We talked about the fact that as we're starting up these contracts, there's a cost investment that takes place. We talked about the Adelanto Facility and the rapid increase in the participants and us working hard to hire those folks. So both in the third quarter and the fourth quarter are going to have -- are going to be impacted to a certain degree by those costs, and we're working hard to get those normalized, those operations normalized like our existing facility. So I wouldn't necessarily say that the third quarter is the new baseline. It has been impacted by some puts and takes. And so I would just say you're just going to -- we're going to continue to work hard to satisfy our clients and work hard to manage our business and continue to do the best job that we can here, but there was some -- a few anomalies that took place in the quarter. Raj Sharma: Great. That's really helpful. And then just lastly, on the activated facilities normalizing in 2026. What revenue and EBITDA step-up should we expect for '26? George Zoley: I don't think we've given guidance for '26 as yet. Mark Suchinski: No. We'll -- we want to wrap up the quarter, and I think we'll be able to provide you further details when we see you guys or when we chat with you guys early next year. Raj Sharma: Got it. I guess the activated facilities would have normalized by Q1 or by Q2 next year? George Zoley: Well, the ones that have been activated this year, that would be correct, but we assume that will be activated the middle of next year. Operator: The next question comes from Brendan McCarthy with Sidoti. Brendan Michael McCarthy: I wanted to start off in electronic monitoring. I think you mentioned you're continuing to invest to stock up on some of the higher-intensity wearables. Can you quantify what your ultimate capacity is for some of the higher-intensity wearables? Perhaps what number of population counts could you monitor under that kind of segment of your products? George Zoley: I don't know how high is high. We are capable of monitoring, obviously, several hundreds of thousands in concurrence with our pricing model, but we can go far beyond that and have -- we're the largest monitoring company in the world, and we've streamlined our operations over the course of this year, and we are developing new generation products for every one of our products that will be rolling out sometime next year. And we have the largest capacity of any monitoring company in the world to roll out new devices each and every week. Brendan Michael McCarthy: Great. That makes sense. And then last question for me, just amid the government shutdown, are you still having active negotiations for the remaining idle beds that you have available? Or have those negotiations paused? I'm just curious if anything has really changed as it relates to your discussions with reactivations. George Zoley: I would characterize them as discussions. I don't think they fall in the formal negotiation stage. But our discussions with ICE really take place almost on a continuous basis. Operator: The next question comes from Kirk Ludtke with Imperial Capital. Kirk Ludtke: With respect to ISAP, if I remember correctly, ISAP 4 was a 5-year deal. And I'm -- this is now a 2-year inclusive of the option period. What is the -- what is it exclusive of the option periods? George Zoley: The option period, it would be a 1-year contract. Kirk Ludtke: It's a 1-year deal with a 1-year option. George Zoley: A lot of our contracts are 1 year with four 1-year extensions, and we call them 5-year contracts because they almost always take all options of the contract. Kirk Ludtke: Okay. Got it. And so it's a shorter deal. What do you -- what is the -- what's the takeaway there? George Zoley: There's been no formal policy announcement of the change that I'm aware of, but it is a technology-driven kind of service and technology changes fairly rapidly. So it may make sense to make it a 2-year contract. And that's one of the reasons that we are doing new generation devices. Kirk Ludtke: So just given the, I guess, uncertainty about how they want to proceed, they decided to pursue a shorter deal? George Zoley: It's the large population base that you're grappling with. It's almost 7 million people. And it's -- the service is in two forms, as I said, technology and case management services. And there may be a better way of doing that 2 years from now. That's possible. And we have the flexibility to respond to whatever the policy change may or may not be 2 years from now. Kirk Ludtke: Got it. Okay. And you've committed to be prepared to monitor 361,000 people next year at some point? George Zoley: For next year, and we could monitor far beyond that. Kirk Ludtke: Yes. Is there a -- will that mean significant CapEx next year? George Zoley: It will be some CapEx, yes, but we've been stocking up on our devices this year, as we've said. We've made significant investments. And I think we have more devices than any other company in the world. Kirk Ludtke: Got it. Okay. I appreciate it. And how much -- you mentioned increasing the authorization to $500 million, and you've got some limitations under the credit documents. How much stock could you buy back under your covenants today? George Zoley: I think we've said that we would be buying back approximately $100 million of stock per year. And I think we're -- at this present time, we're sticking to that. We've done $42 million so far this year. That would leave the balance for the balance of the year. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to George Zoley, Executive Chairman of The GEO Group for any closing remarks. George Zoley: Well, thank you for listening and giving us your questions, and we hope to address you at the next conference call. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Globalstar Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Rebecca Clary, CFO. Please go ahead. Rebecca Clary: Thank you, operator, and good afternoon, everyone. Before we begin, please note that today's call contains forward-looking statements intended to fall within the safe harbor provided under the securities laws. Factors that could cause the results to differ materially are described in the Risk Factors section of Globalstar's SEC filings, including its annual report on Form 10-K for the financial year ending 2024 and its other SEC filings as well as today's earnings release. Also note that management may reference EBITDA, adjusted EBITDA, free cash flow or adjusted free cash flow on this call, which are financial measures not recognized under U.S. GAAP. As required by SEC rules and regulations, these non-GAAP financial measures are reconciled to their most comparable GAAP financial measures in the earnings release, which is available on our website. Today, I will walk you through our third quarter and year-to-date financial results, discuss our liquidity position and touch briefly on outlook. We delivered solid top line performance in the third quarter with total revenue of $73.8 million. This represents growth over the prior year's third quarter, reaching a record quarterly amount. This improvement was driven by two key areas: wholesale capacity services, and continued strength in Commercial IoT. Our wholesale capacity services revenue increased primarily due to the timing of service fees associated with the reimbursement of network-related costs as we continue to expand and upgrade our global ground infrastructure. Commercial IoT also continues to be a growth driver for us. IoT service revenue increased on the back of subscriber growth with average subscribers reaching 543,000, a 6% increase from the prior year's third quarter. This growth was again propelled by a record number of gross activations over the last 12 months. We also saw particularly strong equipment sales performance. Equipment revenue from Commercial IoT device sales was up 60% compared to the prior year's third quarter. We expect this momentum to continue, particularly with the recent commercial availability of our two-way module, which we believe will drive additional demand. Income from operations was $10.2 million in the quarter, up from $9.4 million in the prior year's third quarter. This improvement came despite higher operating expenses during the quarter due to planned increased investments in our business. Net income was lower than the prior year's third quarter, driven primarily by noncash items. Specifically, we recognized higher interest expense from noncash imputed interest related to the 2024 prepayment agreement. We also recorded net foreign currency losses from the remeasurement of intercompany balances. These items were partially offset by a noncash gain on the quarterly mark-to-market adjustment of our derivative assets. Adjusted EBITDA for the third quarter reflects our strategic investment in growth opportunities, particularly XCOM. We continue to enhance and develop our XCOM RAN product and service offerings. And as we've discussed previously, we're incurring costs, primarily personnel related in advance of significant revenue contribution from this business. We believe this is a solid investment for the company, and we remain confident in the strategic value of this initiative, particularly based on recent developments towards commercialization. Importantly, we continue to maintain healthy adjusted EBITDA margins, 51% in the third quarter and 52% year-to-date, even while making substantial investments in XCOM and next-generation products. This demonstrates the profitability of our core business and gives us confidence that as these new revenue streams scale, we'll see meaningful margin expansion. For the year-to-date period, total revenue was $201 million, representing 6% growth compared to the same period last year. Service revenue was also up 6%, while equipment revenue increased 21%. The revenue and operating income story for the 9-month period largely mirrors what we saw in Q3. Now let me turn to our balance sheet and cash flow. We ended the third quarter with cash and cash equivalents of $346.3 million. During the first 9 months of 2025, we generated operating cash flow of $445.8 million, a strong result that reflects $299.6 million received in connection with the Infrastructure Prepayment and also demonstrates the cash-generating capabilities of our business. Capital expenditures were $485.9 million during the period, reflecting our commitments under our Updated Services Agreements for network expansion and upgrades, including ground infrastructure as well as satellite construction and launch costs. These investments are fundamental to our ability to deliver enhanced services and support our long-term growth. Financing activities used $6.1 million in cash, primarily for debt recoupment under the 2021 Funding Agreement and preferred stock dividend payments, offset partially by $27.1 million in proceeds under the 2023 Funding Agreement, which will be used to fund CapEx for our replacement satellites. Adjusted free cash flow for the 9-month period was $133.3 million, up significantly from $74.5 million in the prior year period. This increase reflects primarily higher customer payments, including $37.5 million in accelerated service payments received during 2025. Total debt principal outstanding was $418.7 million at September 30, 2025, largely in line with the prior year-end and reflecting the financing activities previously discussed. Our financial position remains strong with solid cash generation, ample liquidity and strategic investments that position us for long-term growth. We're making deliberate investments in XCOM and next-generation products, and we're executing on our infrastructure commitments to support our wholesale services agreement. The fundamentals of our business are sound. We're growing revenue in strategic areas, generating strong operating cash flow and managing our cost structure while investing for the future. Given our results to date and expectations for the balance of the year, we are reiterating our full year 2025 outlook and continue to expect revenue in the range of $260 million to $285 million and an adjusted EBITDA margin of approximately 50%. With that, I'd like to turn the call over to Paul. Paul Jacobs: Thanks, Rebecca, and good afternoon, everyone. I'm pleased to be with you today and to discuss what has been a robust quarter for Globalstar. Across every major part of our business, we're executing our strategy and delivering measurable progress that strengthens our position in the market. It's really never been a more exciting time to be in the connectivity industry and for Globalstar in particular. My team and I have spent our careers driving many of the hottest trends in mobile communications and computing. And well, here we are again. On the satellite side, we couldn't be more proud to have helped pioneer direct-to-device services and witnessed the life-saving impact of our network. There are now over 0.5 billion devices capable of utilizing our network, and we continue to invest and innovate to maintain our leading position. And on the mobile wireless network side, our XCOM RAN technology is proving its benefits both in performance for mission-critical applications and its cost effectiveness and ease of deployment. As I've said previously, what drew us to Globalstar is the strength and differentiation of our globally harmonized spectrum, 3 decades of LEO constellation operations and deep engineering capability to deliver secure, reliable connectivity worldwide with the quality of service demanded by some of the world's most innovative technology leaders, something few others, if anyone, can claim. Recent activity in the market underscores that value as a wide variety of players now better understand the need for dedicated mobile satellite service or MSS spectrum. Other participants in the direct-to-device solution space have spent tens of billions to acquire L- and S-band assets that, while useful, lack the global coverage, priority rights and harmonization with an established hardware ecosystem that defines our portfolio, one that has been deployed for decades by our Globalstar customers. We believe this validates the global orientation of our strategy from inception, building the company around globally harmonized and licensed spectrum assets and a global LEO platform. We see extraordinary potential for disruptive innovation around our spectrum bands and are confident we are playing a defining role now and for some time to come. For many reasons, Globalstar holds the critical jigsaw pieces that complete the broader D2D puzzle. This moment is a strategic inflection point that could shape or reshape the future of a rapidly converging communications industry. Before I turn to the other parts of our business, let me acknowledge that you may have seen recent media reports regarding a potential strategic transaction involving Globalstar. As a matter of policy, we do not comment on press articles, rumors or market speculation. And therefore, we will not be addressing this topic during today's call or the Q&A following our remarks. Now let's turn to the business, and let me start with our infrastructure expansion and satellite road map for our C-3 constellation. We continue to make significant progress in the construction of our extended MSS network. In addition to development of our third-generation C-3 satellite system, this effort includes the build-out of our global ground network with new infrastructure across multiple continents, including Europe, Asia and North America. This global ground expansion is continuing, including up to 90 new tracking antennas supporting Globalstar's C-3 satellite system, representing a significant investment in the functionality, capacity and future-proofing of our network. This significantly underscores our mission and strategy to support resilient and robust connectivity that not only serves the needs of today, but also prepares for those of tomorrow. And to that end, our HIBLEO XL-1 filing is designed to expand operational frequency, which is a foundational step towards our planned next satellite era. This system will introduce new satellites, orbital shells and frequency bands to enable greater capacity and throughput. It's an important step forward that aligns with the other network investments we are making today. And while we are not currently planning significant investment in our own mega constellation, this filing gives us the future option to work with partners supporting our constellation -- sorry, our spectrum on a mega constellation that is coordinated with our existing and planned constellations. Let's turn to the government sector. We continue to see strong traction following our wins earlier this year. We've made meaningful progress with Parsons Corporation, transitioning from proof of concept to commercial engagement that leverages our satellite network within their advanced software-defined communications architecture. This partnership highlights Globalstar's ability to deliver resilient, low latency and mission-critical connectivity for defense and public safety applications. We continue to expect government-related opportunities to represent an expanding source of revenue in 2026 and beyond. Our Commercial IoT subscriber growth is strong and accelerating with strong MSS device sales supported by growing adoption in safety, logistics and infrastructure markets. Gross activations are up 40% over the same quarter last year, and total units are up 100% on a quarterly basis compared to the prior year. That doesn't even include the new two-way module, which is now being integrated into our customers' finished products. These sales, combined with increased enterprise demand are contributing to a balanced and diversified revenue profile. Another milestone this quarter is the global availability of our two-way Commercial IoT module, the RM200M. Already receiving certifications in key regions, the RM200M is now officially available for worldwide deployment. Leveraging Globalstar's licensed L&S band spectrum and second-generation satellites, the module delivers reliable two-way connectivity, reducing friction when deploying across numerous geographic regions. On the private wireless side, momentum continues to build for XCOM RAN. During the quarter, we received an initial order from a new XCOM RAN customer, advancing their next-generation robotics application and a significant expansion of this program. XCOM RAN is positioned to play a critical part in ensuring quality of service in warehouse and factory automation, where reliable and secure connectivity is at the core of a robotic future in these environments. We believe we can demonstrate not only significantly differentiated performance of our 5G-based systems over industrial Wi-Fi, but also improved economics for large area applications. And we are addressing new applications outside of warehouse automation, which we will believe -- which we believe will grow our addressable market significantly. Stepping back, this has been a year of meaningful acceleration for Globalstar. We've expanded our infrastructure, strengthened our product lineup, deepened our government relationships and enhanced the commercial viability and visibility of our technology portfolio. These accomplishments have not gone unnoticed. Increased partner engagement and growing investor confidence reflect a renewed understanding of Globalstar's strong market position, combining spectrum ownership, global infrastructure, product lineup and operational expertise that few others can match. Overall, this has contributed to positioning the company in the market as a high-value strategic asset in the rapidly converging satellite and terrestrial communications ecosystem. While we remain focused on executing our plan, this recognition underscores the scalability and relevance of what we've built and what's still ahead. As we look to the close of the year, our focus remains on execution, including completing key infrastructure milestones, expanding enterprise and government deployments and continuing to drive adoption of our new technologies across both satellite and terrestrial domains. We're proud of what our team has accomplished and energized by the growing momentum we see across all segments of our business. Thank you for your continued support. I look forward to sharing more about our progress in the quarters to come. With that, I will turn the call back to the operator. Operator: [Operator Instructions] Our first call comes from the line of Mike Crawford at B. Riley Securities. Michael Crawford: Regarding your C-3 constellation, correct me if I'm wrong, if this is not completely synonymous with your extended MSS network. But can the ground segment improvements that you're putting in at these gateways be used by your existing constellation that's being refreshed? Paul Jacobs: Yes. So we put in antennas that are specific for the [indiscernible] system -- or sorry, the C-3 system. And yes, so we have the existing satellite antennas for the existing constellation already. Michael Crawford: Okay. And I believe it's going to be two batch launches for -- to replenish that constellation. Is there any update on when the first of those might occur? Paul Jacobs: We have not given any new indications on when the launches are going to occur. Rebecca Clary: And just to add to that, Mike, for the Extended MSS network, as you know, we haven't provided timing. For the replacement satellites, which you might be referring to that are being launched in two batches, we're working with SpaceX to confirm an updated launch window in the first half of 2026. Michael Crawford: Okay. And then maybe just stepping back, Paul, to Globalstar's global harmonized spectrum holdings. Can you just maybe define those again in terms of megahertz POPs or some related measurements or what you have in the U.S. as well as where you have landing rights internationally? Paul Jacobs: I mean it's essentially global coverage. So on the S-band, we have 16.5 megahertz. On the L-band, we have almost 9. On the C-band, we have over 300 megahertz. So let's see there are 7 billion people on earth. So... Michael Crawford: Okay. I can do that math. And then on the C-band, I believe there remains 59 megahertz slot that might not necessarily be required to operate your satellite networks given improvements in technology over the past 20 years? Paul Jacobs: No. It's -- there's actually -- so if you look at the C-band spectrum, it's a large percentage of it is covered by Wi-Fi, so unlicensed band use. And then there's a chunk at the lower end that is not covered by that. And all of the spectrum is being used as feeder link because the way the existing satellites work is that chunks of the feeder spectrum are allocated to reproducing the entire spectrum band on the L&S band side. per beam on the satellite. So it is actually all used for the satellite system. It's a question of if we look at it for terrestrial use, there's a chunk that hasn't been allocated for Wi-Fi use. Now with that said, even in Wi-Fi bands, the team that came along from XCOM Labs is the same team that built the unlicensed band cellular technologies. And so it is possible that we can look at those bands for hosting unlicensed band NR, for example, 5G. Michael Crawford: Okay. And then final question for me just goes back to XCOM RAN. So in the test applications that you've been doing for quite some time now. What is the latest data that you're seeing in terms of increased performance and reliability versus industrial Wi-Fi? Paul Jacobs: Yes. So it works much better than industrial Wi-Fi because we don't have handoff regions and Wi-Fi wasn't really built for handoffs anyways. We also have ease of deployment. We have this clustering where if the robots cluster under one of the radios, you don't just depend on the capacity of that radio, actually depend -- you actually get the capacity of the entire system. So in terms of performance benefits, it's dramatically better. It's more reliable, more mission-critical. But what we've also been finding is that in these large area deployments, we're also economically better. So the economics of rolling out our system relative to an industrial Wi-Fi is much better. And part of that comes from the fact that we have now built our own radio units and significantly cost reduce those as well as being able to provide more frequency bands on a faster basis when those are requested by our customers. Operator: Our next call comes from the line of Greg Pendy at Clear Street. Gregory R. Pendy: Just on the accelerating IoT, can you just add any color on what the acceleration is? Do you think you're gaining share in the space? Or do you think the market was just seeing outsized healthy growth? And how should we think about pricing with the two-way capabilities on a forward basis? Paul Jacobs: Okay. So we -- there are definitely new applications that we're able to address. I think that there is also the fact that when we look at some of the competitors in the area who have been in this area for a long time, there's definitely interest of our customer base to have diversity of supply or change suppliers. So that's definitely driving part of it. So some of it's taking share, some of it's new, it's growing the pie. And then the other -- on the two-way pricing, yes, I mean, it's a new set of capabilities, and there is market pricing out there for two-way systems. Of course, we expect to be aggressive and take share with the two-way system. And the growth so far, though -- if I just want to reiterate, the growth so far is not on the two-way system yet. The two-way system is still -- we brought out the module. We betted it with people. They then started building it into their products, and that takes a little bit of time for them to get up to speed and get their products rolled out. So the growth that you're seeing is actually the existing -- of the existing systems, which is really quite impressive. Gregory R. Pendy: Got it. That's very helpful. And then just wholesale looks pretty strong relative to what we were thinking. Just wondering, you mentioned there's 0.5 billion devices. So just trying to understand the underlying growth. Is it just a growing number of enabled devices? Are you seeing usage? Is it -- can you just kind of -- higher usage from those who are already enabled? Just trying to understand why that... Paul Jacobs: Right. So I can't really comment on the customers of our customer. So let me not do that. But it's -- the number of devices that are out there is just talking about the growth of the number of devices that actually have the satellite modem and radio capabilities in it. So that -- those set of devices continues to grow quite rapidly. Operator: [Operator Instructions] Our next question comes from the line of George Sutton of Craig-Hallum Capital Group. Logan W Lillehaug: This is Logan on for George. You guys have been kind of talking about the XCOM RAN investment throughout the year, and I think you've been expanding the sales force a bit. And it certainly feels like you have a lot of opportunities in front of that asset. I was wondering if you could just talk a little bit about sort of how should investors think about the return profile or even the profitability of those assets over the next few years? Paul Jacobs: Okay. So I mean, the margins are good in that business. We're right at the beginning of the sort of the commercial adoption cycle. And so we expect to see growth not just from the existing customer that we had been focused on in the past, but from a new set of customers and also into a new set of areas. And we've put up various numbers on sort of total addressable market. And so there's a significant addressable market going forward. And what we're seeing also is that companies that have been in the 5G private network space that didn't have any differentiated technology are starting to feel a lot of pressure. We've seen layoffs and things like that. And we have not just differentiated technology, we have better economics. And of course, we have the dedicated spectrum for mission-critical applications, which, by the way, that hasn't even really started to come into play yet because we were focused on CBRS. So a lot of areas of growth. We don't expect to see a lot of revenue in this fiscal year. But as we look forward into the next year, we expect to see growth there. And then like I said, the margins are good. So we should be in a good place to build both revenues and profitability off of that business. Logan W Lillehaug: Got it. And then next one for me. I was kind of hoping you could talk a little bit about early traction with the two-way module, just sort of the feedback you're getting, any use cases that you want to call out that are kind of standing out and just sort of maybe your sense on adoption here over the next few years. Paul Jacobs: Yes. I can't really give you a lot on the customers because they're all in the process of building their products and want to make their own announcements. But it is a lot of the similar industries that we've been in the past, but with new applications and new sets of customers. And there was a set of customers that weren't very interested in talking to us when we were only one way, and now we are able to -- I think we'll take share in a number of markets with the two-way system. And then as we look forward to making the system also multimode with cellular capability as well, that will also satisfy demands of a certain customer base. So yes, it's not like there is some brand-new area that I'd say, okay, this we can address now that we didn't, but we certainly have a set of customers that are talking to us that wouldn't have talked to us in the past with a one-way-only system. Operator: [Operator Instructions] Our next call comes from the line of Michael Ridgeway. Michael Ridgeway: Paul, a question first on the XCOM RAN warehouse implementation. Is this related to the early work that you have been doing and has been ongoing since you alluded to a large retail testing implementation? Paul Jacobs: Yes. So we are now in a position where I think we can address a larger customer set and also not just the original application that we were looking at of the sort of micro fulfillment concept, but larger scale operations as well. And then we're going beyond just the warehouse automation space. We're talking to companies that do things like build out high-density environments, convention centers, airports, stadiums, that kind of hotspots, that kind of stuff. And so as time has gone on and we've been able to invest in the system, it's got a more horizontal feature set as opposed to just super focused on the warehouse automation space. So all these things provide us with growth opportunities. Michael Ridgeway: So is that to say then that ultimately, there's more of a unified connectivity outside the warehouse as well using that as an example? Paul Jacobs: Yes, for sure. Yes, that's where we're... Michael Ridgeway: And then can you help us understand the revenue model behind this? Obviously, you've got an equipment side and then there's the spectrum side of this. Is there any ongoing service associated with those implementations? And how should we think about the profitability over time as clients grow, as new customers grow in that space? Paul Jacobs: Yes. So there is those things that you said, but also there is an annuity component of software license because the main computation is done on commercial off-the-shelf servers. And so we license the software into those servers as well. And then the other thing that's happened is that over time, we've been able to build out the entire stack. So we look forward to the ability to provide Network as a Service. And that obviously is very much a nice annuity kind of business. So that hasn't happened yet. That's the thing that we're sort of looking to in the medium term, but we get the idea that we don't want to just sell something and then walk away. Michael Ridgeway: All right. So from a margin perspective, we could expect a delay on margin accretion as installs happen over the last several quarters? Paul Jacobs: Margin accretion to the overall company? Michael Ridgeway: To the overall business. From that business... Paul Jacobs: Yes, yes. Well, this business right now is still in an investment phase, so for sure. But on a gross margin basis, gross margins are solid here, and we have differentiated technology, and we put the effort into driving the cost -- driving down the cost curve. So yes, so margins should be good. And then to the extent that you get an embedded base, I think this might be where you were going, embedded base of kind of annuity revenue, then obviously, that's very high margin. Michael Ridgeway: That's super helpful. Just last question, talking about this. We've come through 10 years where we haven't seen any market transactions in MSS and now we've gotten a few and another one announced this morning. Can you maybe spend a little bit more time, you did at the beginning of the call, but just differentiate what Globalstar has and the utility and the global harmonization from a relative value perspective from what we've seen in the market, if you could? Paul Jacobs: Yes. So I don't want to talk about transactions or speculation, but I will talk about our competitive positioning, which is we have spectrum, which is globally harmonized, meaning that it is not just for a small number of markets. You don't have to worry as a satellite operator, whether you're crossing boundaries, whether there are country boundaries or just inter system, interoperator boundaries. The spectrum covers the entire earth. And yes, there might be a few countries here and there, we didn't get landing rights. But for the most part, the world is covered by our spectrum and system. So that is differentiated. Some of the transactions that have been seen in the market have been focused on particular geographies. And in some cases, I would say there's questions about whether some of the spectrum that -- whether it will continue to be available post license reauthorization processes of some of the spectrum that's transacted. So that -- we're watching that. We've put our hat in the ring for some of these spectrum assets in case they are reallocated, and we certainly can put them to good use, and they are also covered by our HIBLEO XL-1 filing. Michael Ridgeway: Great. That's helpful. One last question on the C-3 ground station build-out. You've mentioned 90 new tracking antennas. Does that -- where does that put you in terms of the total build-out plan in percentage terms? Paul Jacobs: That's the build-out. I mean the 90-plus is the new set of antennas for the... Michael Ridgeway: Okay. And how many of those are actually deployed... Paul Jacobs: Some not -- I mean, we're in the process of rolling out. I don't think we've given an exact number to date. But you Rebecca, if we have said anything more precise than that, please speak up. Rebecca Clary: No, we haven't. We've talked about the sites where we're currently in construction, which is around now close to 30. So making really good progress and definitely on track with those milestone dates in the various agreements, both regulatory ground infrastructure build-out and satellite construction. Operator: At this time, I'm showing no further questions. I would like to turn the call back over to Paul Jacobs for closing remarks. Paul Jacobs: Well, I think it has been a great quarter, and we're really firing on all cylinders, and we're excited by, as I said, the fact that we focused on building a global company and a global spectrum position, global set of customers, global infrastructure from the very beginning. And that is showing to be a particularly valuable place to be in this change in the industry. And I do, as I said earlier, see this as a strategic inflection point. And so being in that part of the industry again and with the ability to play in a new inflection point, it's extremely exciting and should be -- we expect it should be good for all of us and our supporters and investors. So thank you very much for being there for us, and we look forward to updating you more into the future. Operator: Thank you very much. This concludes today's conference. You may now disconnect.
Operator: Hello, and thank you for standing by. My name is Mark, and I will be your conference operator today. At this time, I would like to welcome everyone to the Mettler-Toledo Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Now I would like to turn the call over to Adam Uhlman, Head of Investor Relations. Please go ahead. Adam Uhlman: Thanks, Mark, and good morning, everyone. Thanks for joining us. On the call with me today is Patrick Kaltenbach, our Chief Executive Officer; and Shawn Vadala, our Chief Financial Officer. Let me cover some administrative matters. This call is being webcast and is available for replay on mt.com A copy of the press release and the presentation that we will refer to on today's call is also available on our website. This call will include forward-looking statements within the meaning of the U.S. Securities Act of 1933 and the U.S. Securities Exchange Act of 1934. These statements involve risks, uncertainties and other factors that may cause our actual results, financial condition, performance and achievements to be materially different from those expressed or implied by any forward-looking statements. For a discussion of these risks and uncertainties, please see our recent annual report on Form 10-K and quarterly and current reports filed with the SEC. The company disclaims any obligation or undertaking to update any forward-looking statement, except as required by law. On today's call, we will use non-GAAP financial measures and a reconciliation to these non-GAAP financial measures to the most directly comparable GAAP measure is provided in the 8-K. Let me now turn the call over to Patrick. Patrick Kaltenbach: Thank you, Adam, and good morning, everyone. We appreciate you joining our call today. Last night, we reported our third quarter financial results, the details of which are outlined for you on Page 3 of our presentation. Our third quarter results were strong and reflected very good growth, especially in Industrial. I'm very pleased with our team's strong execution as we leverage our Spinnaker sales and marketing program and innovative product portfolio to drive growth while delivering solid EPS. Looking ahead, we are well positioned to capture growth opportunities while benefiting from trends like automation, digitalization and onshoring. We continue to remain very agile as we face several uncertainties in global trade disputes and governmental policies. We are confident that our strategic initiatives and strong culture of innovation and operational excellence will enable us to continue delivering strong performance in this dynamic environment. Let me now turn the call over to Shawn to cover the financial results and our guidance, and then I will come back with some additional commentary on the business and our outlook. Shawn? Shawn Vadala: Thanks, Patrick, and good morning, everyone. Sales in the quarter were $1.03 billion, which represented an increase in local currency of 6% and was 5%, excluding several recently completed acquisitions. On a U.S. dollar reported basis, sales increased 8%. On Slide #4, we show sales growth by region. Local currency sales increased 10% in the Americas, including a 1% benefit from acquisitions, 6% in Europe and 1% in Asia/Rest of the World. Local currency sales in China increased 2% during the quarter. Slide #5 shows local currency sales growth by region on a year-to-date basis. On Slide #6, we summarize local currency sales growth by product area. For the quarter, Laboratory sales increased 4%, while Industrial increased 9% and included a 1% benefit from recent acquisitions. Excluding acquisitions, core Industrial grew 10% and Product Inspection grew 7%. Food Retail grew 5% in the quarter. Lastly, service grew 8% in the quarter and included a 1% benefit from acquisitions. Slide #7 summarizes our local currency sales growth by product area on a year-to-date basis. Let me now move to the rest of the P&L, which is summarized on Slide #8. Gross margin was 59.2% in the quarter, a decrease of 80 basis points, primarily due to incremental tariff costs, offset in part by positive price realization and benefits from our Stern Drive program. R&D amounted to $51.1 million in the quarter, which is a 4% increase in local currency over the prior year. SG&A amounted to $248.4 million, a 6% increase in local currency over the prior year, which includes sales and marketing investments. Adjusted operating profit amounted to $309.9 million in the quarter, up 5% versus the prior year. Adjusted operating margin was 30.1%, a decrease of 100 basis points or down 30 basis points on a currency-neutral basis versus the prior year. We estimate the gross impact of tariffs reduced our operating margin by 140 basis points. A couple of final comments on the P&L. Amortization amounted to $20 million in the quarter. Interest expense was $17.7 million and adjusted other income amounted to $4.3 million. Our effective tax rate was 19% in the quarter. This rate is before discrete items and is adjusted for the timing of stock option exercises. Fully diluted shares amounted to $20.6 million, which is approximately a 3% decline from the prior year. Adjusted EPS for the quarter was $11.15, a 9% increase over the prior year. Incremental tariff costs were a gross headwind to EPS of 6%. On a reported basis in the quarter, EPS was $10.57 as compared to $9.96 in the prior year. Reported EPS in the quarter included $0.26 of purchase intangible amortization, $0.29 of restructuring and acquisition transaction costs and a $0.03 tax headwind related to the timing of stock option exercises. Slide #9 summarizes our year-to-date P&L. Local currency sales increased 2% for the 9-month period. Adjusting operating profit declined 2% and our operating margin contracted 130 basis points. Adjusted EPS increased 2%. Excluding the impact of 2023 shipping delays that benefited 2024 results, we estimate local currency sales grew 4% on a year-to-date basis, operating margin declined 10 basis points and adjusted EPS grew 7%. Gross tariff costs reduced operating profit by 3% and EPS by 4% on a year-to-date basis. That covers the P&L, and let me now comment on adjusted free cash flow, which amounted to $689.5 million for the first 9 months, a 6% increase on a per share basis. DSO was 34 days, while ITO was 4.2x. As mentioned, we completed several smaller acquisitions that add to our North American distribution footprint, add new service capabilities and expand on our life science equipment offering. Overall, we paid approximately $75 million related to these acquisitions and may pay contingent consideration up to $31 million in the future. Going forward, they will approximate 1% of our sales and are modestly accretive to adjusted EPS. Let me now turn to our guidance for the fourth quarter and our initial thoughts on next year. As you review our guidance, please keep in mind the following factors. First, our guidance assumes U.S. import tariffs as well as the impact of retaliatory tariffs from other countries will remain in effect at recently announced levels. Trade disputes are dynamic, and there's a potential for new tariffs or retaliatory tariffs that we have not factored into our guidance. Second, while our third quarter results were better than expected, market conditions remain challenging with continued uncertainty related to trade disputes, governmental policies and geopolitical tensions. Our forecast does not assume a significant improvement in market conditions over the coming year. Third, we have continued to make important investments in our business to capitalize on our customers' investments in automation, digitalization and nearshoring. We believe this will position us to very effectively capture these opportunities over the coming years. And finally, please keep in mind that our third-party logistics provider delays negatively impacted our Q4 2023 results by $58 million, nearly all of which was recovered in our Q1 2024 results. For the full year 2025, this reduces our sales growth by 1.5% and is a headwind to operating margin expansion of approximately 60 basis points and a headwind to adjusted EPS of approximately 4%. Now turning to our guidance. For the fourth quarter of 2025, we expect local currency sales to grow approximately 3% Operating margin is expected to decrease approximately 200 basis points or down 130 basis points on a currency-neutral basis at the midpoint of our range due to higher tariff costs. We expect adjusted EPS to be in the range of $12.68 to $12.88, a growth rate of 2% to 4%. Included within the EPS guidance is a gross headwind of approximately 7% from higher tariff costs. Currency for the quarter at recent spot rates would be a benefit to the fourth quarter sales by approximately 2.5% and would be neutral to adjusted EPS. For the full year 2025, our local currency sales growth forecast is approximately 2% or up 3.5%, excluding the shipping delays. Adjusted EPS is forecast to be in the range of $42.05 to $42.25, which represents a growth rate of 2% to 3% or 6% to 7%, excluding the impact of prior year shipping delays. Adjusted EPS also includes a gross headwind of approximately 5% from higher tariff costs. We have also provided our initial guidance for 2026. And based on our assessment of market conditions today, we would expect local currency sales to increase approximately 4%. Adjusted EPS is forecast to be in the range of $45.35 to $46, which represents a growth rate of 8% to 9%. At recent spot rates, foreign exchange is estimated to be a 1% benefit to sales and a slight headwind to EPS. Lastly, I would like to share a few other details on our 2026 guidance to help you as you update your models. We expect total amortization, including purchased intangible amortization, to be approximately $77 million. Purchased intangible amortization is excluded from adjusted EPS and is estimated at $26 million on a pretax basis or approximately $1 per share. Interest expense is forecast at $72 million, while other income is estimated at approximately $12 million. We expect our tax rate before discrete items will remain at 19% in 2026. Free cash flow is expected to be approximately $865 million in 2025 and $900 million in 2026. As mentioned earlier, we have recently completed several small acquisitions that approximate $75 million of consideration in 2025 and have adjusted our share repurchase program accordingly. Share repurchases are now expected to be $800 million for the full year 2025 and share repurchases in 2026 are expected to be in the range of $825 million to $875 million. Our capital allocation philosophy is unchanged, and you will see us continue to use our free cash flow primarily for share repurchases and small bolt-on acquisitions. Our Board has also authorized an additional $2.75 billion to be added to our share repurchase program, which had $1.1 billion remaining at the end of the third quarter. That's it from my side, and I'll now turn it back to Patrick. Patrick Kaltenbach: Thanks, Shawn. Let me start with some comments on our operating businesses, starting with Lab, which had good growth in the quarter. We saw growth from pharma and biopharma customers with strong results in bioprocessing. These results were offset in part by softer demand from academia, biotech and the chemical sectors. We are optimistic that some of the market uncertainty could ease in 2026, but we have also not assumed a significant recovery next year. Amid the challenging market backdrop, Lab has benefited from the many innovations we have introduced into the market. Most recently, we have launched the NineFocus pH Meter, our new high-performance multiparameter benchtop meter for pH, conductivity, iron concentration and dissolved oxygen measurements. When use of our broad offering of digital sensors, NineFocus provides consistent, accurate results that support regulatory compliance with automating data transfer to our LabX software. Our instrument can also be paired with our InMotion autosampler automation solution that allows users to calibrate, verify and measure over 300 samples fully automatically. Turning to our Industrial business. Growth in our core industrial business was very strong this quarter, especially in the Americas, although it benefited from easy multiyear growth comparisons and favorable timing of customer activity. Global market conditions for industrials are soft, and our sales are expected to grow low single digits in the fourth quarter. Looking ahead, our Industrial business is well positioned to benefit from increased replacement demand as market conditions improve, and it is also poised to benefit from near-shoring investments over the coming years. Turning to Product Inspection. Sales growth was very strong again this quarter despite challenging market conditions in food manufacturing industry. Our unique go-to-market approaches and innovative portfolio are supporting market share gains, and we look forward to continued growth over the coming year. Lastly, Food Retail sales grew 5% against easy year ago comparisons. Now let me make some additional comments by geography, starting in the Americas, which had good growth across most of the portfolio, especially with our Industrial Solutions. Growth in our laboratory business was good and included strong bioprocessing growth. Turning to Europe. Our results were very good this quarter and better than we had expected. Our Industrial business delivered very strong results, while Lab had more modest growth. Finally, Asia and the Rest of the World grew modestly and was slightly better than expected. Our business in China also grew modestly in the quarter and included growth in our industrial business for the first time in over 2 years. Our team has remained highly agile and successful in identifying opportunities in China. And while we are monitoring efforts by the central government to reduce excess capacity across certain industry, we believe we are well positioned to continue to capture growth as conditions improve and should also benefit from trends such as the latest China Pharmacopoeia update. In summary, we are very pleased with the strong execution from our team that has allowed us to deliver very good results. I recently came off our annual budget tour and met with senior leaders across the globe, and I'm inspired by the excellent progress our teams are making on our initiatives. Throughout 2025, our team's resilience and agility have been important differentiators that have allowed us to successfully navigate very challenging market conditions. Our high-performance culture is a hallmark of our success and appears to shine the brightest during challenging times. Looking ahead, we are confident that our unique growth initiatives and focus on operational excellence will provide tangible benefits over the coming year. We continue to invest in global market trends around automation, digitalization, near-shoring and hot segments and believe we are well positioned to capture growth around the world. Our team's passion to pursue these opportunities is inspiring, and we have several initiatives that further strengthen our capabilities to serve customers as we also benefit from our significant digitalization investments over the past several years. Innovation is essential to our success, and we continue to advance the digital capabilities of our products, services and software to provide additional insights and productivity improvements to our customers with many examples throughout their value chain. Spinnaker 6 has strong traction, and our global teams are actively deploying new digital solutions to further increase our effectiveness and improve our customers' digital experience. We are also further increasing our ability to identify growth opportunities via our Spinnaker program and Top K initiative. And we are enhancing the capabilities of our sales force to leverage AI to further optimize our pipeline management. Service also remains a significant growth opportunity given our large installed base of instruments, and we continue to invest and leverage sophisticated analytics to identify and capture these opportunities. Internal productivity improvements from digital tools and automation also continue to be exciting opportunities. This is especially effective as MT as we operate from a single instance of our ERP and CRM systems that are fully integrated under the Blue Ocean program. Blue Ocean provides globally harmonized processes with extremely rich data that is essential to effective digitalization. While conditions in China have been challenging over the past couple of years, our emerging markets outside of China have continued to grow and in total, are now larger than China. We see significant growth potential in these markets and expect to benefit from our strong market organizations around the world. Now let me share some additional insights into our outlook for 2026. As mentioned earlier, we forecast our growth next year to be in the range of 4%, which assumes market conditions do not significantly improve from current levels. We continue to face uncertainty in the global economy with trade disputes, U.S. governmental policies and geopolitical tensions. However, we expect conditions to gradually improve and replacement cycles will gain momentum again. While we continue to see short-term uncertainty in our end markets, we believe we are very well positioned to continue to gain market share with our broad portfolio of new innovations. We have also recently launched new initiatives to ensure resources are effectively focused and reallocated towards the most promising growth opportunities. I am very proud of the resiliency and strong execution from our global supply chain organization as we navigated new challenges with trade tariffs. Our team has been very agile and effective in implementing our supply chain optimization strategies. Our focus is to strengthen and evolve our in-region, for-region manufacturing capabilities to increase flexibility and resiliency, and we continue to expect to fully offset incremental tariffs cost in 2026. And lastly, as Shawn mentioned earlier, we also recently completed several small acquisitions that broaden our distribution and service capabilities and also expand our life science equipment portfolio. While these acquisitions are small and will add less than 1% to our sales growth in 2026, they add new products and services to our portfolio and increase our sales capabilities. We are very happy to welcome our new colleagues to our team. This concludes our prepared remarks. Operator, I would like now to open the line to questions. Operator: [Operator Instructions] And our first question comes from the line of Luke Sergott with Barclays. Luke Sergott: I wanted to start talking -- start off with the guide for '26. Can you just kind of give us a breakdown of how you're looking at that by segment, particularly around the industrial side and what you're seeing there from PID and core industrial? Shawn Vadala: Yes. Luke, this is Shawn. I'll take that one. So for 2026, we're looking at low to mid-single-digit growth in our laboratory business. Of course, we'd probably expect to do better than the average on our process analytics. We saw really good momentum in bioprocessing in the quarter that we expect to kind of continue into next year. Maybe the other side of that is that the early research area like where we participate like liquid handling will be a little bit softer. In the industrial business, we're estimating core industrial to be low to mid-single digit and product inspection to also be low to mid-single digit. Both of them will have like a modest benefit from some of these smaller acquisitions that we talked about. And then retail would be -- we estimate it to be flat for next year. And then if you break it down by geography, we're assuming the Americas at mid-single digit with low single-digit growth in Europe and China. Luke Sergott: Great. And then as I think about the overall consumer market and some of the more consumer-facing segments like PID and what you're seeing there as the consumer starts getting weaker, how is that kind of playing out when you're thinking about baked into that guide and how the pacing has been through the quarter and into 4Q? Shawn Vadala: Yes. I mean we've been really pleased with the results in that business this year. I mean if you think about the end market, the end market still is challenging. I mean 70% of that business is sold into food manufacturing. But the dynamic we've seen is that we've invested a lot in innovation over the last few years, and we've really been able to build out our portfolio, particularly targeted towards the middle market. And we find that to be a sweeter spot in terms of where there's growth opportunities as well. And so when we step back from that, our teams are executing really well and the recent product innovations are being very well received in the marketplace. And Patrick and I just came out of our annual tour that he talked about in his prepared remarks, and we also spent time with the our executives and the Board this week. And as we just look at the pipeline of -- for the future in that business as well as our other businesses, we feel really good about what we have coming out in the future as well, too. So I feel like we're competing very well. But you're right, the backdrop is still more challenging market conditions. Operator: And your next question comes from the line of Vijay Kumar with Evercore ISI. Vijay Kumar: Congrats on a really nice sprint here. Maybe back off of Luke's question on fiscal '26. I think, Patrick, you mentioned macro you're not assuming any change from current environment. When I look at your back half of '25, you're averaging 4.5%. So that 4% for '26 seems a step down from back half. What changes in how you think of price versus volume? Patrick Kaltenbach: Yes, I'll start and let also Shawn chime in there. Look, Vijay, when you look at how we guided for 2026, we said we don't expect any significant change to what we're seeing today. The market situation is still quite uncertain out there with global trade politics and tariffs in place, which leads to a lot of customer uncertainty. And that led us to really guide to the 4% for 2026. We think it is a very prudent guidance in this environment. And well, there could be some upside, of course, I mean, again, if the market uncertainties become less, if the customer confidence increases, as we also mentioned in our remarks that we think there's a good opportunity in our replacement business. We have seen probably now 2 years of subdued replacement business that hopefully will come into play once customers' confidence comes back. But in terms of the overall sequence in terms of the growth first half versus second half next year, Shawn, I don't think we have... Shawn Vadala: Yes. I mean the one thing to keep in mind, Vijay, is that we do have more pricing in the second half of this year than we'll have next year. We had about -- we benefited about 3.5% or so in the third quarter. on pricing. We expect to benefit by a similar amount in Q4. As we kind of go into next year, we're assuming about 2.5% for price realization for the full year. That includes some of the benefits from these midyear pricing actions to mitigate tariffs. But when you step back from that, the assumption on organic volume growth, it's going to be certainly -- it's going to be modest growth next year. And I think if you look at the back half of this year, yes, Q3 was a little bit better. Q4 is maybe kind of down a little bit, but I don't think it's a significant change in terms of how we're seeing things. And I think the reality is it's early, right? There's still a lot of uncertainty. Headlines are more favorable in the last few weeks. If that continues, we're optimistic that, that can help increase the stability and confidence within our end markets. But we're just a little bit cautious given all the volatility we've seen with our -- and the pressures on some of our core end markets over the past year. Vijay Kumar: That's helpful. And Shawn, maybe on margins for '26. I think your guide implies maybe modest operating margin expansion. Your tariff headwinds should abate quite meaningfully, but should we see a more -- a little bit more robust margin expansion? Shawn Vadala: Yes. One of the -- it's a good question because one of the dynamics we face is that the way currencies have evolved just over the past quarter, we have a lot more benefit on the sales side, but we have -- that's being offset by cost increase and the Swiss franc strengthening against the euro. And so even though it's not having a significant impact on EPS, it has a bigger impact on operating profit as a percentage of sales. And so when you kind of do that math, our operating margin expansion for next year is about plus 60 basis points on a currency-neutral basis. So it's not -- it's -- so I think it's a much better story than the reported number, which is probably in the 20 to 30 basis point kind of a level. And I do feel very good about execution in the organization, and I do feel good about our ability to mitigate these tariffs. Operator: And your next question comes from the line of Dan Arias with Stifel. Daniel Arias: Patrick, to what extent do you think onshoring demand can work itself into the picture for 2026 versus 2027 and beyond? You guys have some products that seem like it could be part of what's done earlier rather than later. But I also know you guys tend to not get too worked up about some of these high-level ideas in the earlier stages. So can you just maybe think a little bit about -- tell us a little bit about your thoughts on '26 there? Patrick Kaltenbach: Very good. Look, I think we are very well positioned as a global company to benefit from the homeshoring activities. There are big numbers out there, as you know, from pharma, from semiconductor and other places. And as you know, we -- about 50% of our sales are sold into production and plus QA/QC. So that's a big part of the portfolio as these companies will start reshoring or building out capacities in the United States and in Europe as well. Again, there have been large announcements, but it will take multiple years to build these new plants. So I think it will not have an immediate effect. It will be a gradual effect. We expect some of it in 2026, probably even more in 2027. But again, we make sure that we are ready to work with our customers. We're talking to all of our key accounts at the moment who have also made some of these statements. So if you think about the pharma companies that they will build out capacity in U.S., we are ready to help them with establishing their labs, their manufacturing floors, the QA, QC labs, et cetera, with our products. But this will be a multiyear journey. I mean if you think back even on the Semiconductor Act, how long that took until really we saw some momentum in the end market. I think the impact for 2026 will be moderate. But again, for us, it's important that we are very early for our customers to help them as they design the labs and the manufacturing floors that they get the latest of our innovation to help them to drive productivity and efficiency, which they are looking for together with all the digital capabilities that we have. Daniel Arias: Okay. That's helpful. And then, Shawn, maybe on the comments that you guys made on China, can you maybe just compare what you expect on the lab/biopharma side versus more of the industrial side? I'm trying to understand just the macro headwinds and what that might translate to for China for you guys next year. Shawn Vadala: Yes. I mean we're assuming low single-digit growth in both of those businesses. As Patrick mentioned in the prepared remarks, one of the upsides, I think we have on the lab side is the latest update of Pharmacopoeia in China, which I think is a nice opportunity. All the investments that are going on in country with GLP-1s is a really good example. And so we feel like there's medium to long term some upside here, but we're a little bit more cautious as we think about things today. And then on industrial, one of the one of the highlights of the third quarter was our industrial business. And within that, we had good -- we had good growth in each region, but it was nice to see growth in core industrial in China in the quarter. It's actually the first time we've had growth in that business in 2 years. And so when you think back to the beginning of the year and some of the things that were on our mind, that was a bigger -- an area where we would have like had placed more risk just given all the uncertainty with their economy. And it's nice to see that they had some growth. And I feel very good about our ability to continue to execute there. We kind of walked away from our visit there just 1.5 months ago, feeling optimistic and the team was really motivated and engaged. So it was good to see. Operator: And your next question comes from the line of Brandon Couillard with Wells Fargo. Brandon Couillard: Patrick, I mean, it's atypical for Mettler to do one deal, much less a handful of them. I'd love if you could just kind of elaborate on how this came about, some background on the assets and really what you think they add to the portfolio. Patrick Kaltenbach: Yes. Thank you, Brandon. Yes, of course, normally, we do not this amount of deals in one quarter, but to be honest, the deals also take a long preparation times. And we always look to expand our portfolio at new technology vectors or adjacencies that we don't own and also expand our distribution in this quarter, we acquired a few North American distribution partners that gave us additional sales and service capabilities including some new services. We also acquired the Genie Vortex mixers, which is a really strong brand and expands our life science equipment portfolio that complements, for example, our pipette business and the businesses, shakers and others that we sell through our house business. So it has been a good number of smaller acquisitions, not one big one, but the small acquisitions that we will continue to do in the future. And as Shawn mentioned before, the revenue contribution was less than 1% this quarter and about 1% through the first half of next year. Brandon Couillard: And then just one follow-up, Shawn, did you give the lab -- the China lab growth in the quarter? And what is embedded for '25 for China and those 2 segments specifically? Shawn Vadala: Yes. So for Q3, it was up low single digit. Let me just -- I'm sorry, let me just confirm that. Yes, it was up low single digit in Q3. And then for next year, we also expect it to be up low single digit as well. Operator: And your next question comes from the line of Patrick Donnelly with Citi. Patrick Donnelly: Maybe one just on the core industrial side, can you just talk about what you're seeing there, what the trends are, conversations with customers? Obviously, it's helpful to hear a little bit about the go forward on that front. I would love just to hear what the trends look like there and the visibility as you work your way forward on core industrial. Patrick Kaltenbach: Yes. Okay. I'm happy to take that. Look, I think we are performing extremely well with our innovative portfolio in a market that is still very challenging. As you know, most of the PMIs are still below 50. But we are benefiting from the demand for automation, digitalization, and this is where our innovative products play strong and it also helps us differentiate nicely from our competitors, including China. As Shawn mentioned, it was good to see that China came back to growth for the first time in 2 years. We think these soft market conditions probably will continue for some time, but we are very well positioned then in the future also from the onshoring investments in the future because those will demand a lot of digital capabilities and automation solutions that we have developed and that we either implement directly with end customers or through system integrators. So long story short, I think the market will continue to be challenging in many areas. It probably will benefit next year and the year after from the homeshoring activities. But for us, it's most important that, again, that we have a very competitive portfolio and continue to help our customers with their demand for automation and digitalization in a fully compliant environment and also with products that also have very strong capabilities when it comes to cybersecurity, which we spend a lot of activity as well. Patrick Donnelly: Okay. That's helpful. And then maybe one on the geography side. I think Europe flattish year-to-date. It seems like it's been improving a little bit. I think Shawn talked about low single digits next year. What are you guys seeing there? Has it been kind of steady improvement? Is it just comps? And again, the confidence level there going forward would be helpful. Patrick Kaltenbach: Yes. I'll go a little bit through the macro of Europe. Again, it's, I would say, a tale of many cities series. If you look at our -- how we see the end markets, I would say the Southern European markets actually are performing better than the northern at the moment or in the mid, I think -- the biggest stress in Europe, I would -- as you can imagine, is probably right now in Central Europe with a large economy in Germany that is under significant pressure still from higher energy costs, et cetera. You all hear the news about them also offshoring some of their manufacturing in other areas to try to address the cost issues. Nordics has performed well, but then we also had the news coming out of Denmark in the last quarter or so about Novo Nordisk going through some resizing there, and that puts that piece of the market under pressure right now. So it's really a mixed bag. But overall, we are pleased with our own performance in Europe. I think it's very important that we leverage our tools to be always guide our sales teams to the hot segments that we see there like bioprocessing. There's a lot of good activities in bioprocessing, for example, some of it in the new energy markets as well and also in pockets also in semiconductor again. I think really the story is here, yes, it's a more difficult environment. We see definitely better momentum right now in the U.S. and in Europe. But we're still very keen on capturing all the growth opportunities to compensate the macro trend that Europe is probably slower at the moment and probably will also be next year a bit slower than the U.S. Operator: And your next question comes from the line of Doug Schenkel with Wolfe Research. Douglas Schenkel: I'm going to try to just throw out 2 and then get back and just listen given I'm out of the office. So on the industrial side, lab came in, as we've talked about, pretty well above our model and your guidance at mid-single-digit organic growth. You talked a little bit about what you're seeing there, but I'm just wondering how much of this was driven by PA process analytics versus traditional lab equipment? And maybe more specifically, are you seeing increased demand for bioprocessing sensors as several large CDMOs start to build out brownfield plants in the U.S. And then that's on the lab side. On the industrial side, 9% organic growth is impressive. As I've talked about with you guys, I mean, some of this is a function of maybe the name industrial being a little bit of a misnomer given how the business has evolved. But that being said, still impressive. And last quarter, you said you had visibility into certain projects that would drive maybe a better than typical quarter. And I think this was even better than that. So long lined up to, does this start to normalize? Were there timing dynamics? Or is there some real momentum here? Shawn Vadala: Yes. Maybe I'll start here. So on the laboratory side, we were very pleased with the quarter. As you mentioned, certainly a highlight in the laboratory portfolio was process analytics. We saw really good growth on bioprocessing. This business also benefits from some of the investments that are being made to the power grid as you think about data centers as an opportunity in the future. But a lot of it was pretty much bioprocessing. And the power is like we have ultra-pure water solutions, et cetera, that help with power plants. On the rest of the business, we also saw some good growth, like, for example, within our analytical instrument portfolio, we were very pleased with growth in that business. If you look at weighing Solutions, also really good growth. The one soft spot that kind of we -- I think I alluded to earlier was in our liquid handling business. We still see a lot of softness in that business. And that business really is in the crosshairs of a lot of the topics out there regarding funding and research, whether it's with biotech, whether it's with academia, whether it's with currently the government shutdown. Now these are smaller exposures for Mettler-Toledo. But when you get into liquid handling, they tend to be a little bit bigger and they tend to feel, especially the consumable nature of that business. But we did have modest growth on the consumable side. It's really more on the instrument side where we saw softness. On the industrial side, we did have some good -- much better activity, as you mentioned, in the quarter than we expected. I think we were kind of walking into the quarter feeling pretty good. And then just a lot of things happened in different parts of the world that just all came together. As an example, we have some activity in our transportation and logistics business, which is selling -- it's part of how facilities are trying to automate their factories, and we have these solutions around dynamic dimensioning that's super effective, provides strong paybacks -- to our customers and a lot of that kind of caught on in the quarter. But it's not only that. If you look at the rest of the portfolio where we are facilitating customers' automation and digitalization needs, we saw some good trends there. We also saw good growth in each region of the world. But we also probably had in fairness, a little bit of an easier comp in Q3. If you look at it on a longer-term CAGR basis. And so that comp is maybe a little bit more difficult in the fourth quarter. And as we kind of listen to the organization and customers, just the timing of activity seems to have been a little bit more skewed towards Q3 versus Q4. We're actually a lot more cautious on our core industrial projection for the fourth quarter. We're probably looking at more like low single digit in the fourth quarter. So we do see a step down there quarter-on-quarter. But when you like look at the second half of the year and combined, we actually feel really good about how we're executing and how we're positioned going into next year. And I just think that the portfolio is doing well. It's being really well received globally. And we always talk about how this business is -- while it's exposed to the macro, it also has a lot of opportunity with all these onshoring needs. And as companies are onshoring, they're investing more in automation as well as digitalization, and we continue to invest in our portfolio to optimize these opportunities. Operator: And your next question comes from the line of Michael Ryskin with Bank of America. Michael Ryskin: Great. I want to follow just kind of what you were just touching on, on the 4Q moving pieces. I had a lot of questions on sort of comparing 3Q, 4Q. First of all, maybe you could just give us sort of the segment results. You gave us a little bit here in there, but I want to make sure we have all the numbers together. And then just anything on pull forward timing? What are you seeing for government shutdown? Just are there any other moving pieces you touched on the comp in core industrial just now, but we would love to flesh out the 3Q to 4Q dynamic? And then I've got a quick follow-up. Shawn Vadala: Yes. Mike, maybe I'll walk down the Q3 versus Q4, like you said, so everybody has that, and then I can make a couple of comments on it as well. So in Q3, lab was up 4%, and our guidance for Q4 is to be up low single digit. As we think about lab, we're a little bit more cautious here on budget flush going into the fourth quarter. I mean, last year, you recall, we actually had a pretty good budget flush. We're not such a budget flush company, but the reality is we do have seasonality in our business. And as we just sit here today, there seems to be a little bit more caution with some of the uncertainties out there around governmental policies. In terms of our core industrial business, as you know, it was up 11%. That was 10% organic. And our guidance for Q4 is up low single digit. We just talked about that. Product inspection was up 7% in Q3, and our expectation is that business grows high single digit in Q4. There's a little bit of -- there'll be a little bit of acquisition benefit in that number as well. And then retail actually had growth in the quarter, 5%. They've -- it's always a lumpy business. They've been on the other side of the lumpiness now for the last couple of years, but it was nice to see growth, and they're actually looking at good growth here in the fourth quarter of about 10%, but it's also against maybe softer comparisons. But that business is actually competing really well. There's some really neat examples of innovation in that business with some like imaging technologies, et cetera, and I think we're competing really well. In terms of the geographies, our business in the Americas grew 10% in Q3. If you exclude the acquisitions, it was 8%, and our guidance for Q4 is to grow mid-single digit. Europe was up 6% in constant currency in Q3, and our guidance is more flattish here. So we're definitely a little bit more cautious on Europe. I mean, as Patrick mentioned, we're executing well there. Europe tends to benefit the most from our Spinnaker programs just given the magnitude of our direct sales force with -- in terms of our go-to-market strategy, but the economy is a little bit more softer. And I think there's just more uncertainty with a lot of the different topics around trade disputes, et cetera, that have a potential impact on customer behavior. And then China was up 2% in Q3, and we're estimating it up low single digit in the fourth quarter. Michael Ryskin: Okay. That's all incredibly helpful, Shawn. For a follow-up, if I could just touch on tariffs in 2026. You said a couple of times you're going to fully offset. But just walk us through exactly what that means. Is that fully set over the course of the year, fully offset as of Jan 1? Is there like a net tariff impact on EPS next year that you could point to? Just walk us through sort of exactly how that's happening and the mechanics behind it. Shawn Vadala: Yes, yes. So I mean, we're extremely happy with the organizational's performance in this area. As Patrick said in the prepared remarks, our culture does tend to shine the brightest during challenging times, and I just couldn't be more proud of the colleagues in terms of how they've responded to these challenges over this past year. The journey towards offsetting these tariffs also didn't start in 2025. We had also -- coming out of COVID, like a lot of other companies, we wanted to create more flexibility in our global supply chain, and we also wanted to derisk our global supply chain. So we already had some things that we were working on and that we could accelerate over the past year. And then the other thing is that we also have the opportunity in pricing to mitigate. And I think that comes down to we've been investing a lot in innovation and the value proposition that we're providing to customers. And so fortunately, with strong value propositions, it gave us an opportunity to take a look at pricing in a few areas over the course of the past year. So as we kind of go into next year, I think we should be in pretty good shape at the beginning of the year in Q1. We'll provide more color on that at the end of this year. If you want to be a little conservative in your models, that's okay. But I think we'll probably be -- I think we should be in pretty good shape kind of as we start the year next year and certainly on a full year basis. In terms of what it means, which I can anticipate is a question out there. So tariffs right now are about -- if you look at the tariff rate increases that were put in place in 2025, we're probably looking at about a 6% headwind -- gross headwind on 2026 that we -- and that's the magnitude that we're talking about offsetting. Operator: And your next question comes from the line of Tycho Peterson with Jefferies. Jack Melick: This is Jack on for Tycho. Just wanted to double-click on China industrial for a minute. Did China's anti-involution campaign have an impact on the business over there? The macro data seemed to get worse intra-quarter, but it didn't seem like they were impacted much at all. So I would appreciate any additional granularity on the core industrial side and what you saw in terms of activity. Patrick Kaltenbach: Very good. Thanks, Jack. Look, China has struggled with overcapacity for some time now. And if you look at the anti-involution policy, I think it's mainly focused on trying to stop price wars and address overcapacities in areas like solar, steel and other areas. These are, for us, not really large markets. And as we exited the heavy industrial infrastructure-related markets over a decade ago, it doesn't mean that we are totally immune to this, but we are now more focused with our industrial portfolio on a broader market is really looking for automation capabilities, digitalization features. And that's why we also saw some growth in Q3, frankly. I think our portfolio competes really well in a market that is fighting also for continued increases in productivity, driving cost down, and you only can achieve that through automation and digitalization. I think our portfolio plays really strong there. We have a strong R&D and manufacturing organization in the market that really also understands the local dynamics and the needs of our customers. So I think we are set up well to capture these opportunities. And with that, again, we think we will continue also in China to perform -- to outperform the underlying market dynamics with our strong portfolio. So again, anti-involution for us, probably not as big as a topic as you would think because we are not playing in these market segments that are under most pressure or most focused by the government. And the rest of the market still is looking for the portfolio opportunities that we can deliver to them. Jack Melick: Okay. Great. That's really helpful context. I guess, second, you talked a bit about onshoring in the call. Curious how conversations there, particularly among pharma customers have evolved in the past 45 days or so with commentary getting better around MFN and other issues sort of clearing up. Patrick Kaltenbach: Yes. I don't want to repeat myself. But again, there's a lot of big announcements out there, but we are in the very, very early innings with that. I mean it still will take time to build these manufacturing sites and build the labs, et cetera. Most important for us, as I said, is to really be with the customers in the planning phase to help them to implement the right solutions to not only replicate of what they have seen in other places or have in other places as they try to onshore it, but really go to the next step in terms of automation, digitalization. Operator: And your next question comes from the line of Josh Waldman with Cleveland Research. Joshua Waldman: Patrick, a follow-up on the bioprocessing side. I'm curious where all you're seeing the impact of stronger demand across the portfolio? And I guess, any sense on durability into Q4 and '26? Did it seem like volumes strengthened throughout the quarter? And then I guess on the portfolio exposure piece, I believe you have bioreactor equipment exposure within core industrial. Were there any signs of strength there? Patrick Kaltenbach: Yes. Very good questions, Josh. And yes, you're absolutely right. We see this across the portfolio. Bioprocessing is a strong segment for us, of course, especially for the process analytics piece. But as you think about the entire value chain of these customers when it comes to QA, QC solutions, where our lab products play well or in the Industrial Solutions that tank scale weighing, et cetera, play a big role, we will definitely continue to benefit from the strong momentum in this market. We actually, we anticipate this to continue into 2026 as well. This is a market that shows strong momentum and also we have very strong engagement of our sales teams with the customers in this space. Joshua Waldman: Did you see strength in the tanks and weighing side as well? Or was it more on the consumable side here in the third quarter? Patrick Kaltenbach: Yes, we saw it in both. I mean, probably more on -- a bit more on the bioprocessing sensor side, but also, again, really good customer engagement and also are building momentum on the tanks going, et cetera. As these customers will build out their manufacturing capacities or do green home shoring, again, they will look at us to help them to put in the newest and most effective solutions. Joshua Waldman: Got it. Okay. And then as a follow-up, I was curious if you could talk through what you're seeing on the service side, maybe how service performed versus expectations, your thoughts going into '26. And then if there's been any update on attach rates or change in strategy to drive better attach rates would be helpful. Patrick Kaltenbach: Good. Yes, actually, we are very happy with the 8% service growth that we have seen in the quarter, including about -- that includes about 1% through the acquisitions we made. Service is really strong. We have also a great growth initiative in the company to build out not only our service portfolio, but also the coverage in the markets. We continue to target mid- to high single-digit growth in both 2025 and 2026. And we are really confident that the long-term growth will be above the company average for services. And that's actually, again, a segment that will -- that I'm also putting a lot of energy as a CEO, help making sure that we really capture the full opportunity out there. And we have great programs in place, and I'm looking forward to continued growth there. Operator: And your next question comes from the line of Catherine Schulte with Baird. Joshua Montpas: This is Josh on for Catherine. I just wanted to unpack a little bit. Have you seen any change in sentiment from pharma customers since some of these MFM deals? I'm just wondering what those have kind of looked like since some of these announcements have been rolling out. Patrick Kaltenbach: I'll take this question. Look, I think that the most favored nation discussion has been out there. I think it probably created some initial uncertainty of what that means. But overall, the Pharma segment performed for us really well. I think the customers are really now looking forward how they address the reshoring, home shoring opportunities for them, also what they have -- the commitments they have made to U.S. government, and they also see the underlying demand for biopharmaceuticals and others. I think the uncertainty, there's still some uncertainty there, but it's not around the most favorite topics, at least when we talk to our customers, that is not the first topic that comes up. They are really looking forward to optimize their processes to drive efficiencies and also as they continue to expand their manufacturing sites that they can work with us on implementing the best efficient and most profitable solutions for them. Joshua Montpas: Great. And then you talked through the replacement cycle opportunity here maybe starting to ramp up a little bit. Just wondering if any of this is baked in the 2026 guidance? And how should we think about the impact here longer term? Patrick Kaltenbach: Yes. Well, look, I mean, I would have to give you a glass wall to really see what's going to happen. What we do know is that we have 2 years of a little bit subdued replacement business. We also see our installed base aging a bit more, but I cannot really tell you when the customers are ready to pull the trigger and replace the equipment. I think it's upside potential, but we have not factored that fully into our 2026 guidance. Operator: And your next question comes from the line of Casey Woodring with JPMorgan. Casey Woodring: Maybe the first one, you mentioned that you were in China recently. Just what's the latest there on the ground in terms of potential stimulus and what that could mean for 2026? Shawn Vadala: Yes. Casey, maybe I'll take that one. So we had a really great visit with the Chinese colleagues. As you can imagine, it's a pretty dynamic environment, but what's interesting is to see how the pace of change there and just -- and our teams like their effectiveness in terms of like really being agile in the marketplace really stood out to us. It's a very fast-moving market, and it's really exciting to see how, like I said, agile our teams in terms are identifying and pursuing those opportunities. In terms of stimulus, as we've kind of talked about in the past, it's not so much of a topic for us. I mean, yes, there's maybe a little bit of benefit. Our teams do go after that. But if you just think about the nature of our portfolio and our customers in China, it doesn't lend itself as much to the current program for stimulus. Now when we start talking about broader programs about fiscal stimulus with bigger packages, we've benefited a lot from those in the past, but the current program is a little bit more isolated in terms of opportunity. Casey Woodring: Got it. That's helpful. And then maybe if you could just unpack the product inspection performance, that 7% growth number in the quarter. I understand the comp dynamic you mentioned earlier. But in the past, you've talked about the sort of strategy shift towards focusing on the midrange market there that's really driving growth. So just curious if that's a tailwind that you're assuming extends into 2026 and the sustainability there. Shawn Vadala: Yes. I mean, like I said earlier, we feel very good about the performance here. We feel really good about the portfolio. We have come out with new products over the last few years. And the nice thing is that the cadence of product introductions will continue, and we'll start -- we'll continue to see some nice things coming out over the course of next year as well to help. And I feel like that's what gives us a little bit of confidence in our ability to sustain here. Now it's, of course, against a more challenging backdrop, but we do have good momentum. And I think there's even some synergy opportunities with some of these acquisitions as well. One of them, in particular, has like some additional services that we didn't provide in the past and that we feel like is an opportunity that we can leverage. Operator: There's no further questions at this time. I will now turn the call back over to Adam for closing remarks. Adam? Adam Uhlman: Okay. Great. Thanks, Mark, and thanks, everybody, for joining our call today. If you have any follow-up questions, feel free to reach out to me. I hope you all have a great weekend, and we'll talk to you soon. Thank you. Operator: That concludes today's call. You may now disconnect.
Operator: Good morning, and welcome to Fluor's Third Quarter 2025 Earnings Conference Call. Today's call is being recorded. [Operator Instructions] A replay of today's conference call will be available at approximately 10:30 a.m. Eastern Time today, accessible on Fluor's website at investor.fluor.com. The web replay will be available for 30 days. A telephone replay will also be available for 7 days through a registration link, also accessible on Fluor's website at investor.fluor.com. At this time, for opening remarks, I would like to turn the call over to Jason Landkamer, Vice President, Investor Relations. Please go ahead, Mr. Landkamer. Jason Landkamer: Thanks, Ian. Good morning, everyone, and welcome to Fluor's 2025 Third Quarter Earnings Call. Jim Breuer, Fluor's Chief Executive Officer; and John Regan, Fluor's Chief Financial Officer, are both with us today. Fluor issued its third quarter earnings release earlier this morning, and a slide presentation is posted on our website that we will reference while making prepared remarks. Before getting started, I would like to refer you to our safe harbor note regarding forward-looking statements, which are summarized on Slide 2. During today's presentation, we will be making forward-looking statements which reflect our current analysis of existing trends and information. There is an inherent risk that actual results and experience could differ materially. You can find a discussion of our risk factors, which could potentially contribute to such differences in our 2024 Form 10-K and our Form 10-Q, which was filed earlier today. During the call, we will discuss certain non-GAAP financial measures. Reconciliations of these amounts to the comparable GAAP measures are reflected in our earnings release and posted in the Investor Relations section of our website at investor.fluor.com. With that, I'll now turn the call over to Jim Breuer, Fluor's CEO. Jim? James Breuer: Thank you, Jason, and good morning, everyone. Thank you for joining us today. To start, I'd like to comment on our very successful long-term investment in NuScale. I'm pleased to say that we've reached a major milestone with this investment since we pivoted earlier this year away from a strategic investor to a market-focused solution. Working with NuScale's management and Board, we announced yesterday the conversion of our remaining investment into Class A shares. We will begin monetizing these shares in an orderly way starting next week and expect to complete this process in the second quarter of 2026. This accomplishment is a result of negotiations with NuScale over the past several quarters. Our monetization plan ensures we can have line of sight to deliver the significant value of this investment to Fluor shareholders while also considering NuScale's own capital raising needs. John will provide details about Fluor's capital allocation plans in a moment. Furthermore, this milestone accelerates our broader strategic journey, where we have moved successfully to an asset-light model with a majority reimbursable backlog, creating a strong foundation to fuel long-term growth. Now let's turn to our operating review beginning on Slide 4. Revenue for the third quarter was $3.4 billion, which includes a $653 million revenue reversal in Energy Solutions related to the Santos litigation. Consolidated new awards for the third quarter were $3.3 billion and 99% reimbursable. In addition to these awards, we recognized nearly $800 million in positive backlog adjustments, which keeps our total backlog around $28 billion, of which 82% is reimbursable. Moving to our business segments. Please turn to Slide 6. Urban Solutions reported profit of $61 million in the third quarter. Results in this segment reflect a ramp-up of recently awarded projects in ATLS and in Mining & Metals. New awards for the quarter totaled $1.8 billion, a significant increase from $828 million in the same period last year. Awards for the quarter included incremental bookings for 2 projects, a copper mining project in Canada and a life sciences project in the United States. We were also awarded a front-end engineering and design services contract for MP Materials as they build a new rare earth magnet manufacturing facility in Texas. These awards reflect our exposure to growth markets and highlight our leadership in professional and technical solutions supported by our global engineering and construction expertise. Ending backlog now at $20.5 billion represents 73% of Fluor's total backlog. Now please turn to Slide 7. In Infrastructure, we continue to make solid progress on the 4 remaining loss projects. At Gordie Howe, we anticipate completing all construction required to open for traffic in Q4 or early next year. On the LAX People Mover, construction activities will be largely complete and positioned for operation in early '26. The 635/LBJ project will reach substantial completion in Q2 of 2026. And on the I-35E Phase 2 project, most of the major construction activities will be nearing completion in late '26. On many of these projects, we continue to pursue cost recoveries and change orders from clients and subcontractors. While we ultimately expect to be successful in these recoveries, in many cases, these efforts materialize on an extended time line. One proof point for this is a favorable negotiation result in the third quarter on an infrastructure project that we completed in 2019. Please turn to Slide 8. For the next few quarters, we remain very excited about the opportunities in the Urban Solutions space. In Mining & Metals, we continue to engage clients developing copper, rare earth and critical minerals as well as aluminum and green steel. In Life Sciences, we anticipate a Q4 award for a pharmaceutical facility with a new client. In Data Centers, we're looking to translate our success in India and in Europe to North America. While many clients are asking for terms and conditions that don't align with our pursuit principles, we are confident in the value that we provide for the more complex programs, including hyperscalers. Moving to Energy Solutions. Please turn to Slide 9. For the quarter, Energy Solutions reported a segment loss of $533 million compared to a profit of $50 million a year ago. Results reflect a $653 million court ruling that we had previously announced in August. This was on the long completed reimbursable Santos project in Australia. John will provide further details in his comments. New awards in energy for the quarter totaled $222 million, mostly in services. If you recall last quarter, we rebaselined our full year expectations for our joint venture in Mexico and slowed down our execution activities pending payment from a client. I am pleased to report that the client has made significant payments during the quarter and again in October. This enabled us to begin a controlled ramp-up of our execution activities. Turning to Slide 10. Last week at LNG Canada, we achieved RFSU on Train 2, and all systems have been handed over to the client. Our team is now focused on the remaining punch list items. This marks our final progress update. I want to congratulate the entire team and all workers for their dedication and hard work. This project will be remembered as one of the largest and most complex projects in Fluor's history, and its success is a testament to our global capabilities even in remote or difficult locations. Our work with the client continues as we update the fee package and estimate for a potential Phase 2 expansion. Please turn to Slide 11. Trade and policy uncertainty, oversupply of chemicals and defunding of energy transition have caused delays in our clients' FIDs and have impacted 2025 new awards. We're staying close to our clients by performing front-end work and remain encouraged by their commitment to traditional oil and gas. Most new awards in 2026 will be weighted towards the second half of the year. Now with regards to growth opportunities, we're accelerating our efforts in the power market given the increased need for power generation. Currently, we're active on the RoPower and Cernavoda projects in Romania. We're also executing a gas-fueled power plant in Indonesia and pursuing a number of opportunities in the U.S. and internationally, particularly where we have an operational footprint. We're also tracking short-term midsized opportunities in chemicals and in upstream. Moving on to Slide 12. Mission Solutions reported a segment profit of $34 million for the third quarter compared to $45 million a year ago. During the quarter, Mission Solutions continued to deliver solid performance across its portfolio of projects. However, third quarter results reflect allowances for certain questioned and disputed costs on a defense support project. This was mostly offset by additional revenue recognized in connection with a favorable judgment on a long competed weapons project. New awards totaled $1.3 billion compared to $274 million a year ago. This includes a $1.1 billion 6-year contract for the DOE, which extends our presence on the Portsmouth project in Ohio. We also received a final extension for work at the Strategic Petroleum Reserve, and we're also awarded a position under a contract for the Defense Threat Reduction Agency. This award provides the opportunity to compete for task orders with a combined value of up to $3.5 billion over 10 years. On our project at Tinian Island, the stop work order has lifted, and we are ramping up operations. As we look ahead to the fourth quarter and the first part of 2026, prospects include work on a strategic range services contract for the Air Force, additional work to support the intelligence community, and work for the National Cancer Institute. We also anticipate hearing on a small but strategic AUKUS-related award with our partner in Australia. On the nuclear enrichment front, Fluor is well positioned on 4 prospects. We anticipate that over the next 2 quarters, DOE will announce grant awards to allow our clients to effectively move forward. The above opportunities in Fluor's current portfolio of projects could shift based on any further impacts related to the government shutdown. Before I turn the call over to John, I want to provide an update on the business environment and how that aligns with our 4-year strategic plan. Please turn to Slide 13. During our strategic update in April, we set clear targets for the management team to achieve throughout the grow and execute phase of our strategy. So far, in 2025, we have strengthened financial discipline, making significant progress in maintaining a robust capital structure while returning substantial capital to shareholders. This has been supported by our core business performance and will be enhanced by the monetization of NuScale. We have continued to pursue fair and balanced contract terms with a majority reimbursable backlog. And when we take on fixed price projects, we do so in areas where we have a distinct competitive advantage and without overburdening our backlog mix. And we have remained focused on project delivery, consistently executing at or above the as-sold gross margin. Now while we're pleased with our strategic progress, external factors resulted in award delays, which means that our backlog remains level at $28 billion. These delays have put pressure on our EBITDA growth rates. We still anticipate approaching $90 billion in new awards over the 4-year planning cycle ending in 2028. But most of these awards will be concentrated in 2026 to 2028, with EBIT from these contracts coming in, in 2027 to 2029. Based on our current discussions with clients, these deferrals and cancellations are causing a roughly 4-quarter shift in EBIT delivery. To mitigate this, we've accelerated our plans to lean into markets where we can capture opportunities on the short to medium term. This includes deploying additional teams into mining and metals, power, advanced technologies and LNG. As a leading EPC firm, we are one of the few with high-demand capabilities that include project execution leadership, complex engineering acumen, robust supply chain and construction expertise. We can deliver projects that support global GDP growth and are confident in our ability to win work that meets our pursuit criteria. We see tremendous potential in our end markets and with an asset-light model, and a flexible workforce, we intend to take advantage of our ability to pivot our key execution resources across the organization into areas where we have a clear and distinct advantage. With that, let me now turn the call over to John for the financial update. John? John Regan: Thanks, Jim, and good morning, everyone. Today, I'll be going over third quarter results and sharing our view on financial guidance for the full year, plus details on our ongoing capital allocation plan. Please turn to Slide 15. Our GAAP results notably reflect 4 items: one, the $653 million charge related to Santos, which because it's customer related, was recorded as a reduction to revenue in establishing the liability. Two, a $400 million mark-to-market loss related to our investment in NuScale, but with a related tax benefit of $230 million. More on the tax effects later. Three, a net charge of $13 million for additional infrastructure items. And four, anomalous tax outcomes wherein the Santos charge was not tax benefited, but the NuScale conversion yielded $125 million release of valuation allowances with no corresponding book income. For Q3, our 10-Q reflects a consolidated segment loss of $439 million, impacted by many of those same enumerated items. When you remove the effects of the charge for Santos, results for the quarter trended well above our expectations. Adjusted EBITDA for Q3 was $161 million compared to $124 million a year ago. Our adjusted EPS of $0.68 compares to $0.51 in 2024. Adjusted results exclude the mark-to-market effect of our investment in NuScale, the charge for the Santos legal ruling, customary FX impacts, and notably, for this quarter, the favorable judgments and settlements on 2 long completed projects. G&A for the quarter was $43 million, up from $37 million reported a year ago. Results actually reflected a reduction of G&A year-over-year when you set aside $12 million in restructuring costs included in the '25 figures. Some of that is the result of our share price reducing from $52 to $41 during the quarter and the related impact on stock-based comp. Net interest income in Q3 was slightly lower than last quarter at $13 million and compares to $37 million a year ago. This reduction results from less cash on hand at a large JV project nearing handover and to a lesser extent, by lower prevailing interest rates. Moving to Slide 16. As Jim mentioned, we've seen market improvement from last quarter in Mexico, where we scaled down execution activities for much of Q2 in the face of liquidity constraints related to unpaid AR. Since then, we've seen significant cash receipts, including JV level collections of $800 million in Q3 plus $300 million more in October. On a consolidated basis, we ended the quarter with $2.8 billion of cash and marketable securities, up $0.5 billion from June 30. This included over $400 million in net proceeds from NuScale shares sold during the quarter. Not reflected in our Q3 numbers were an additional $190 million in NuScale proceeds from October. This initial 15 million share conversion and sale created no meaningful cash tax liability due to the tax attributes we've talked about over the last several quarters. After this conversion, we have consumed most but not all of the attributes that we began the quarter with. That means the upcoming conversion will have the same but not complete tax shielding. As guided, operating cash flow for the quarter was strong at $286 million. This was driven by reduced working capital on several large projects as well as distributions from a large Energy Solutions joint venture. Because our JV in Mexico is recognized under the equity method, the robust collections there have not yet impacted our balance sheet cash or our operating cash flow results. For the fourth quarter, we expect to send payment to Santos to enable the appeal process as is customary in Australia. The estimated payment will include several items, which we can only currently estimate, including contributions from our insurance providers, interest on the ruling and legal fees. We continue to make progress with our carriers regarding their financial support for both the appeal payment and for the legal costs associated with the appeal. We'll update the markets once we finalize this and remit the funds. As an update on our legacy projects, in Q3, we provided $73 million in funding, half of which came through operating cash flow and with the remainder reflected as an investing activity. For the fourth quarter, we expect legacy funding to be in the $70 million range, 20% coming from operating cash flow. And for 2026, we anticipate around $140 million with 50% of that coming from operating cash flow. I'd also like to point out that projects in the loss position represented $642 million of our total backlog, down $200 million from last quarter, reflecting our continued march to completion for these projects. Please turn to Slide 17. On the capital allocation front, we bought back 1.4 million shares in Q3, spending $70 million to do so. Since last December, we've cut our outstandings by over 11 million shares. We modified the pace of the repo in Q3 when we believed the judgment on the Santos case could occur imminently and in our desire to preserve capital for that potential event. Last quarter, we lowered our full share repurchase plan in consideration of our concerns around operating cash flow. Since then, cash flow generation has improved, and we have monetized the initial conversion of SMR. We now see a path to target an additional $800 million in repurchases through the end of February. That would put us on pace for total share repurchases of $1.3 billion over the 15-month period beginning December 2024. We see this $800 million as a great addition to our existing repurchase program and expect to announce additional capital allocation programs next year with the clarity of the proceeds from the upcoming conversion. Moreover, this deployment should be a clear signal of the confidence we have in our strategy and the operating ability we have to execute against it. Regarding our NuScale investment, I want to reiterate that our conversion happens in November and funds from the sale of these shares are partially tax shielded. Monetization should begin next week. Moving to Slide 18 and the outlook. Based on the results from this quarter, we are increasing our '25 adjusted EBITDA guidance to $510 million to $540 million, and our adjusted EPS guidance to $2.10 to $2.25. Our guidance, like many of our competitors, does assume that the government shutdown ends relatively soon. Our expectations for operating cash flow increased, and we now expect $250 million to $300 million generated for the full year, excluding the anticipated payment to Santos. Key assumptions and expectations for Cal '25 are shown on the slide, but include a new awards outlook of $13 billion and revenue roughly flat with 2024 when excluding the Santos effect. Our expectations for segment margins in Cal '25 are approximately 2.5% for Urban Solutions, approximately 6% for Energy Solutions, when excluding the Santos effect, and approximately 4.5% for Mission Solutions. With respect to income taxes, in Q4, we hope to find a better outcome on deductibility for the Santos ruling. Moreover, we note that our income tax rate for the balance of 2025 will hinge significantly on the taxes arising from the conversion of our NuScale shares later this week. We generally expect to fully utilize the remaining tax attributes to shield some of that step-up. We, of course, would have tax effects for the gain or loss on sale that could arise after conversion. While we are not prepared to give detailed guidance for 2026, I do want to echo Jim's comments that the ongoing market conditions have had a meaningful impact on our ability to capture new awards and earnings in the short to medium term. Early indications would suggest EBITDA generation will be marginally better than our guide for full year 2025. In February, we'll provide more perspective for full year 2026 after we finalize the operating plan. And with that, Ian, we're now ready to field our first question. Operator: [Operator Instructions] Our first question comes from the line of Jamie Cook with Truist Securities. Jamie Cook: Congratulations on NuScale. I know it's been a long time coming. Anyway, I guess just my first comment, John, you talked about 2026, and 2026 being EBITDA being marginally better than 2025. That even could be aggressive just given what you're saying about bookings in ES being more back-end loaded in 2026. So can you just help me understand what the puts and takes are? Is it just less noise related to the problem projects? Is it Mexico, like stuff that was deferred into 2025 goes into 2026? Just trying to understand your thoughts there. And it sounds like flat to up modestly at best? And then my second question, understanding you don't want to get too granular, but the margins in ES, excluding Santos, was pretty good. Just trying to understand -- I know there's 2 factors that drove the margin outperformance if we exclude Santos. How would we think about a normalized margin in the quarter, just so we can think about that going forward? And last, on Santos, just how you're planning to fund it? Does any of the funding come from NuScale? John Regan: Yes. So one question, 7 parts, Jamie. With respect to 2026 guidance, yes, it's part of overall the portfolio nature of our business. So we do see significant contributions coming in growth in Urban Solutions, I'd say, particularly in the Metals & Mining space. Energy Solutions does catch a tailwind based on the resumption of work in Mexico. So that will normalize in 2026 to kind of 2024 levels for us. So that's where we're thinking. And as I may have suggested in the prepared remarks, based on our guide for 2026 and where consensus is -- I'm sorry, based on our guide for '25 and where consensus is for '26, probably trending somewhere in the middle. And it's continued progression in the business and unburdened by what we expect will be completion of some of those legacy projects. On ES operating margin, the significant impact there, very clearly, we are reaching the end of the line on LNGC with handover on Train 2 having occurred earlier this month. So very naturally, the risk mitigation process that comes with handover would suggest that there are some reductions in reserves, giving them a bit of a tailwind there. But moreover, it is on the strength of what's happening in Mexico and where that resumption of work is taking us. So in terms of normalized margin, we'll have to coalesce around that figure and potentially get back to you. In terms of the Santos payment, you should be thinking -- we've been planning for this for a long time. And in fact, the step down of our share repo intensity that came out of Q2 was in large part to preserve capital from our core business to fund that liability. And so it's my expectation that the $600 million-ish payment that we're expecting will come from cash on balance sheet generated from our core operations, not just in '25, but through the last several years. And so as a consequence, it is generally my intent to deploy everything that we generated from the early NuScale -- the first conversion of NuScale as part of the $800 million program that I described over the next 3 months or so. And then from the second conversion will feed into the March and beyond share repurchase program. So not using NuScale and the benefits therein for Santos, but to honor our commitment to deploy those proceeds for the benefit of our shareholders. Operator: Our next question comes from the line of Sangita Jain with KeyBanc. Sangita Jain: So first off, can you talk a little bit more about the opportunity set for next year? I know, Jim, you said you're going to maybe accelerate momentum in some of the power gen opportunities. So can you talk about the data center ecosystem, whether it's gas-fired power or just data centers, where you are in the process of standing up your power gen practice, and what kind of opportunities you're looking for, the sizes of opportunities? James Breuer: Thanks, Sangita. Good morning, everyone, again. Yes. So let me spend a little bit of time talking about the short-term opportunities. Of course, many of these projects, we're already working on the front end. So we have good line of sight of them. It's a little hard for us to determine the exact timing of the full release, but the good news is we are inside of many of these opportunities. In Urban -- let me start with Urban, there's a lot of momentum around Mining & Metals, particularly copper. So there's some good opportunities there in the coming quarters. There's also aluminum projects in the Middle East. There's a pharma project here in the United States in addition to just a general wave of opportunities in all our other businesses. And let me get back to data centers in a minute. But in Energy, there is a good, healthy pipeline of midsized projects. I mentioned specialty chemicals in the chlorine space. I mentioned a midstream project in -- upstream-midstream in the United States. There is some services work in Europe around a large integrated petrochemical refining complex. There's some services work in Canada. And of course, in Mission, we are looking at various opportunities for the government, such as the O&M opportunity in multiple bases for the Air Force. As far as Power is concerned, in addition to the current work that I mentioned in Romania and in Indonesia, we have accelerated our efforts and our conversations with U.S.-based clients for gas-fired opportunities. We are talking to several of the major utilities in the U.S. around their need to engage reliable contractors early on to help work with them in shaping and developing these projects. So we're not looking, Sangita, at competitive bidding. We got 3, 4 bidders and lowest price wins. We're looking at strategic relationships where clients are trying to secure key resources, get involved early, and then jointly get to an EPC contract. That fits better our preferred pursuit criteria. But on the flip side, it takes a little longer to mature projects. So that's for gas-fired in the U.S. And as far as Nuclear, we're active both internationally and domestically, again, talking to the various technology providers. Early conversations, how do we position jointly to get these projects off the ground. Obviously, scope definition, risk allocation are important components. So we're excited about those opportunities. We're being diligent in shaping them and making sure that the commercial side of it fits our criteria. And we think we're going to have some very good progress next year in maturing these projects and turning them into real opportunities. As far as Data Centers, as I said in my prepared remarks, we've been very successful in Asia and in Europe. What we're seeing in the U.S. for the smaller projects, the terms and conditions and the conversions are not always ideal for what we're looking for. But we're still very well positioned for the bigger, more complex projects, the big campuses, the big hyperscalers. We continue to talk to multiple clients about those opportunities. We have not yet announced any, but we continue to work on those diligently. So we hope to see some good news there in the coming quarters. Sangita Jain: That was very comprehensive, so I appreciate that. And then just one more following up on the same theme. On the White House memo on Trump's visit to Japan, they cited a couple of EPCs who would be working on the Westinghouse build-out. I'm just curious if you think that list is final or if it's a work in progress and if you even have an interest in being part of the mix. I know it's a long lead time, but just kind of wanted to hear your thoughts. James Breuer: Yes. No, great question, Sangita. We are in conversations with multiple technology providers, including the one you mentioned about collaborating on projects. There are a lot of opportunities out there, some in the U.S., some overseas. There are very few companies in the world that can really tackle these projects. We are one of them. And so yes, we are excited about those opportunities. You're right, they will take time, but you got to get there early. And we're talking to all the big players about being a part of that market. Operator: Our next question comes from the line of Andy Kaplowitz with Citigroup. Andrew Kaplowitz: Jim or John, maybe just on NuScale again, what does it mean when you talk about agreeing to give up some of your economic rights? I know there's been negotiation around Fluor doing back-end NuScale work, but maybe talk about sort of where you are in the new agreement here on that. James Breuer: Thanks, Andy. I'll start maybe with the nonfinancial side of it, and I'll let John talk about the more technical financial stuff. So on the rights to do work, we have modified the exclusivity of rights to do work, but we still have those in the sense that we have the opportunity to bid on the projects that they have with their strategic partner, and we have the same rights for projects that are not involving that strategic partner. But more importantly, what we've analyzed, Andy, is if you step back and think about it, we're the only EPC contractor that has real project experience on NuScale. We did the first of the project that ended up not going forward for economic reasons, but we have that experience. Now we're working on the Romania project. That's an active project. that we're doing the FEED and the estimate and the execution plan. And so we feel we're very well positioned to do NuScale work in the future. We have the expertise for large complex projects. But we're also very clear to say we're going to do work following our pursuit criteria and where we have a competitive advantage. So there's still a favorite position there, and we're very excited about the market. We look forward to working with NuScale and their clients and our collective clients for the future. I think there can be some good opportunities there for us. As far as the technical side of things, John, maybe you can explain that. John Regan: Yes. I mean, to Jim's point, I think we remain commercially in a favored nation status because of the work we've done for them. And we expect that as they continue to deploy their technology, whether strategic partner or otherwise, that we'll be in the Rolodex and on speed dial for them to deliver EPC services. But the overarching message in the bargain was the chorus that we heard from our shareholders about getting something done and providing clarity as to value. And so in the negotiation, there are gives and gets. And for us, we feel like the get around a speedy transaction with lots of clarity and the ability for our shareholders to measure our progress against that in very short order was extremely valuable to us. And so that was the crown jewel as it were of the bargain. And I don't want anything on the commercial arrangement side to diminish the shine that comes from that crown jewel. Andrew Kaplowitz: Very helpful, guys. And then, Jim, I just want to follow up on your commentary on data centers and gas-fired plants. Just I know you said you hope to book a data center. But as you know, I mean, we're getting much larger in these projects and Fluor historically has been very good at mega projects. I mean you're talking about a gig data center. There's a couple of trillion dollars of potential spend out there. So I mean, do you expect to book one in '26 or '27? Can you get it at the terms that you want? I know you said you hope to, but should we expect one over the next 12 to 24 months or more given your historical prowess in doing this stuff? James Breuer: Well, look, Andy, we're confident in our capabilities. We're confident that we can sell a compelling story to clients. We're talking to multiple clients about the more complex projects, many of them Tier 1 companies. But we're going to make sure we follow our pursuit criteria and our commercial discipline. I cannot guarantee that we're going to win one, but I'm telling you that our team is very focused, and we have some very clear expectations and plans to get there. So I'm hopeful and I'm confident we can break into that market on the complex projects, but we'll see what the next few quarters bring. John Regan: Yes. We think we've got the credentials. We think we're sitting in the right space. We've got the right relationships. It's just that the commercial terms come to us in a way that is sufficiently appetizing. Andrew Kaplowitz: John, just a quick follow-up. You mentioned on the 3 Infrastructure projects that they were offset by a refinement of expected claims against your subcontractors. Do you pick that up in short order? Is that just a change in accounting? Like how does that work to offset the incremental cost? John Regan: Yes. So to be clear, on the infrastructure projects, what we had was a negotiated outcome for a long completed project that gave us some favorable results in the P&L, and that was offset by some changes in our views on variable consideration. And so you shouldn't think of it as cost growth or schedule extension or anything like that. Just some things that we thought we were entitled to under the contract through June 30 began to dissipate for us in Q3. We'll continue to negotiate to get a better outcome there, but we're dealing in some of the vagaries of contracts. So it is not really cost growth. So I don't want to leave you with that impression that, that was the impact during the quarter. But on an aggregate basis, those are around $12 million or $13 million for the good guy that came, coupled with the reduction in expected consideration. Operator: Our next question comes from the line of Steven Fisher with UBS. Steven Fisher: Congrats not only on the NuScale, but also pretty much closing out the chapter on the first phase of LNG Canada, a very long process, but good to see that. Can you just maybe remind us on the $90 billion of potential awards? What's the competitive set overall look like on those? How much of that is sole source? And really how to think about the potential win rate there, because even though it's over a few years, it is still obviously quite substantial relative to your existing backlog. James Breuer: Thanks, Steve. Let me start that. This is Jim. It's spread across the 3 businesses, Steve, with perhaps more focus on Urban in the first half of the remaining period, if you will, and then shift into Energy on the second half. So if you look at Urban, I would say the biggest contributor, not the only one, but perhaps the more significant one would be in Mining & Metals. And our position in copper, Steve, is extremely strong, and we're already working on the front end of a lot of those opportunities, North America, South America, Australia. And sole source, the way I would characterize it is, we're already on the project. The question is, will they get FID-ed or not. On the other urban markets around life sciences, advanced technologies, data centers, et cetera, we have a leading position in life sciences. Some of this work will have to be not necessarily competitively bid, but negotiated. And again, we feel pretty good about our position there. We already talked about data centers and our situation there. We're also looking at semiconductors. And again, to the extent that these are large projects, and many of them will be large projects, we have a competitive advantage there. So I think we're well positioned there. And then on Energy Solutions, LNGC Phase 2, you know where we are there. That job is obviously not guaranteed because we're going through a process with the client, but it's a negotiated position. On the Power side, we are refocusing on Power. We're rebuilding those relationships. But like I said earlier, we're not looking at these competitive bidding processes, but we're looking at more relationship-driven engagements where clients are realizing the market has really changed. It used to be a lot more competitive price-driven market 5, 10 years ago. Now it's more about securing resources and having good execution plans, and that's where we come in. So it's a combination of, we're already on the project and we need to go to the next phase, we have to convince our clients that we are the right solution, and we think we have a very compelling story for many of these markets. And then on the Mission side, of course, we've been talking about SRPPF for some time. But also we have a very strong position with DOE and some of the other agencies. So again, we think we are well positioned to win that work. So we feel good about the convertibility of the $90 billion, and we are very focused on doing that going forward. John Regan: Yes. I might just chime in with a little bit on the Nuclear front and then a little bit in the growing relationship with the Department of War and what we expect there in terms of national security also being rather critical elements to getting to the $90 billion. Steven Fisher: Great. That's very helpful. And then just on NuScale, not sure how much you can say on this, but just curious if there are multiple options for how you plan to execute this monetization? Is it just going to be sort of in the kind of the chunky sales like we've seen you do to date, just more of them and more frequently? Or are there other options that you're considering for how to get this done by the end of the second quarter? John Regan: Yes. So I think in the first conversion, we did a very transparent market-based approach, daily kind of Form 4 requirements. And it was 15 million shares, but it did allow for a little gamesmanship in the marketplace there. So it's my expectation that when we get to conversion and get into the market next week that will be under a structured program, you should probably expect to see a 144 filing out there. But we expect a program that will be executed across the balance of the year and into the new year. And you won't see quite the Form 4 tempo, but we're working with our financial advisers on a program that we think will get us the overall best NPV and allow us to add the most turbocharging to that repo program. Operator: Our next question comes from the line of Andy Wittmann with Baird. Andrew J. Wittmann: I just wanted to clarify a couple of things that I think you touched on. Maybe the first one is for John. John, I think maybe I misheard this, but on the Mexican joint venture, you talked a lot about how the cash is coming in, you're restarting to work, and that's great. But I hear you say that the cash that came in, in the quarter, I think it was $800 million during the quarter, then $300 million after the quarter. Did you say the $800 million was not on the balance sheet? Or if I heard that correctly, how is that not on the balance sheet if you've collected it? John Regan: Yes, I did explicitly say that. So again, I caveat it because it's an equity method JV. And so when the JV collects it, it sits on their balance sheet, but I am consolidating them into a single line item on my balance sheet called investments. So their entire balance sheet is collapsed into that single line item. And when that JV or any JV that is equity method makes a distribution to its partners, that is when it comes into the frame for purposes of recognition as cash and cash flow in my statements. Andrew J. Wittmann: Okay. That makes total sense. But when you say we collected it, I thought you meant for we, not JV but we, so that makes sense. John Regan: I believe I said JV level collections. Andrew J. Wittmann: You probably did. These are complicated things. I hear you now. Okay. Just the other one here, just the $800 million backlog adjustment, we've had a couple of these in the last few quarters. Was that another kind of change on how you're recognizing customer furnished materials? Or was this actual incremental scope with real profit dollars attached? John Regan: Yes. So it was across a couple of projects, and it did subsume both some CFM growth as well as some overall scope growth. And I would say it was kind of single-digit million -- I'm sorry, deferral of income in the current quarter. So stuff that we had expected to recognize in quarter 3, drifting into the remaining term of those handful of projects. Andrew J. Wittmann: Got it. And then just finally on Santos here and kind of the cash associated with that. I understand $650-ish million. I guess that number is -- I just want to confirm, that's net of insurance. Did I hear you say that you still think there's potentially more insurance that could go against that? Is that right? John Regan: Yes. So we'll do a full accounting retelling of this next week, Andy. But essentially, the insurance proceeds that we recognized in the quarter were those committed proceeds where we had signature saying from the carriers that we are going to fund this. We continue to chop wood in terms of the rest of the carriers in the program. So we are expecting the payment in quarter 4. So we're very busy in the negotiations with the carriers. And that's why I said in my prepared remarks, when we actually remit the payment, we will have crystallized the interest component, the legal fee component and the insurance contribution component. But you should expect the insurance to only get better from what we recognized in the quarter as we hope to bring more carriers into the agreed-upon path forward. Andrew J. Wittmann: Got it. Okay. Yes. It looks like there was -- 15 of the 20 carriers have signed up and agreed, and it sounds like you got to get those other 5 on board to collect that portion. Is that the right way to think about it? And are all carriers the same size inside of this and we would... John Regan: No, no. Our program is very complicated and obviously has many different layers. It is absolutely like untangling a bowl of spaghetti to get to it. So it's very complicated. But in broad strokes, yes, there are several carriers, many of them play at different layers in the tower. But anyway, I expect we'll have some form of announcement in the next 30 days around the ultimate cash. And as I said, the contribution that came from the tower. Operator: Our next question comes from the line of Michael Dudas with Vertical Research. Michael Dudas: Jim, you've been very helpful with the color on opportunities in new bidding and the pipeline over the next several years. But maybe you could step back from when you discussed your 4-year plan in April with us, and obviously, there's been quite a bit change in the last several months. But how does like that FEED opportunity, like the amount of FEED work that you were looking into when you put together your 4-year plan, how does that look today? How much has it changed a bit? Has it gotten better? Is there still this expectation of clients want to do work and they want to invest. Obviously, we've had some delays in certain end markets, but is it still that sensitivity? And then just a follow-up. Can we assume that the 5-year -- the plan of 10% to 15% EBITDA through 2028, that's pushed out, so that would be "likely 2029". Is there any changes or amplitudes on that? I don't want to get too far ahead, just directionally how we think about the outlook given some of the changes we've seen in the last couple of quarters. James Breuer: Thanks, Michael. So let me respond to 2 questions. The quality of the FEED pipeline is still very good across Urban and Energy. For example, the awards in Q3 for Energy, [ Granite ], the absolute number was fairly low. Most of that was in services. So the pipeline still is getting fed. Similarly, in Urban, I'll repeat myself, but in Mining & Metals and Life Sciences and some of the other markets, aluminum, copper, et cetera, very healthy pipeline of FEED work. So the tone hasn't changed. I would say energy transition, that has more permanently, or at least for the foreseeable future, slowed down because of just the changing [indiscernible] in Europe around the funding of energy transition, but... John Regan: [indiscernible] and the impact of the tax legislation. James Breuer: Tax legislation. So on the flip side, traditional oil and gas is picking up steam. So we're seeing some increased activity there. We're looking at the Middle East very closely or potentially do a lot of front-end PMC services-type work there. So we still feel good about the FEED pipeline, Michael. As far as growth rates, the growth rates that we mentioned at the beginning of the year, as I said in my remarks, we're probably looking at a 4-quarter shift in EBITDA generation, which would take us to the lower range of that growth rate, but I think we still expect to see significant growth between 2025 and 2028. But I think it'd be a good way to look at it to say that 2028 ultimate goal may shift to 2029. John Regan: Now I would like to just append that with some of the tailwinds that could amplify those numbers coming in the form of settlement of sort of trade policy on a global basis. Certainly, the trend in interest rates generally should be encouraging of more capital investments. And so that's certainly the lay of the land of the day, but there are some things that could lead to an even better outcome there. Michael Dudas: Duly noted, John and Jim. That makes perfect sense. Operator: Our next question comes from the line of Brent Thielman with D.A. Davidson. Brent Thielman: Just, I guess, a clarification on the $800 million in additional share repurchases through February, that's completely exclusive of the monetization of the remaining NuScale stake? John Regan: Yes, the conversion of, I'll say, today has no bearing on the $800 million that we're going to repo. Now obviously, it feeds into the confidence that there is near-term augmentation to our liquidity that will come from the monetization of the $111 million. But directly, none of the proceeds from the program we're about to embark on feed into the $800 million. Brent Thielman: Got it. And then just from the perspective of the award cycle over the next kind of 12 to 18 months, maybe if I look at Urban Solutions, it seems like that's where you've got most momentum, pretty healthy pipeline. I guess, with what you see coming forward within your sort of visibility, can you sustain a book-to-bill over 1x in that segment with all the things in front of you there? James Breuer: Let me start, Brent. We're still working through our operating plan for 2026. So we don't yet have full visibility, but I'll tell you that the next few quarters will be more weighted on the Urban side. Starting in the second half of 2026 and 2027, we're expecting more awards in the Energy Solutions side. So it's initially weighted on Urban, back end of '26 and into '27, greater contribution from Energy, and a steady stream from Mission across the quarters. John Regan: Caveated only by SRPPF when that award comes and how chunky or not that award ultimately is. Operator: There are no further questions at this time. I would like to hand things back over to Jim Breuer for closing remarks. James Breuer: Thank you, operator, and many thanks to all of you for participating in our call today. As the year draws to a close, I'm encouraged to see that our strategic priorities of project delivery and financial discipline continue to guide us through today's economic landscape. I'm also pleased to see that with our announced agreement, we can deliver significant value in the short term to our shareholders. We appreciate your interest in Fluor, and thank you again for your time.
Operator: Welcome to the Crinetics Pharmaceuticals Third Quarter 2025 Financial Results Conference Call. I would now like to turn the call over to Gayathri Diwakar, Head of Investor Relations. Please go ahead. Gayathri Diwakar: Thank you, operator. Good afternoon, everyone, and thank you for joining us to discuss the third quarter 2025 results. Today on the call, we have Dr. Scott Struthers, Founder and Chief Executive Officer; Isabel Kalofonos, Chief Commercial Officer; and Toby Schilke, Chief Financial Officer. Also joining for the Q&A portion will be Dr. Steve Betz, Founder and Chief Scientific Officer; Dr. Dana Pizzuti, Chief Medical and Development Officer; and Dr. Alan Krasner, Chief Endocrinologist. Please note there's a slide deck for today's presentation, which is in the Events and Presentations section of the Investors page on the Crinetics website. In addition, a press release was issued earlier today and is also available on the corporate website. Slide 2. As a reminder, we'll be making forward-looking statements, and I invite you to learn more about the risks and uncertainties associated with these statements as disclosed in our SEC filings. Such forward-looking statements are not a guarantee of performance, and the company's actual results could differ materially from those stated or implied in such statements due to risks and uncertainties associated with the company's business. In particular, today, we will be reviewing launch progress to date, our commercialization plans as well as estimates relating to market size, future performance and other data about the acromegaly market, which are all necessarily subject to a high degree of uncertainty and risk. These forward-looking statements are qualified in their entirety by the cautionary statements contained in today's news release, the company's other news releases and Crinetics’ SEC filings, including its annual report on Form 10-K and quarterly reports on Form 10-Q. I would also like to specify that the content of this conference call contains time-sensitive information that is accurate only as of this live broadcast. Crinetics takes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call. With that, I'll hand the call over to Scott. R. Struthers: Thank you, Gayathri, and thank you to everyone joining us on today's call. This is a landmark year for Crinetics. It's a rare privilege to be part of a team that has taken a molecule conceived in our own labs, developed with our own global clinical trials and is now bringing it to patients as a commercial stage biotech. With PALSONIFY, we are now redefining efficacy in acromegaly as both biochemical and symptom control. When you think about it, the last time you know of someone who made an appointment with their HCP to complain about their lab results. On Slide 5 are pictures of people we've gotten to know, people who have acromegaly, carcinoid syndrome, CAH and have helped guide the vision for PALSONIFY and Atumelnant. We've worked with the acromegaly community for over a decade. We've listened to their stories and hopes, stories from Ellen about the frustration of symptoms that injections don't fully control or from Wendy about the simple desire to feel like yourself again. We recently observed acromegaly awareness Day and utilized this important moment in time to both drive broader consumer awareness of the disease and advance our patient engagement strategy. Our own Chief Endocrinologist, Dr. Alan Krasner, and acromegaly patient Tony, were featured in numerous broadcast media interviews across key PALSONIFY markets. These broadcasts will continue throughout the month of November, pointing viewers and listeners to acromegalyreality.com. I am proud we can help them and many, many others struggling with acromegaly enter a new era of therapy with PALSONIFY. My hope is that PALSONIFY brings them freedom, freedom from the symptoms and freedom from the burdens of managing their disease. I hope they can focus on their lives while PALSONIFY fades into the background as just another pill that they take in the morning. PALSONIFY is just the beginning. We've proven that we can discover important new drugs, proven that we can conduct high-quality global clinical development and are now in the early stages of proving that we can bring them to people struggling with acromegaly as a commercial company. We plan to apply that same focus intensity to carcinoid syndrome and CAH and the other serious endocrine diseases in our pipeline. We're just getting started. With Slide 6, I'm excited to share that the launch of PALSONIFY is going very well. Isabel will share more details. Our goal is to make PALSONIFY the first-line treatment of choice for acromegaly. In the initial 31-week days since approval, we've already made significant progress, and the team is executing seamlessly. The first patients received their bottles of PALSONIFY only 11 days after the PDUFA date. All U.S. patients in our open-label extension studies are in the process of transitioning to commercial supplies. As expected, the bulk of our initial patients are those switching to PALSONIFY from other therapies. However, we're also pleased to see a number of patients who are newly diagnosed starting with PALSONIFY as their first medical therapy. We are making headway activating the pituitary centers and have had very good reception from community endocrinologists, some of whom are proactively calling their patients to have them come in to talk about PALSONIFY. I've spent a lot of time in the past few weeks with our field force and their enthusiasm and knowledge of the practitioners and offices in their territories is impressive, but we aren't relying on just the sales force. It's our entire field team, MSLs, field reimbursement specialists, nurse educators, our clinical development team and executives. We're all out there trying to help improve the care of people with acromegaly. I'm also pleased that our early experience indicates that payers also recognize the value of PALSONIFY. Prior authorizations have been mostly straightforward and in some cases, reimbursement has been approved for up to 12-month supplies even before we've secured formulary coverage. Because of our proactive work with payers, we're seeing meaningful numbers of patients starting on reimbursed PALSONIFY. I look forward to January when we'll have a full quarter's worth of launch metrics to share with you. At that time, we will update on revenue, new patient starts, number of unique prescribers and further characterize what we're seeing on the payer reimbursement side of the business. We are currently in the earliest days of Phase 1 of our 3-phase strategy illustrated on Slide 7 to help more people with acromegaly get the care they need. The focus of Phase 1 is to concentrate on switching patients already on injectable SRL depots and other therapies to PALSONIFY. This is a readily identifiable population regularly visiting their HCP offices. In this phase, we also think that PALSONIFY's rapid onset of action will make it the medical therapy of choice to treat newly diagnosed patients. Looking ahead to next year, while we continue to serve both switching and naive patients, we will also begin additional efforts towards returning previously diagnosed patients back to care. There are multiple reasons why these 1,700 patients have discontinued medical therapy recently. We hope that PALSONIFY will provide a path for them to return to the care they need. From there, we will extend our efforts to reach the approximately 7,500 patients who have unfortunately been lost to follow-up after diagnosis and returning them to medical care. There can be multiple reasons why these patients have discontinued medical therapy. It won't be easy and it will take time, but we believe that PALSONIFY will offer these patients a path back to care as well. The third and final phase will be to improve the time to diagnosis of acromegaly. Diagnosing acromegaly is easy once you suspect it, but suspecting it can be challenging even for experienced providers. We anticipate launching specific initiatives later next year and our general efforts to improve acromegaly awareness and its treatment options should start making a difference sooner. The story of Crinetics is not just the acromegaly launch, it's about our execution across the entire pipeline shown on Slide 8. I want to emphasize the strength and depth of what we've built through our internal discovery and development efforts. On the discovery front, we remain committed to holding our clinical candidates to the highest possible standards. Unfortunately, during IND-enabling tox studies, we identified weaknesses in our lead TSH candidate for Graves' disease. Therefore, we're delaying the IND time lines as we prioritize and activate the best of the backup molecules. We're also delaying the time lines for our SST3 agonist program for ADPKD as we conduct follow-ups to the core IND-enabling studies. Given the launch of PALSONIFY and acromegaly and the multiple late-stage programs in development, we will no longer provide regular updates on the timing of preclinical programs until those programs dose their first patient in a Phase 1 study, but rest assured, we are committed to not only advancing the late-stage pipeline, but also to expanding the clinical pipeline and our discovery activities continue unabated. We expect the clinical pipeline to continue to expand in 2026 and the years to come. Moving to the top of the pipeline. carcinoid syndrome is the second indication in development for paltusotine. People with carcinoid syndrome struggle with debilitating and frequent flushing and bowel movement episodes. Like in acromegaly, standard of care for these patients is painful monthly depot injectable SRLs. Based on our Phase 2 data, we believe paltusotine could offer consistent daily control of these in an oral formulation. Our Phase 3 study shown here on Slide 9 is designed to evaluate its efficacy and safety in both naive and switch patients and the OLE study will also evaluate control of the underlying neuroendocrine tumors. More than 20 clinical sites have been activated and are currently screening patients for this study. Complementing paltusotine is CRN09682, the first candidate from the non-peptide drug conjugate program. 9682 is comprised of a novel ligand targeting SST2 to drive internalization into tumor cells, a novel linker that is cleaved only in the tumor cell and a payload to be delivered, in this case, MMAE. We believe 9682 will be differentiated from other current modalities, and as shown on Slide 10, we are studying it in the BRAVESST2 Phase 1/2 basket study in patients with SST2-expressing tumors. This includes neuroendocrine tumors as well as other types of tumors that overexpress SST2. The first 6 sites in this study have been activated and are actively screening patients. The enthusiasm for this study from both investigators and potential participants has been high. This is an important study for Crinetics. It's designed to provide the first human proof of concept for our entire NDC platform, and we're thrilled for it to be underway. Moving on to Atumelnant on Slide 11. In the first 3 cohorts of our Phase 2 ICANS trial for congenital adrenal hyperplasia, or CAH, Atumelnant showed a remarkable ability to highly suppress adrenal androgens in these patients. As you know, we added a fourth cohort to look at morning dosing instead of evening dosing as well as the ability to lower adrenal androgens while simultaneously reducing glucocorticoid therapy towards physiologic levels. Patients in this fourth cohort have recently completed their 12-week treatment period, and we continue to see favorable benefit risk profile. I look forward to sharing the data from Cohort 4 in January once our analysis is completed, along with initial data from a handful of patients from prior cohorts who have now reached the 13-week assessment in the open-label extension study. Now moving on to the design of our global Phase 3 CALM-CAH trial of Atumelnant in adults with CAH. The study shown on Slide 12 builds on the strong top line results from the first 3 cohorts of our Phase 2 study. It's designed to provide a novel therapeutic paradigm for CAH, where atumelnant is used to treat the disease itself and glucocorticoids are only needed for physiologic replacement. People with CAH deserve physiologic levels of both, and that is why we are utilizing a novel uncompromising primary endpoint that combines both goals. This is a very high bar, but appropriate for the level of efficacy we expect from Atamelin. I'm pleased to report that the first sites for the CALM-CAH trial have been activated. Screening is underway, and we expect the first patients to be randomized before the end of the year. Moving on to Slide 13, which shows our BALANCE-CAH study for pediatric patients in more detail. We believe it is crucial to address both high androgen and glucocorticoid levels in pediatric patients because each can cause significant clinical sequelae, and we designed our clinical program with that goal in mind. This study is operationally seamless Phase 2/3 design with a Phase 2 dose selection during which glucocorticoids remain stable, followed by a Phase 3 portion in which new patients will be randomized and have the opportunity to taper glucocorticoids. Eligible patients from both phases will have the opportunity to enroll in an open-label extension. We look forward to enrolling the first patient before the end of the year. With that, let me turn the call over to Isabel to provide additional color on the launch of PALSONIFY for acromegaly. Isabel? Isabel Kalofonos: Thank you, Scott. Turning to Slide 16. Based on our strong label, our strategy is to establish PALSONIFY as the foundational care for acromegaly. To that end, I'm pleased to share the launch is off to a very good start. Since the approval, our team has been engaging with stakeholders and executing across all aspects of the launch. Our field team is reaching patients, physicians in the community and in academic setting and payers, and we are hearing encouraging feedback. Starting with the patient on Slide 16. Our strategy is to activate both switch and naive patients by reinforcing PALSONIFY's consistent IGF-1 and symptom control in a once-daily order. It has been exciting to see that our omnichannel marketing and messages are resonating, and we are beginning to see enrollment forms that from patients who requested PALSONIFY specifically. We're also encouraged by the fact that all of the 22 U.S. patients in the OLE are in the process of transitioning on to commercial product. As expected this early in the launch, 95% of our filled prescriptions are from switch patients, reflecting the demographic to the acromegaly population. However, it is encouraging that we are already starting to see enrollments from treatment-naive patients. This supports our thesis about the significant unmet need in both of these patient segments and represents a good start to Phase 1 of our overall strategy. Moving into to healthcare providers on Slide 17. Even 1 month prior to approval, PALSONIFY had high levels of awareness among academic and community physicians. Building on this foundation, our field teams had called on more than 95% of our highest priority prescriber targets, most of whom are in academic centers. We are leveraging PALSONIFY's unique label, which includes symptom control to engage with healthcare professionals. We believe our efficacy-first messaging is resonating with providers because they prioritize both symptom and IGF-1 control alongside ease of administration. Our sales force is using these messages in the priority PTC centers and high-volume community practices, while targeted marketing extends our reach to the broader community. At this point, we are seeing about 70% of prescribers coming from the community setting and 30% of prescribers coming from PTCs. This is encouraging because it demonstrates that PALSONIFY is also attractive to community-based prescribing physicians. In the PTC setting, our broader field-facing team is working through the typical administrative processes to support uptake. This includes taking a comprehensive approach by engaging both endocrinologists and nurses as well as pharmacists and support staff. Finally, turning to payers on Slide 18. Our payer simple launch engagement work has positioned us well to understand the payers' coverage landscape. So far, we have had follow-up meetings with plans covering majority of lives and the feedback in our broad label and overall value proposition remains consistently favorable. We are pleased to see coverage approvals coming across commercial, Medicare and Medicaid plans. For those that are approved, prior authorization decisions are taking only a few days, and we are encouraged to see some approvals for up to 12 months even in the early days of the launch. Medicare patient support program and field teams are helping patients navigate their treatment journey. We are seeing a balanced mix of reimbursed patients and those on our Quick Start program. Our team is actively working with plans to transition quickest start patients on to reimbursed product. As expected, we anticipate the full formulary process will still take the standard 6 to 9 months. Overall, our commercial team is doing an excellent job executing against our plan. We look forward to providing launch metrics in the first quarter once we have had a full quarter of experience behind us. As Scott mentioned it, in addition to revenue, we will provide the number of new patient starts, the number of [GE] prescribing physicians and updates on our progress with payers. Our goal remains to make PALSONIFY the first treatment of choice for all acromegaly patients, and we are perfectly on pace relatively to our expectations. With that, I will hand the call to Toby for our financial update. Tobin Schilke: Thank you, Isabel. Turning to Slide 20. Our financial results for the third quarter of 2025 reflect our continued disciplined execution and strategic investment in advancing our pipeline and commercialization of PALSONIFY. In the third quarter, we recognized $0.1 million in revenue from our licensing agreement with our Japanese partner, SKK. As expected, we did not recognize any revenue related to the launch of PALSONIFY in the third quarter due to the timing of approval, which was close to the end of the quarter. Under GAAP, we recognize PALSONIFY revenue upon delivery of product to our specialty distributor and specialty pharmacies. Product was shipped in the first few days of the fourth quarter, as Isabella stated, so we have recognized revenue in the fourth quarter. Our research and development expenses for the third quarter were $90.5 million compared to $80.3 million in the second quarter. This increase reflects our continued investment in our clinical programs, including start-up costs for our late-stage clinical trials and ongoing advancement of CRN09682, the first candidate from our novel non-peptide drug conjugate or NDC platform in early-stage clinical studies. Selling, general and administrative expenses were $52.3 million for the third quarter compared to $49.8 million in the second quarter. This increase reflects our investments to drive the successful execution of PALSONIFY's launch, including onboarding and deploying our field force, strategic marketing initiatives and the growth of corporate functions to support our commercial team. We used $110.7 million of cash in operations during the quarter, reflecting continued clinical development and launch preparation activities. Cash used in operations was slightly higher than anticipated this quarter, primarily due to timing of payables. We ended the quarter with $1.1 billion in cash, cash equivalents and investments. As of October 28, 2025, we had approximately 94.9 million shares of common stock outstanding. On a fully diluted basis, we had 111.9 million shares outstanding. This includes our outstanding options, unvested restricted stock units and shares expected to be purchased under our employee stock purchase plan. Moving to Slide 21. We are maintaining our guidance for net cash used in operations in 2025 and continue to expect that we use between $340 million and $370 million. Based on our current operating plans and cash position, we maintain our guidance that existing cash and investments will be sufficient to fund our operations into 2029. This provides us with significant runway to execute on multiple value-creating milestones, including the U.S. commercialization of PALSONIFY and the advancement of the rest of our pipeline. I will now turn the call back to Scott for some closing remarks. R. Struthers: Thank you, Toby. Slide 23 lays out the major commercial and clinical catalysts that we expect to drive significant value starting early next year and continuing over the next 18 to 24 months. Commercially, our entire focus is on executing a strong U.S. launch trajectory for PALSONIFY. We're already seeing the validation of our strategy with prescriptions coming from both community endocrinologists and the major pituitary centers. Initial feedback from patients, physicians and payers is positive. As I mentioned, we'll provide detailed launch metrics from the full Q4 results in January. We also have a great deal of momentum in the clinical pipeline. We have a key near-term data readout for the T2CANS study, which will include data from Cohort 4 and the initial open-label extension patients from prior cohorts. Beyond that, we have a robust set of late-stage programs advancing. We expect them to produce key data readouts, including from our CALM-CAH adult Phase 3 trial, the BALANCE-CAH Phase 2 pediatric study and our CAREFNDR Phase 3 trial in carcinoid syndrome. At the same time, our BRAVESST2 study for CRN-9682 is underway, and we anticipate initial data from dose escalation and expansion cohorts from this. Our Phase 2/III program for Cushing's disease is also kicking off soon. Behind all this, our discovery engine remains our foundation. We expect new internally discovered candidates to enter the clinic and provide their first early readouts during this period. In summary, we have a deep pipeline, a strong balance sheet and a clear path to continued value creation. We are executing on all fronts and look forward to updating you as we achieve these important milestones. Thank you for joining us today. We're now happy to take your questions. Operator? Operator: [Operator Instructions] First question comes from Catherine Novack with JonesTrading. Catherine Novack: I just want to ask a little bit maybe about some of the data that you showed at NANETS last week. I'm very interesting to see the PFS data in the NET patients with paltusotine that is. Can you tell us what the evidence is for somatostatin receptor ligands in this setting? Will you ever want to conduct survival studies with paltusotine alone? R. Struthers: Thanks, Catherine. Somatostatin receptor ligands are known to be slowing of the growth of neuroendocrine tumors, and that was proven in the CLARINET study with lanreotide. Mechanistically, we expect the same thing out of paltusotine, which is why we're monitoring this in the open-label extensions of the carcinoid Phase 2 and then soon the carcinoid Phase 3, but maybe, Alan, do you want to comment a little bit more on that to clarify what we see and what we're hoping to see. Alan Krasner: Sure. Yes, Catherine, so as Scott said, the SRLs have a known cytostatic kind of effect, improving progression-free survival in neuroendocrine tumors in general. We recently presented at NANETS, our exploratory data from our Phase 2 trial open-label extension patients, a small cohort of patients. In general, the PFS in that cohort looks comparable to what you would expect in a long-term trial in neuroendocrine tumors. Neuroendocrine tumors are very, very slow growing and advancing. In general, the time it would take to do objective response kind of trial, survival kind of trials is sort of out of bounds. It would be very, very long. PFS is usually used as the surrogate of those kinds of outcomes in this tumor type. In general, we're seeing an uncontrolled data, what we would expect to see, and we'll have a lot more data coming from the long-term Phase 3 cohorts as well. Catherine Novack: Then just it's disappointing to hear about the Graves' disease candidate, but glad that you were able to catch it early. Any clarity on what model you saw the tox signals? Was it an on-target toxicity? Or do you find that you're hitting a receptor that was unexpected? Any information? R. Struthers: No. It's idiosyncratic finding that really was driving the decision, nothing related to on-target activity. I think we have a very good understanding of the mechanistic biology of the TSH receptor, so that's never something we've worried about. Operator: We now turn to Cory Jubinville with LifeSci Capital. Cory Jubinville: You mentioned that the sales force has called on greater than 95% of top priority prescribers. Can you just remind us, one, how many prescribers that specifically includes? Two, the concentration of the immediately addressable, call it, 10,000 acromegaly patients that are at those top priority prescriber centers? Three, can you speak directly -- as you speak directly with these centers, what was the initial perception from those docs on PALSONIFY? How many of them have converted to actual prescribers or are actively working to make it part of their practice in the long term? R. Struthers: Yes. Thanks, Cory. Maybe before I hand it to Isabel to answer in a little more detail, just a reminder that we're deeply part of the pituitary community and the endocrinology community more broadly. It's great that our field force has been out there talking now at that level, but they've been out there with warm introductions from those of us who know these people for these prescribers for a long time. I'm really glad to see the response from the community, which has been quite favorable by all comments from all across our field force and directly that I've been hearing from them. We're still working our way through some of the administrative aspects of the pituitary centers, but I think that's well underway. Maybe you want to answer in more detail, Isabel, some of the more specifics that Cory was asking about. Isabel Kalofonos: Yes, absolutely. Thank you. First of all, I want to start with your second question. We are delighted that the treatment is very well received by the healthcare professionals, the patients and the payers. With healthcare professionals, they are responding really well to our very simple powerful message on first line of treatment, fast onset of action, fewer symptoms in finally on a pill. It's a very simple message, but it resonates because it really encompasses everything that they were looking for in a better treatment in a new standard of care. The response has been positive, and that has led to initial prescriptions from both, as Scott alluded to, PTC centers, but also community, where we see 70% of the prescriptions coming from community prescribers and 30% from PTC centers. We're encouraged by the community because many times, community tends to follow PTCs. The fact that both segments are adopting is a really good signal for us on the launch trajectory. When you look at our prescriber base, we have approximately 110 total prescribers, and the 95% doesn't refer to all of those 110 prescribers, but that the initial prescriptions, many of them are coming from members of that list. Cory Jubinville: I mean, it's interesting, building off that point, it's interesting to see that 70% of scripts are coming from community docs. Can you just help us better understand that dynamic a little bit more? I guess, why are some of these PTC centers, for lack of a better term, lagging behind? Is it just small sample size because we're early in the launch? Or are these community practices just a bit more nimble and you're dealing with some of the bureaucracy at these centers? Or yes, just curious to hear more about your strategy of how to activate centers. R. Struthers: Well, I think that we've seen in some of the other launches that have happened this year and recently, how important it is to think about the community upfront. That's how Isabel designed the whole field force as we were going into it. We deployed out to the community and to the centers in parallel. I think the thing that we've seen with the community, which is I don't know, very rewarding is that they are a little bit more nimble and more willing to reach out directly to patients and call them in and not just wait for the next appointment. If we think about the centers, I think they are more waiting for the patients to come in for their next appointment. The other thing that we're working with, with the centers, which is pretty much taken care of now, but it takes a little while to get the electronic medical systems so that they have one push button prescribing. It took a little bit to get the pharmacies activated at many of the centers. These are kind of normal administrative things that we've worked through. In no way do we see the centers as being slow. We just are pleasantly surprised at how nicely the communities responded. Operator: We now turn to Yasmeen Rahimi with Piper Sandler. Yasmeen Rahimi: Congrats to a great start, and thank you for sharing all the color. Maybe one question for the commercially related. I appreciate if you could kind of tell us about how you're thinking about providing free drug while getting reimbursement and how do you make those decisions? Then very excited to look forward to the CAH open-label data early 2026. Help us understand sort of in early 2026, whether you would be able to get to all 10 patients and what you hope to show in that data set? Then I'll jump back in the queue. R. Struthers: Yes. Let me take the second part first, and then Isabel, maybe you can take the first part about -- on the acromegaly side of things. Look, in addition to Cohort 4, patients have been rolling on to the open-label extension. That one has a relatively infrequent sampling, and so the first sampling there is 13 weeks. By the time we get to the early part of the year, we'll then have data from the Cohort 4 patients, plus a handful of patients who've gotten to 13 weeks from Cohorts 1 to 3 in the open-label extension. Now it's still a relatively small sample size, but we'll start to give a sense of what -- how this is behaving in a real -- more real-world setting where physicians can both reduce glucocorticoids and see what's happening with adrenal androgens. Isabel, sorry, I wanted to take care of that part. Maybe you want to talk about the question she had on acromegaly. Isabel Kalofonos: Yes, of course. Our market access team is executing with excellence. Our goal is to partner with our specialty pharmacies. When we get an enrollment form, our specialty pharmacies file the prior authorization to ensure that the claim is reimbursed. That's our first step. That's why we are very pleased that 50% of the claims has been reimbursed. Then if there is a challenge to the prior authorization, we send the Quick Start program because we want to make sure that while we do benefit verification and we complement any gaps that they have had, either adding some of the clinical records or putting the correct IGF-1 test in the file that we are able to process that in the background while the patients are on drug. We are ready to go with the Quick Start program as soon as possible, but we first give the opportunity to our specialty pharmacies to process the claims. Operator: We now turn to Douglas Tsao with H.C. Wainwright. Douglas Tsao: Again on all the progress. I guess maybe just feeding off the question in terms of where you're initially seeing demand in the community versus the centers of excellence. I'm just curious to the extent that you get a sense that this is -- there's awareness within the acromegaly community, who I know has a very active patient group and how much is sort of coming from the ground up versus prescription written by clinicians who as they see their patients are sort of recommending a switch or offering that choice to patients. R. Struthers: Yes. Thanks, Doug. I think it's still very early days, so it's very anecdotal, but we're hearing both, right? We're hearing physicians who talk to patients and tell them about something they hadn't heard of and are ending up switching to PALSONIFY. We're hearing about patients going in asking their doc for PALSONIFY. That's kind of cool, actually. I think it's a mix of both, but it's too early to start putting any sort of numbers to that. Isabel Kalofonos: I was just going to say that we have a very experienced dedicated team that had also connections in the community, which is also really helpful, right? They wanted to make sure that across the board, we are nimble, we're executing, and we make sure that -- those physicians that are ready to prescribe has the opportunity to do so. As Scott said, we are seeing prescriptions that are primarily coming from the prescribers, but we also see prescriptions that are coming from awareness that we have built through our marketing team and advocacy from the patients. Regardless, whichever prescription is done is because both of them agree that it's the best choice for the patients, so both the patient and the physician have to be informed. We are working across the board with those 2 audiences. Douglas Tsao: I'm just curious, and I know it's anecdotal, but I'm just curious in terms of prescribers as well as patients, what is interesting them? Is it the convenience of an oral therapy? Or is it really just the standout efficacy that were shown in PATHFNDR-1 and PATHFNDR-2 as a better treatment option for patients? R. Struthers: Go ahead, Isabel. Isabel Kalofonos: We have a mix actually. It's very interesting. Some of the doctors are very intrigued by the fast onset of action of the treatment and the fact that it's a reliable disease control. They see that also as the first treatment choice for some of the switching patients, but also naive patients. For example, we have a naive patient that has surgery but had a residual tumor. The patient now has reached 3 weeks on treatment. The physician did a second IGF-1 test, and he was really pleased to see that the patient was controlled, less than upper limit of normal in the IGF-1 test, but also saw an improvement on symptoms like swelling. That kind of experience is going to motivate that physician to put more patients on treatment as well as that patient is going to also share that experience later on with patients. We are very encouraged by that. We also see some patients that want to travel. We have -- or that their job description requires that they are free from the burden of the injections. That is also resonating, for instance, we have a firefighter that, of course, didn't want to come every month to the appointment. In addition to having -- not wanted to have the painful injection, had lots of breakthrough symptoms. Both the efficacy and the ease of use were important to him and the physician, so that's the kind of experience we're hearing from the field. R. Struthers: Yes. The other one that I was told about is an ER doc, Doug, who got just burned out on the injection, so reached out to his doc to switch. Again, these are just -- these are anecdotes, but they're very heartwarming, honestly. Douglas Tsao: That's really helpful to hear, and it's good to hear that feedback around the sort of broader value proposition of the product. Operator: We now turn to Maxwell Skor with Morgan Stanley. Selena Zhang: This is Selena on for Max. Has the timing of benefit verification for the Quick Start program met your expectations? When do you expect to have clear visibility into the breadth and depth of prescribing trends? R. Struthers: Well, I think the prescribing trends will update you further in the -- as we finish out the quarter, and we'll see and gain experience with that over time. Isabel, maybe you want to talk about the Quick Start program. Isabel Kalofonos: Yes. Of course, at the moment that we send the Quick Start program, benefit verification is happening in the background. Some of them are issues that are easy to resolve, like there was missing IGF-1 test or is missing clinical data. Other plans are requiring a little bit more. On average, in rare diseases, it takes around 57 days to be on Quick Start program, and we are trying to be below that number. R. Struthers: Yes. That's -- and then to kind of add to that, that's why we were pleased that we're already seeing patients getting on reimbursed PALSONIFY before we even have to give them the quick start program. That's been good to see. Not all of them, but some. Isabel Kalofonos: Yes, 50-50, which is really good results early in the launch. Because what we're seeing actually that is really encouraging is that payers are reimbursing to label as we had anticipated. We are also seeing that once it's approved, those approvals are coming for 6 to 12 months. The patient will continue on drug before any additional documentation is required. Operator: We now turn to Richard Law with Goldman Sachs. Jin Law: Congrats on the results so far. Based on your launch experience with PALSONIFY so far, what has been going well for you? Where can you see improvements? It would be great if you can talk about it in context of like commercial, Medicare and Medicaid segments. I don't know if it's too early because I assume most of these patients are coming from commercial. Yes, it would be great to hear how you things going well across these segments and where you can do better. I have a couple of follow-ups. R. Struthers: Yes. I mean, broadly, I'm super pleased with the way the team is out there performing and the response to the community. Any improvements are really incremental, but maybe you want to comment on some of your favorite pieces, Isabel? Isabel Kalofonos: Yes. Well, I was very pleased we have Dragon channel very early in the process. I believe that the team is executing with excellence across the board. Our sales team, our marketing team, our market access team and also commercial operations having the right tool. We know who to target and where the physicians are and where the patients are. So going very well, our CRM activation, our omnichannel strategy to create awareness, both with physicians and patients, our sales team executing and having great success in getting access with both community and PTC centers. and really delivering very powerful and simple messages. That is going really well and is resonating very well. We also had a successful initial advisory boards, and we're continuously getting feedback from the doctors as to what resonates with them and what else they would like to see in the future. That's also shaping our communication plan for [indiscernible] next year. We want to continue to create urgency. Some of those physicians are following the appointment cycles, waiting for the patient to come. A lot of what we want to continue to do is to create that sense of urgency. Those early positive experiences that we are seeing, that the physicians are seeing and the patients are seeing are very important for us, and we'll continue to translate them as testimonials in the future to continue to drive the uptake of the drug to our final goal, which is making PALSONIFY the new standard of care and continue to expand the acromegaly market. Jin Law: Then what about the insight to the segments? Are these mostly commercial so far? Then maybe comment on Medicare and Medicaid segments. Isabel Kalofonos: Interesting. There is a mix. We have commercial patients, Medicare patients and Medicaid patients, and we had claims approved for all 3 segments. One last point. is following the market trend, basically, the majority of them are commercial claims, but basically very similar to the actual payer mix. Jin Law: Then what is the turnaround time and that range of that for payers to approve PALSONIFY, assuming that patients already met the prior authorization requirements, including step edits. What's that turnaround time for payers to approve? R. Struthers: Let's get a little larger sample size before we start doing calculations like that, right? Still a little too small to -- a little early in the launch to do that. Jin Law: Then just one more. In terms of the payer rebate, I know you guys are not doing payer rebate for commercial. Is that still the case? R. Struthers: That's correct. Isabel Kalofonos: That's correct. We are not planning to do that. R. Struthers: Reminder folks, let's try and keep to one part question. We got a bunch more people waiting in line. Operator: We now turn to Tyler Van Buren with TD Cowen. Nick Lorusso: This is Nick on for Tyler. Congrats on the progress so far in this launch. My question is you reported that 95% of filled prescriptions today are from switch patients, which we've talked about a little bit now. What's the plan to reach additional treatment-naive patients? Which do you expect will be the largest drivers of long-term growth? R. Struthers: Yes. I think if you look at the -- what we've said in the past, there's roughly 500 patients a year coming on to medical therapy. It's kind of a trickle of those new patients. The fact that we're starting to pick those up, I think, goes very much to the profile of the drug, like this one patient that's already controlled 3 weeks in. I mean that's awesome. I think the bigger challenge then is, as we talked about this phase -- 3-phase strategy is getting to those patients who, for whatever reason, are not on medical therapy, but should be. There's roughly 4,500 treatment naive. Some of these are patients who probably are not at the level of control that they should be, and so we're digging into that. I think like many rare disease therapies, once you start getting the word out there that there's a new therapy that's not the burden that you have with the depots that we'll start to get people back. Those are the ones -- those first ones in Phase 1 are just the tip of the iceberg because the next part are these patients who've discontinued therapy and/or have been lost to follow-up and bringing those back in is another very significant group. Then, of course, the big aim is to really start to improve awareness and find better ways of getting people to suspect acromegaly so that you can do an IGF-1 test and diagnose it. there's 17,000 people out there that the best we can tell that have yet to be diagnosed, but they're getting damaged to their joints, their heart every day. We'll be launching a variety of different efforts to do that more specifically next year. I think even these awareness things that we're doing like Alan's interviews with Tony, I think that's going to start helping sooner rather than later. Isabel Kalofonos: I have been in the field together with our sales team, and I was having a conversation with one of our key prescribers in a key center. He answered the way I think about this, who is not the right patient for PALSONIFY. Early on, of course, we're going for the switch and naive patients. but we believe that this treatment will help us expand the market over time. Operator: We now turn to Andy Chen with Wolfe Research. Brandon Frith: This is Brendan on for Andy. In the opening remarks, you mentioned aiming to position PALSONIFY as a first-line therapy. We're curious to know how you expect to do that with generics currently on the market. R. Struthers: Well, that's an easy one. I mean, if you look at the label, it's indicated for the treatment of acromegaly in-patients who have not had adequate response to surgery or for whose surgery isn't indicated or appropriate. The biggest reason why you want to go on to PALSONIFY in that situation for the new patients is like that one I mentioned, they're controlled in 3 weeks. We got great data from PATHFNDR-2 showing 2 to 4 weeks to get people controlled, whereas in the depots, your first dose adjustment isn't for 3 months. You don't even know if that first dose works after 3 months, and then you go to the second dose, so you wait until 6 months. Then you may need the highest dose until you're 9 months out before you know whether it works. That's not the right medicine, so PALSONIFY is really the best option for somebody newly diagnosed. I don't see an argument that whether it's generic or not matters. Isabel Kalofonos: Yes, we are not seeing that kind of pushback from payers also. We see that the value proposition is resonating really well with them, and they understand the value of the treatment. The reduction of waste applies whether it's generic or not generic. The fact that patients continue to have -- is irrelevant to whether it's generic or not. Also, as you know, generics don't have the support services that we are able to offer like a Quick Start program, the co-pay for the patients, 0 co-pay for commercial patients and all the support that they will get. Operator: We now turn to John Wolleben with Citizens. Jonathan Wolleben: Congrats on the progress. Scott, you kind of discussed the 3 phases of PALSONIFY 's launch. I was hoping you could talk a little bit about the timing of the sequence and how you think about moving from one phase to the next, if there's benchmarks you want to hit in each one or if it's going to be more of a continuum. Just wondering how to think about you guys tackling these different buckets of patients. R. Struthers: Yes. I don't mean to imply it's a sequence, but it's a sequence of enhanced efforts. I really want the group out there in the field focusing on those patients in the first phase and getting the word out so that we have broad prescriber base. I think you're seeing that already with the response of the community. Then, in addition, because it will take some time to work our way through all those Phase 1 patients. Before we're done with that, then we also would start getting more active in finding ways to bring patients back to care. That may be -- that may take a variety of different forms. It's really just about how we layer on our efforts rather than go from one phase to the next, if that makes sense. Jonathan Wolleben: Do you think the current sales force is rightsized to handle that expansion over time? R. Struthers: Yes, absolutely. I think we're doing very good in the coverage. It's a fairly concentrated prescriber base. We were planning for the community from the start. I think it's more about the types of activities that we do to try and help find these patients who need to come back to care, improve diagnosis rather than just switching efforts from one thing to another. Operator: We now turn to Jessica Fye with JPMorgan. Jessica Fye: I wanted to follow-up on one of the earlier questions. What should we be most focused on when we take a look at the Cohort 4 data for Atumelnant? What are you going to be watching for similarly in that Phase 2 OLE data? I guess, stepping back, how much of a read is Cohort 4 or these initial OLE patients going to give us into the potential steroid reductions that we could expect in Phase 3? R. Struthers: Yes. Well, a couple of things. One, I'll just put some caveats. It's still relatively small numbers of patients. It allows the chance for physicians to begin to do steroid reductions in the actual treatment period of 12 weeks, that's pretty fast, right? I think that, together with the open-label extension data where there's a little more time. Generally, I think it will give the directionality, but I wouldn't start doing power calculations or things based on it. That makes sense. I think there's been a lot of interest in this Cohort 4 data, and it's interesting, but again, it's relatively small numbers. Jessica Fye: When should we expect the preliminary Phase 2 data for Atumelnant in peds? R. Struthers: I don't have exact timing on that, but that will come out in some phases because we're starting with older adolescents and then working our way down the age groups, right? We'll start expanding those populations into the Phase 3 portion as the age groups get the dose validation that we need. Operator: We now turn to Alex Thompson with Stifel. Patrick Ho: This is Patrick Ho on for Alex. I guess on the naive patients, are you guys seeing different dynamics here from payers? Or is it similar to the switch patients? Isabel Kalofonos: Similar dynamics. We had some reimbursed claims and some that we are processing through the Quick Start, so similar in both cases. R. Struthers: Again, early days. Operator: We now turn to Joe Schwartz with Leerink Partners. Joseph Schwartz: How does the traction you're getting at this early Phase 1n the PALSONIFY launch compared to the market research you've done in terms of willingness to prescribe or any other factors you consider important? R. Struthers: Thanks, Joe. I think we have not had any real pushback from prescribers about use of PALSONIFY, as was mentioned earlier by Isabel, who shouldn't get PALSONIFY. I think it's just the normal -- we're observing the things that are basically in line with our expectations. We're building momentum and working through a little bit of inertia in the system, but the patients are starting to come in. As they come in, I think they'll be best served with PALSONIFY. There's really not much pushback. Joseph Schwartz: How much of a continuum is there in terms of running from inertia to excitement given providers are encountering a new treatment option, but they've been quite used to using legacy treatments for quite some time? R. Struthers: Maybe you want to take that, Isabel. I don't think it's the legacy of use that is anything that's really in the way. I think they see the benefits of PALSONIFY. Go ahead, Isabel. Isabel Kalofonos: Yes. We see a lot of excitement in the prescriber community. When they look at the data, they really understand the value proposition with the efficacy, the fast and of action finally on a -- the inertia that Scott was referring to is more the normal cycle that takes place in rare diseases where appointments take place every 6 months to a year and physicians are not necessarily always having the support system to start calling the patients, but they will go with the flow of the appointments and wait to offer this new option to patients when the patients have their next appointment. We see that narrowing down the story to a particular patient for that physician where urgency is higher is helping, but we know that there will be a cycle similar to all rare disease launches. Operator: We now turn to Dennis Ding with Jefferies. Anthea Li: This is Anthea on for Dennis. Just 2 quick ones. On PALSONIFY, could you elaborate on just how many patients in the open label are now transitioning to commercial supply and the time lines there? Just curious if we would see all of that contribution in Q4 or later in 2026. Then on the pipeline, any updates on the progress for the GLP programs? I think there was previous talk of candidate selection in '25, so just curious on progress there. R. Struthers: Yes. Just on the open-label extension patients, all 22 are in various stages of enrollment. They've all enrolled for commercial supplies, but they have to wait until their final follow-up visit as part of the open-label extension so that we can finish all the monitoring as part of that. I think most of those are through -- are completed by the end of the year, but I don't know the exact numbers at this point. Then the GLP-1s, obviously and other obesity things we're working on, obviously, a very interesting space, especially today. I think we're going to stop talking as much about our early-stage programs now that we're really concentrated on the launch and our late-stage clinical development. I think it's just more appropriate that we -- when we're in the clinic, we'll let you guys know, but we're thinking hard about it, working hard on it, and you're going to see a lot of new things come out of the Discovery Group and not just soon, but for years to come. Operator: Ladies and gentlemen, we have no further questions. This concludes our Q&A and today's conference call. We'd like to thank you for your participation. You may now disconnect your lines.
Operator: Good afternoon, and thank you for participating on today's third quarter 2025 earnings conference call and webcast for Barfresh Group. Joining us today is Barfresh Food Group's Founder and CEO, Riccardo Delle Coste; and Barfresh Food Group's CFO, Lisa Roger. Following our prepared remarks, we will open the call for your questions. The discussion today will include forward-looking statements. Except for historical information herein, matters set forth on this call are forward-looking within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements about the company's commercial progress, success of its strategic relationships and projections of future financial performance. These forward-looking statements are identified by the use of words such as grow, expand, anticipate, intend, estimate, believe, expect, plan, should, hypothetical, potential, forecast and project, continue, could, may, predict and will and variations of such words and similar expressions are intended to identify such forward-looking statements. All statements other than the statements of historical fact that address activities, events or developments that the company believes or anticipates will or may occur in the future are forward-looking statements. These statements are based on certain assumptions made based on experience, expected future developments and other factors that the company believes are appropriate under the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the company. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Accordingly, investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. The contents of this call should be considered in conjunction with the company's recent filings with the Securities and Exchange Commission, including its annual report on Form 10-K and in the quarterly reports on Form 10-Q and current reports on Form 8-K, including risk factors and cautionary statements contained therein. Furthermore, the company expressly disclaims any current intention to update publicly any forward-looking statements after this call, whether as a result of new information, future events, changes in assumptions or otherwise. In order to aid in the understanding of the company's business performance, the company is also presenting certain non-GAAP measures, including adjusted gross profit, EBITDA, adjusted EBITDA, which are reconciled in tables in the business update release to the most comparable GAAP measures and certain calculations based on its results, including gross margin and adjusted gross margin. The reconciling items are nonoperational or noncash costs, including stock compensation and other nonrecurring costs, such as those associated with the product withdrawal, the related dispute and certain manufacturing relocation costs and acquisition-related expenses. Management believes that adjusted gross profit, EBITDA and adjusted EBITDA provide useful information to the investor because they are directly reflective of the performance of the company. Now I will turn the call over to the CEO of Barfresh Food Group, Mr. Riccardo Delle Coste. Please go ahead, sir. Riccardo Delle Coste: Good afternoon, everyone, and thank you for joining us for our third quarter 2025 earnings call. I'm extremely pleased to report that the third quarter marked a transformational period for Barfresh as we delivered our highest quarterly revenue in the company history, positive adjusted EBITDA and completed a strategic acquisition that fundamentally enhances our business model and long-term growth trajectory. Before I discuss our quarterly results, I want to highlight a pivotal development that occurred immediately following the quarter. the completion of our acquisition of Arps Dairy in early October. This acquisition fundamentally changes our business model, providing us with own manufacturing capabilities that will drive top line growth. Arps Dairy brings us an operational 15,000 square foot processing facility along with a 44,000 square foot state-of-the-art manufacturing facility in Defiance, Ohio, that is nearing completion and expected to be fully operational in 2026. We have already commenced production at the existing facility, and I'm pleased to report that the integration is proceeding smoothly with immediate benefits from enhanced supply chain control and operational efficiency. Now turning to our third quarter results. Revenue for the third quarter was $4.2 million, representing 16% year-over-year growth. This record performance was driven by several factors: improved production consistency from our co-manufacturing partners, a successful start of the '25-'26 school year with expanded distribution and continued momentum with our Pop & Go 100% Juice Freeze Pops in the lunch daypart. We achieved this even though we faced additional manufacturing challenges and start-up issues for our Juice Freeze Pops at one of our co-packers. The manufacturing capacity issues that constrained our first half performance are expected to be fully resolved by the end of the fourth quarter. Our 2 smoothie bottle co-manufacturing partners are now operating with improved consistency and the inventory we built over the summer enabled us to service customer demand throughout the critical back-to-school period. We are in the process of bringing back customers who had temporarily removed our products due to spring supply constraints, with many reintroductions occurring in the fourth quarter. The 2025-2026 school year bidding process has concluded with positive results. We've seen strong uptake across our existing Twist & Go portfolio, and our Pop & Go 100% Juice Freeze Pops have gained meaningful traction with several large school districts, and we expect to add additional schools during the fourth quarter. The Pop & Go product specifically addresses the lunch daypart, a significantly larger market opportunity than breakfast and early adoption rates are encouraging. We remain at only approximately 5% market penetration in the education channel overall, which continues to represent substantial runway for growth. Most significantly, I'm pleased to report that we achieved positive adjusted EBITDA in the third quarter, a major milestone that demonstrates the operational momentum we're building and validates our path to profitability. With the operational improvements we achieved in the first half of this year, combined with the transformational Arps Dairy acquisition, we raised our fiscal year 2025 revenue guidance back in September to a range of $14.5 million to $15.5 million, representing a 36% to 46% year-over-year growth. More significantly, we issued preliminary fiscal year 2026 revenue guidance of $30 million to $35 million, representing a 126% increase compared to the high end of our fiscal year 2025 guidance. This substantial growth reflects the full year contribution from Arps Dairy, continued market penetration in the education channel and the expansion of our Pop & Go product line. I'll now turn the call over to our CFO, Lisa Roger, for a detailed financial review. Lisa Roger: Thank you, Riccardo. Let me walk you through our third quarter financial results in detail. Revenue for the third quarter of 2025 increased to $4.2 million, representing our highest quarterly revenue in company history and 16% year-over-year growth. This record performance was driven by the consistent production capabilities we established through our co-manufacturing partnerships, enabling us to meet increased customer demand during the critical back-to-school period. Our operational improvements are reflected in our margin performance. Gross margin for the third quarter of 2025 improved to 37% compared to 31% in the first half of 2025. The improvement reflects better operational efficiency as our co-manufacturers reached full capability and more favorable product mix with higher-margin products representing a larger portion of sales and reflects a return in performance to the adjusted gross margin of 38% achieved in the third quarter of 2024. Looking forward, our recent Arps Dairy acquisition will create some near-term margin dynamics. We're transitioning Barfresh production to the new facility to capture long-term operational efficiencies and scale benefits, which will involve typical start-up and implementation costs that will temporarily impact Barfresh margins. Additionally, we're continuing Arps Dairy's existing milk processing business, which operate at different margin profiles than our core business, but provides stable cash flow and diversification. These are strategic investments in our long-term growth. We expect margin recovery once the Barfresh transition is complete and we fully optimize our expanded manufacturing capabilities. Operating expenses remained well controlled as we scaled revenue. Selling, marketing and distribution expenses were $941,000 or 22% of revenue compared to $990,000 or 27% of revenue in the third quarter of 2024. G&A expenses for the third quarter of 2025 were $844,000 compared to $705,000 in the same period last year. The year-over-year increase was primarily due to $214,000 in acquisition-related expenses associated with the Arps Dairy transaction. Excluding these onetime costs, G&A would have been down 11% year-over-year. Net loss for the third quarter of 2025 improved to $290,000 compared to a net loss of $513,000 in the third quarter of 2024. The improvement was driven by increase in revenue and gross margin, partially offset by acquisition-related expenses. Adjusted EBITDA for the third quarter was a gain of approximately $153,000, representing substantial improvement from the prior year period loss of approximately $124,000 and demonstrating the operational momentum we're building. We expect to achieve positive adjusted EBITDA in fiscal year 2026 as we realize the full benefits of our integrated manufacturing model. Turning to our balance sheet. As of September 30, 2025, we had approximately $4.4 million of cash and accounts receivable and approximately $1.1 million of inventory on our balance sheet. The Arps Dairy acquisition was funded through our existing credit facility, and we continue to manage our liquidity through various measures, including receivables financing and our credit facilities. With the completion of the Arps Dairy acquisition, we have significantly enhanced our balance sheet with valuable manufacturing assets, including an operational 15,000 square foot processing facility and a 44,000 square foot state-of-the-art manufacturing facility that will be completed in 2026. Additionally, the $2.3 million government grant that has been preliminarily approved for Arps Dairy will support the construction and equipment needs for the expanded facility. Now I will turn the call back to Riccardo for closing remarks. Riccardo Delle Coste: Thank you, Lisa. The third quarter of 2025 marks an inflection point for Barfresh. We have not only delivered record financial performance and achieved positive adjusted EBITDA, but we have also positioned the company for unprecedented growth through our strategic acquisition of Arps Dairy. The Arps Dairy acquisition provides us with several strategic advantages, direct control over a significant portion of our production capacity, enhanced operational efficiency, flexibility to innovate and scale new products more rapidly and reduce dependency on third-party co-manufacturers, which has been a source of operational challenges and revenue limitations. As we look ahead, we have multiple drivers of growth, our own manufacturing capabilities through Arps Dairy, expanded capacity reaching significant scale with our new facility and continued growth in our core education channel. The integrated manufacturing model we are building through Arps Dairy will enable us to pursue opportunities with improved economics and operational control. The guidance we've reiterated today of $14.5 million to $15.5 million for fiscal year 2025 and $30 million to $35 million for fiscal year 2026 reflects the transformational nature of our strategic initiatives and our confidence in executing our growth plan. More importantly, we expect the Arps Dairy acquisition to be accretive to earnings in fiscal year 2026, positioning us to deliver top line growth and bottom line profitability as we scale. We are building a scalable, profitable business model that positions us to capitalize on significant market opportunities while delivering sustainable long-term value creation for our shareholders. The operational improvements we've achieved, combined with the successful integration now underway with Arps Dairy position Barfresh for a breakthrough period of growth and profitability. We look forward to updating you all on our progress as we close out fiscal year 2025 and enter what we expect to be an exceptional growth year in fiscal year 2026. And with that, I would like to open up the line for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Nicholas Sherwood with Maxim. Nicholas Sherwood: My first question is, what have you been doing to build trust with some of those schools that you had to pull product from or you weren't able to deliver product to last school year and that you're reintroducing your products to this fourth quarter? Riccardo Delle Coste: Yes. So we've been staying in close contact with our customers and really communicating where things are at. That's the benefit of being able to have a broad broker network and our own sales team and the ability to let them know that we've just gone into our own manufacturing facilities and just building the relationships really to make them aware that we have got product coming down the pipe. And that's really why we've been going back out to them and letting them know now that we've got manufacturing coming on board, they can start putting us back on their menus, and we've got a lot of that happening now in Q4 and more so even into Q1 of next year. Nicholas Sherwood: Okay. So when you talk about the Q4 to Q1 switchover, so is it almost like a pilot trial in this fourth quarter and then you'll probably properly kind of be reentering the school districts in the first quarter with like full steam ahead? Riccardo Delle Coste: You mean in terms of the customer sales process or in terms of the production at the new facility? Nicholas Sherwood: Yes, sales to the schools. Riccardo Delle Coste: Yes. I mean when we go back to the schools and they put us back on the menu, the sales go back immediately. We don't need to retrial the product. So it's more just about communicating when we have product available and then putting it back on the menu. There's no need for trials to start over again. The sales process doesn't start over again. It's more just about them placing the orders and it goes back on the menu and the sales basically start immediately from when they place the orders. Nicholas Sherwood: Okay. Understood. And then talking about those manufacturing facilities, can you give some detail on your CapEx expectations as you retrofit those facilities for your products? And just kind of like what that entails and how long you expect that to take? Riccardo Delle Coste: Yes. So we're working through that now. We have a -- we've already been approved for -- preliminarily approved for a $2.3 million government grant. So we expect that to go towards the remainder of the fit-out for the construction of the new facility. We also have the existing facility that is operational where we're making product. Nicholas Sherwood: Okay. So there wasn't any major -- like there wasn't any equipment that was needed to change their equipment, like any parts to change your stuff, okay? Riccardo Delle Coste: Yes, there's a complete operational facility already in place. The plan is to move into the new facility out of the old facility. So a lot of the equipment would be going over. And if we need some new pieces to be upgraded as we move into the new facility, we'll address those at the time, and we may look at how we finance those at that point in time. Operator: [Operator Instructions] There appears to be no further questions. This now concludes the question-and-answer session. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Welcome to BCP Investment Corporation Third Quarter Ended September 30, 2025 Earnings Conference Call. An earnings press release was distributed yesterday November 6, after market closed. A copy of release along the earnings presentation is available on the company's website at www.bcpinvestmentcorporation.com in the Investor Relations section and should be reviewed in conjunction with the company's Form 10-Q filed yesterday with the SEC. As a reminder, this conference call is being recorded for replay purposes. Please note that today's conference call may contain forward-looking statements, which are not that guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in forward-looking statements as a result of a number of factors, including those described in the company's filings with the SEC. BCP Investment Corporation assumes no obligation to update any such forward-looking statements unless required by law. Speaking on today's call will be Ted Goldthorpe Chief Executive Officer, President and Director of BCP Investment Corporation; Brandon Satoren, Chief Financial Officer; and Patrick Schafer, Chief Investment Officer. With that, I would now like to turn the call over to Ted Goldfarb, Chief Executive Officer of BCP Investment Corp. Please go ahead, Ted. Edward Goldthorpe: Good morning. Welcome to our third quarter 2025 earnings call. I'm joined today by our Chief Financial Officer, Brandon Satoren, and our Chief Investment Officer, Patrick Schafer. Following my opening remarks on the company's performance and activities during the third quarter, Patrick will provide commentary on our investment portfolio and our markets, and Brandon will discuss our operating results and financial condition in greater detail. We are pleased to report strong results for the third quarter our first earnings as a combined company on the completion of our merger with Logan Ridge on July 15, 2025. This milestone marks the beginning of a new chapter for BCIC, as we continue to leverage our expanded scale, broader portfolio diversification and enhanced operating efficiency to drive long-term value for shareholders. I'm pleased to report meaningful progress on the value creation initiatives we announced in June 2025. Notably, consistent with our previously stated intentions, the company plans to commence a modified Dutch auction tender approximately $9 million combined with the daily share repurchases executed by the company under the buyback program as well as open market purchases by management, the adviser and its affiliates. We anticipate total repurchases when combined with managements, advisers and its affiliates ownership of BCIC's outstanding stock can approximate 10% by year-end. These actions underscore our continued focus on driving shareholder value and narrowing the discount to NAV. During the quarter, we generated net investment income of $8.8 million or $0.71 per share compared with $4.6 million or $0.50 per share in the prior quarter. We expect to realize further benefits of our expanded scale and broader investment platform. For the fourth quarter of 2025, the Board of Directors approved a base distribution of $0.47 per share, which been annualized based on November 6, 2025 closing price of $12.13 per share represents a yield of 15.5%. Before handing over the call, I'd like to take a moment to address recent commentary in the broader private credit markets. While recent high-profile collapses of certain borrowers understandably drawn market attention, we firmly believe the full scale of concern for the overall private credit market is unwarranted. Echoing sentiment from other leaders in our industry, in the case of First Brands, for example, only 2% of its nearly $12 billion balance sheet was linked to private credit highlighting that events like this aren't signs of systemic weakness, if the sector has been subject to disproportionately heightened scrutiny despite its limited involvement in these high-profile bankruptcies. Looking ahead, our focus remains on disciplined capital allocation, maintaining a high-quality portfolio and delivering attractive risk-adjusted returns to our shareholders. With a larger, more diversified platform, and a stronger balance sheet, we believe we are well positioned to drive continued earnings growth and long-term value creation. With that, I will turn the call over to Patrick Schafer, our Chief Investment Officer, for a review of our investment activity. Patrick Schafer: Thanks, Ted. Overall M&A activity in our core markets continued to increase during the quarter as a combination of easing benchmark rates and more settled tariff framework gave sponsors more confidence in the macro environment. To illustrate this, over 80% of our new fundings during the quarter -- we're a new borrowers, a significantly higher percentage than what has historically been over the last several quarters. With the renewed activity has also come renewed competition on deals and overall tightening of spreads. As we've noted in the past, our focus on companies with less than $50 million of EBITDA and our sourcing of nonsponsor-backed companies provides some inflation to these trends. We continue to be selective from a credit quality perspective and are focused on maximizing risk-adjusted returns for our shareholders. Turning to Slide 10. Originations for the third quarter were $14.2 million and repayments of sales were $43.8 million, resulting in net repayments and sales of approximately $29.6 million. Overall yield on par of the new debt investments during the quarter was 12.5%. This compares to a 13.8% weighted average annualized yield, excluding income from nonaccruals and collateralized loan obligations, as of September 30, 2025. Excluding the impact of purchase discount accounting, the weighted average annualized yield, excluding income from non-accruals and collateralized loan applications, was approximately 10.3% as of September 30, 2025. Our investment portfolio at year-end remained highly diversified. We ended the third quarter with a debt investment portfolio, when excluding our investments in CLO funds, equities and joint ventures, spread across 79 different portfolio companies and 28 different industries, with an average par balance of $3.2 million per entity. Turning to Slide 11. At the end of the third quarter of 2025, we had 10 investments on nonaccrual status, representing 3.8% and 6.3% of the portfolio at fair value and cost, respectively. This compares to 6 investments on nonaccrual status as of June 30, 2025, representing 2.1% and 4.8% of the portfolio at fair value and cost, respectively. I would note that the quarter-over-quarter increase does include investments acquired through the Logan Ridge transaction that were on nonaccrual at the time of that transaction. It's further worth noting that 2 of the investments currently on nonaccrual status, we continue to recognize interest income on a cash basis, but is only when payments are actually received. On Slide 12, excluding our nonaccrual investments, we have an aggregate debt investment portfolio of $429.5 million at fair value, which represents a blended price of 93.1% of par value and is 84.4% comprised of first-lien loans at par value. Assuming the par recovery, our September 30, 2025 fair values reflect a potential of $31.2 million of incremental net value or a 13.7% increase to NAV. But applying an illustrative 10% default rate and 7% recovery rate, our debt portfolio would generate an incremental $1.36 per share of NAV or a 7.8% increase as of our [indiscernible]. I'll now turn the call over to Brandon to further discuss our financial results for the quarter. Brandon Satoren: Thanks, Patrick. For the quarter ended September 30, 2025, the company generated $18.9 million in investment income an increase of $6.3 million compared to $12.6 million reported for the quarter ended June 30, 2025. Core income for the same period periods was $15.3 million and $12.6 million, respectively. The increase in investment income from the prior quarter was primarily driven by the Logan Ridge acquisition, which contributed $7.4 million of GAAP income and $3.8 million of core. For the quarter ended September 30, 2025 gross expenses were $10.3 million and net expenses were $10.1 million, which includes the $0.2 million performance-based incentive fee waiver. This represents a $2 million increase compared to $8.1 million for the prior quarter. The increase in expenses compared to the prior quarter reflects the larger combined company. Accordingly, our net investment income for the quarter ended September -- for the third quarter of 2025 was $8.8 million or $0.71 per share, which constitutes an increase of $4.3 million or $0.21 per share from $4.6 million or $0.50 per share for the second quarter of 2025. Core net investment income for the third quarter of 2025 was $5.3 million or $0.42 per share compared to $4.6 million or $0.50 per share for the second quarter of 2025. As of September 30, 2025, our net asset value totaled $231.3 million, an increase of $66.6 million from the prior quarter's NAV of $164.7 million. The increase in total NAV on a gross dollar basis was primarily driven by net realized and unrealized gains of $14.8 million, the $49.6 million impact on a GAAP basis of the Logan Ridge acquisition, partially offset by the third quarter distribution exceeding core net investment income for the prior -- compared to the prior quarter's distribution of $1.1 million. On a per share basis, NAV was $17.55 per share as of September 30, 2025, representing a $0.34 decrease compared to $17.89 as of June 30, 2025. The decline in NAV per share was primarily due to core net investment income, which excludes purchase discount accretion, not fully covering the dividend for the quarter and approximately $4 million of mark-to-market losses across the portfolio. As of September 30, 2025, our gross and net leverage ratios were 1.4x and 1.3x, respectively, compared to 1.6x and 1.4x, respectively, in the prior quarter. Specifically, as of September 30, 2025, we had a total of $324.6 million of borrowings outstanding with a current weighted average contractual interest rate of 6.1%. This compares to $255.4 million of borrowings outstanding as of the prior quarter with a weighted average contractual interest rate 6%. The company finished the quarter with $110 million of available borrowing capacity under the senior secured revolving credit facilities subject to borrowing base restrictions. Consistent with our long-term capital approach, we proactively extended and laddered our unsecured debt maturities, issuing a $75 million, a 7.75% note that is due in October 2030 and a $35 million, 7.5% note due October 2028, while at the same time, initiating the redemption of our 4.875% notes due in April 2026 expected to be completed on or about November 13. These actions diversify funding reduce near-term refinancing risk and enhance financial flexibility. With that, I will now turn the call back over to Ted. Edward Goldthorpe: Thanks, Brandon. Other questions, I'd like to reemphasize how excited we are about the opportunities. The newly combined company are already creating. As we move forward, our focus remains on disciplined capital allocation, maintaining a high-quality portfolio and delivering attractive risk-adjusted returns for our shareholders. With a more diversified platform and a strengthened balance sheet, we believe we are well positioned to drive the continued earnings growth and value creation and the earnings in the quarters ahead. Thank you once again to all of our shareholders for your ongoing support. This concludes our prepared remarks, and I'll turn over the call for any questions. Operator: [Operator Instructions] Your question comes from the line of Erik Zwick with Lucid Capital Markets. Erik Zwick: To start first -- I wanted to start first in terms of -- with your kind of announcement of potentially repurchasing 10% of the share. Just want to make sure, is that relative to the 9.30 million outstanding balance of about 13.96 million? Brandon Satoren: It's relative to the transaction closing shares, which was about 13.2 million off the top of my head. Let me... Edward Goldthorpe: Yes, when we announced -- when we closed the transaction, we committed to shareholders that we buyback a bunch of stock between like as soon as practically possible. And obviously, we were in a blackout period until today. So the intention is to buyback 10% of the closing amount of shares. Patrick Schafer: But Erik, the short answer is there were not a lot of days in Q3 that we could do anything because of some of the rules around 6-day pulling off period, things like that. So it's off of a slightly higher number than the September 30, but that's going to be a decent approximation. Brandon Satoren: That's right. If you recall, we had -- I was going to say, Erik, we had to wait 60 days until after closing before we could turn the buyback back on, but we did provide some color on post quarter end. Daily repurchases in our subsequent events, which was about $1.2 million. Erik Zwick: Actually, yes, I did see that, too. So great. Yes. That's helpful. And then secondly, looking at Slide 11 and just noticing the quarter-over-quarter improvement in your internal ratings performing versus underperforming. Was the majority of that change from June 30 to September 30, the result of the combination as well? Or is there any additional kind of upgrades going on within the combined portfolio? Patrick Schafer: Yes. I mean the short answer is like both. I mean, there were certain upgrades going into the portfolio, but the reality is we added a significant chunk through the Logan and kind of using those internal ratings kind of gives you that. So again, it's a little bit of both, but my hunch is the -- without giving the specifics like the -- it's probably the assets from Logan coming on to the balance sheet in those ratings as opposed to a broad swath of increases. Edward Goldthorpe: Yes, probably like the biggest surprise for us over the last 6 months is we really haven't had a lot of negative portfolio surprises. And we've had a bunch of positive portfolio surprises. And again, our LPs and our shareholders are a little rattled by some of the recent headlines out there around First Brands, Tricolor, this telecom name last week. The reality is a lot of those are really idiosyncratic. I mean a lot of them are related to fraud, #1. But #2 is a lot of the underperformance has been in their asset-based parts of their business as opposed to their cash flow-based parts of their business. So this BDC sell-off, we think, is probably overdone. It's beginning to correct a little bit, but we're not seeing broad-based weakness in our portfolio. Erik Zwick: I appreciate the commentary there. And I would echo that sentiment just from the number of portfolios I've reviewed so far this earnings season. And just with respect to the 10 credits that are on nonaccrual at this point. Could you just kind of maybe walk through your strategy and methodology for resolving those, if there's any potential for restructurings or sales or resolutions in the near term for any of those? Patrick Schafer: Yes, Erik, I mean, the short answer is they're all very like company specific. So there's 1 name that we're in the process of restructuring and that hopefully is going to get resolved in Q4, it maybe it flips into Q1, but that's a kind of relatively near-term thing that we'll get resolved out. There's one of them that is sort of for sale in the market and hopefully, they have a couple of provisions and hopefully some are all that get resolved in Q4 and then -- but other than that, the rest of them is, again, continuing to optimize what's the best return, whether that is putting a little bit more capital to growing the businesses, whether it's looking for restructuring the balance sheet or just kind of an outright sale, each of the opportunities are sort of like one-off and have their own kind of crossing path. But there are, again, probably 2 or 3 companies that we would hope to have a near-term resolution on. Edward Goldthorpe: Erik, it's worth highlighting. Last quarter, you may have noticed there were 2 assets we put on cash basis income recognition, that's generally a good indicator when you start recognizing some income on the assets. And again, when those assets are current on the debt and paying their coupon interest. Operator: Your next question comes from the line of Steven Martin with Slater Capital. Steven Martin: Congratulations on getting the deal done and cleaning -- starting the cleanup process. With respect to the buyback, which you know we applaud, how is that going to affect your ability to continue to do deals going forward? And can you also talk about what the Q4 activity level looks like? Edward Goldthorpe: Yes, I'll answer the first comment. I mean, if you look this quarter, we obviously came into the quarter with a lot of cash because we were just kind of gearing up for this, again, when you take huge step back, if you look at where spreads are in the middle market, versus where our stock trades, it's still accretive for us to buyback stock. So we aren't seeing -- there's a massive pipeline that I should really defer to Patrick on this, but we have a massive pipeline of what I would call generic sponsored finance. The ability to get premium pricing, I would say, or wider spreads. Our pipeline in that area is probably not as robust -- so we've a limited amount of supply like L475, L500 kind of thing. We're not seeing a lot of like much wider spread and stuff that we like right now. I don't know, Patrick, if you approve that. Patrick Schafer: No, those are right. I've kind of said this several times on our calls. But from our perspective, it's around getting the right pipeline in the portfolio as opposed to, as I said, that we could load up on S475, S500 (sic) [ L475, L500 ] unitranches. I'm not sure that, that ultimately spits out the right ROE for our shareholders. So we're being careful and judicious with how we actually deploy our capital, but we do have a very, very large pipeline of opportunities to the extent that sort of we feel like the credit and the pricing align with each other. Steven Martin: [indiscernible] your investing in your own stock at the -- where your own stock trades? Patrick Schafer: Yes, that's right. So again, we run the math every single quarter for our board and we show the math of doing a new investment versus the buyback and buybacks generally. They're kind of fairly similar, to be honest, depending on what you see on pricing, but buybacks over guaranteed return. And we feel like it's pretty shareholder friendly and we're supportive of making the right capital allocation decisions for our shareholders. Edward Goldthorpe: Yes. And I think it's worth noting, Steve, that, just to sort of reinforcing the point that we think it's important to do for shareholders at these prices, especially because of the day 1 have impact. However, it is hard to buyback large swaths of our equity and maintain prudent leverage ratios. So you'll note the fund is going to buyback $7.5 million. Management is going to come in and fill out the rest of the order flows for the buyback. So recognizing exactly what you're heading at. Steven Martin: Yes. No, look, we applaud both and we have been a proponent of management increasing its stake as well. Just out of a curiosity, has there been any further realizations. I assume most of what's in the legacy LRFC portfolio is still a lot of equity? Patrick Schafer: No, I don't think that's a fair statement. I don't have the number off the top of my head to be honest, Steve. But it's probably disproportionate relative to the rest of our book. But I would have to run the math, but I'd -- I mean, maybe it's 1/3 to 1/2 of it, $20 million or so of equity. But I would not say it's the majority of it. Steven Martin: Okay. On that same page, just out of curiosity on Page 10, the weighted average yield on debt investments at par is 13.8%, does that have something to do with the purchase accounting because it jumped up from 10.7% to 13.8%? Edward Goldthorpe: Yes, that's exactly right. So on a core basis, it's about 10.3%, Steve. But that is the impact of purchase accounting accretion you may note when you do an asset acquisition, the Board negotiates everything on a NAV-for-NAV basis, but the actual accounting for it, when you issue the equity, it actually is issued at the market price or closing stock price on the issuance date. So because of the discount to NAV on the issuance date, that creates a large disconnect between the NAV you're bringing on. And the dollar value of the purchase reflected in your financials, which creates an unrealized gain that's allocated to the cost basis of your investment portfolio, which is accretive... Steven Martin: I got that. You might want to consider either footnoting that or putting a second number there? Patrick Schafer: Yes, good call. Again, putting the 2 portfolios together was slightly dilutive on a yield at par basis. But as I mentioned on the call, our new origination was about 12.5% yield. So obviously, we're -- we're being thoughtful and selective about our new investments to kind of work on increasing that yield despite sort of where kind of spreads are going in the market in general. Steven Martin: Okay. Can you talk about PIK this quarter? It didn't move too much and what's going on, on the PIK side of the portfolio? Brandon Satoren: Steve, it actually did come down quite a bit as a percentage of the book. It's down to about 14.3% and it was pulling up what it was last quarter, but it was quite a bit higher, north of 20%, I believe. Yes, 19.5%. Steven Martin: As a percentage of the current quarter's income. Edward Goldthorpe: Yes, that's right. Yes, I mean, it's come down quite materially, Steve. It's got its come down on a combined basis by a quarter. Patrick Schafer: Yes, by 5 points. And again, we're -- as I said, like , but part of our strategy is a good amount, but -- not good amount, but we have securities on our book to have a mix of cash and cash and PIK, we have investments that we do that we look at a first-lien and a preferred equity investment together for the same company, and that preferred is PIK and the first lien is cash. So again, as you've kind of noted before, not all PIK are bad PIK, but we are certainly actively working to reduce that number and are conscious of market perception of that and are being careful as we think about new deals and how we think about allocating to kind of make sure that we are overweighting cash opportunities versus things that have a blend of cash impact... Steven Martin: Okay. Brandon overhead expenses and the expense side of the income statement. Is this quarter exemplary -- or is there -- does this quarter still have merger-related costs that are going to come out? Brandon Satoren: So this is actually a pretty decent run rate. Most of the transaction costs don't flow through the income statement here, they hit NAV on the closing date. There were some elevated expenses, obviously, for time spent integrating the portfolios, et cetera. However, we closed on July 15. So there's next quarter we'll have 15 days of extra expenses. However, we think that $1.9 million, $1.8 million number is a reasonable run rate for the combined. Steven Martin: Got it. Professional fees were elevated. Is that still residual? Brandon Satoren: Yes, exactly. Operator: Your next question comes from the line of Christopher Nolan with Ladenburg. Christopher Nolan: Steve, just asked all my questions. Operator: [Operator Instructions] Your next question comes from the line of Erik Zwick with Lucid Capital Markets. Erik Zwick: Just a quick follow-up. On the topic of the purchasing accounting accretion, was all of the discount recorded in 3Q? Or I suspect there may still be potentially more so what is that balance and over what kind of time period will the remaining amount be recognized? Brandon Satoren: Yes. Brandon, but it's generally recognized over the duration of the underlying assets themselves -- so it's tough to tell you exactly in what that would be, the decline curve, if you will, is going to be based on how those assets get monetized and what their maturity dates are, et cetera. Erik Zwick: In terms of -- go ahead. Brandon Satoren: I was going to say, Erik, there was about just north of $21 million of purchase accounting accretion. There's about $18 million left. So I would just say, generally speaking, the a lot of the purchase accounting increase in tends to work its way through the book in the first couple of quarters after closing. It is recognized over time, but obviously, you have assets with shorter maturities, things like that and natural portfolio rotation as a result of the integration that again, this quarter, we had $3.6 million on effectively a stub quarter, so. Erik Zwick: Yes. Okay. So a greater amount up front end and it will kind of trail off as that portfolio kind of matures and pay down over time. That's very helpful. Operator: There are no further questions at this time. I will now turn the call back over to Ted Goldthorpe for closing remarks. Edward Goldthorpe: Thank you all for attending our call. As always, please reach out to us with any questions, which we're happy to discuss. We look forward to speaking to you again in March when we announce our fourth quarter and full year 2025 results. Have a good weekend, and thank you very much. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Thank you for holding, and welcome to Alliant Energy's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. I would now like to turn the call over to your host, Susan Gille, Investor Relations Manager at Alliant Energy. Please go ahead. Susan Gille: Good morning. I would like to thank all of you on the call and the webcast for joining us today. We appreciate your participation. With me here today are Lisa Barton, President and CEO; and Robert Durian, Executive Vice President and CFO. Following prepared remarks by Lisa and Robert, we will have time to take questions from the investment community. We issued a news release last night announcing Alliant Energy's third quarter and year-to-date financial results. We narrowed our 2025 earnings guidance range, provided 2026 earnings and dividend guidance and provided our updated capital expenditure and financing plans through 2029. This release as well as the earnings presentation will be referenced during today's call and are available on the Investor page of our website at www.alliantenergy.com. Before we begin, I need to remind you that the remarks we make on this call and our answers to your questions include forward-looking statements. These forward-looking statements are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters discussed in Alliant Energy's news release issued last night and in our filings with the Securities and Exchange Commission. We disclaim any obligation to update these forward-looking statements. In addition, this presentation contains references to ongoing earnings per share, which is a non-GAAP financial measure. References to ongoing earnings include material charges or income that are not normally associated with ongoing operations. The reconciliation between ongoing and GAAP measures is provided in the earnings release, which is available on our website. At this point, I'll turn the call over to Lisa. Lisa Barton: Thank you, Sue. Good morning, everyone, and thank you for joining our third quarter earnings call. Today, we're pleased to share our Q3 and year-to-date results, another quarter and year where we delivered solid financial and operational performance. We will also share the outlook for the remainder of this year, update you on our strategic initiatives, including our capital expenditures, financing plans through 2029 and discuss how we're positioned to accelerate and extend our earnings expectations. We are well positioned because of the Alliant Energy Advantage and the realization of additional near-term low growth opportunities from data centers. We are continuing our consistent track record of execution and financial performance. Our performance is driven by our customer-focused investments and supportive regulatory environments, a winning strategy for driving continued growth, while prioritizing affordability and reliable service. Our focus on customers and building stronger communities is at the heart of everything we do. With our compelling large load opportunities and diverse capital investment plans, we are well positioned to continue meeting customer, community and investor expectations. We will cover each of these advantages today, as shown on Slide 3, as they power Alliant's future. To start, I am pleased to share updates for the quarter. Our projected peak demand growth by 2030 has increased to an industry-leading 50% through the execution of a fourth electric service agreement with QTS Madison. We signed a new agreement with Google that further accelerates the load ramp in Cedar Rapids, and we continue to cultivate an active pipeline of additional opportunities. Our focus has been on prioritizing plug-in-ready sites, which minimize transmission investments and accelerates our ability to serve new customers. As a result, we can deliver project certainty, near-term earnings and near-term positive community and customer benefits. Concurrently, we continue to execute well against our capital plans. We completed construction of the Grant and Wood County energy storage projects totaling 175 megawatts and completed the Neenah and Sheboygan Falls Unit 1 advanced gas path projects, which increases the efficiency and capability of each of these Wisconsin facilities. These load growth opportunities and continued investments in our existing generation show how we're continuing to efficiently grow at the pace of our customers to foster economic developments across our service territory. Next, our financial highlights. We delivered strong performance through the first 3 quarters. We are maintaining our midpoint and narrowing our 2025 ongoing earnings guidance range to $3.17 to $3.23 per share, as shown on Slide 5, and we are trending towards the upper half of this range. As shown on Slide 6, we are initiating 2026 earnings guidance of $3.36 to $3.46 per share, which represents a 6.6% increase over our 2025 midpoint. Our 2026 annual common stock dividend target is $2.14 per share, a 5.4% increase from the 2025 target of $2.03 per share. And we're increasing our 4-year capital expenditure plan by 17% to $13.4 billion. This translates to a projected rate base and investment compound annual growth rate of 12% from 2025 to 2029. We expect our compound annual growth rate across 2027 to 2029 to be 7% plus. This is based on the planned growth in rate base and the expected data center revenues during that period. We will continue to assess our long-term earnings growth potential as we execute on our data center expansion and load growth plans. As shown on Slide 9, construction is well underway on 3 of the 4 data centers under agreement, 2 in Cedar Rapids, Iowa and 1 in Beaver Dam, Wisconsin. This progress clearly demonstrates that we are focused on meaningful near-term opportunities, each of which serves to unlock the potential of our customers and communities. The contracted demand from the 4 facilities totals 3 gigawatts, translating to 50% peak demand growth by 2030. Accordingly, we've updated our 4-year capital plan, and we will invest $9 billion in both new and existing generation, complementing investments we are making in electric gas and technology enhancements. Looking beyond the plan, we have a solid outlook of investment opportunities that extend our growth potential. Investment upside would be driven by additional load growth beyond what is included in the base plan. We are focused on enabling real near-term growth, attracting high-impact projects to accelerate economic development as part of our commitment to Iowa and Wisconsin, and providing investors with a clear view of well-developed opportunities. As we continue to expand our pipeline, we remain committed to proactive community and stakeholder engagement, positioning Alliant Energy and the communities we serve for growth. Advancing win-win outcomes that maintain affordable service for customers and communities ensures Alliant continues to deliver value while unlocking the potential of our customers and communities. To share a few examples of win-win outcomes. First, the Iowa retail construct stabilizes electric base rates for customers through the end of the decade, serving as a perfect example of a win for our existing customers through stable rates. Second, we executed an agreement to enable fiber connectivity to one of our data center customers by leasing our underground conduit in our service territories, which provides substantial financial benefits to our existing customers. And third, last week, QTS advanced its Wisconsin data center plans with meaningful community contributions, full funding of all infrastructure and the purchase of renewable energy credits from new projects, reducing costs and creating value for all WPL customers. Support from our regulators has been key to moving our plans forward. The Iowa Utilities Commission approved the individual customer rates for our 2 data centers currently under construction in Cedar Rapids. Through these filings, we've demonstrated that our approach effectively protects existing customers, while allowing them to benefit from additional growth. And yesterday, the Public Service Commission of Wisconsin approved our unanimous retail electric and gas rate review settlement for forward test periods 2026 and 2027. This rate review cost effectively advances responsible energy solutions, strengthens the safety and resilience of our energy network and expands options available to customers. Our strategy is rooted in being a trusted partner in delivering outcomes, customers and regulators seek with a strong focus on customer value and forward-looking investments. We are well positioned to provide competitive rates for both new and existing customers over the long-term as a result of our economic development success and our continued focus on cost controls. The Alliant Energy Advantage is an acute focus on driving near-term growth, making smart investments to serve that growth while keeping bills low and benefiting new and existing customers. In short, being plug-and-ready enables stronger alignment between our revenue growth and capital investments. I will now turn the call over to Robert to provide our financial results, earnings and dividend guidance, financing plans and an update on our regulatory matters. Robert Durian: Thank you, Lisa. Good morning, everyone. Yesterday, we announced third quarter and year-to-date ongoing earnings. With third quarter ongoing earnings of $1.12 per share, we have realized over 80% of the midpoint of our 2025 earnings guidance. As shown on Slide 5, our ongoing earnings change year-over-year was primarily due to higher revenue requirements from capital investments at our Iowa and Wisconsin utilities and the positive impacts of temperatures on electric and gas sales. These positive drivers were partially offset by higher operations and maintenance expenses, driven by increased generation costs from planned maintenance activities and the addition of new energy resources as well as higher generation development costs to support long-term growth. Additionally, higher depreciation and financing expenses contributed to earnings fluctuations. Through September of this year, net temperatures positively impacted electric and gas margins by approximately $0.02 per share. In comparison, net temperatures negatively impacted electric and gas margins for the first 3 quarters of 2024 by $0.10 per share. Margins from our temperature-normalized electric sales have also been better than planned with higher-than-expected sales to commercial and industrial customers in both states. Electric margin comparisons to last year have experienced timing differences through the first 3 quarters of this year as a result of the new rates implemented in Iowa in the fourth quarter of 2024. The new seasonal rates are flatter, resulting in a less pronounced increase in summer rates, which has distributed earnings more evenly throughout 2025, resulting in quarterly timing differences from last year's margins, but no material impact on full year results. Turning to our full year 2025 earnings forecast. As a result of our solid earnings through September and our projected fourth quarter results, assuming normal weather, we have narrowed our 2025 earnings guidance and are trending within the upper half of the $3.17 per share to $3.23 per share updated range. As Lisa mentioned, we also announced our projected 2026 earnings guidance range and dividend target. We are expecting to continue delivering an attractive total return to our investors through a combination of earnings growth and dividend yield. The 2026 earnings growth represents a 6.6% increase from our 2025 guidance midpoint, which is higher than our typical 6% forecasted growth. And our 2026 annual common stock dividend target is $2.14 per share, a 5.4% increase from 2025. We are moderating the pace of expected dividend growth to efficiently fund our increased capital expenditure plan. We will continue to target a dividend payout range of 60% to 70%, but expect to be in the lower end of the range during the period of our plan with higher investment opportunities. As shown on Slides 11 and 12, we have updated the capital expenditure plan, which strengthens the diversity of our resources. We are investing in natural gas generation and energy storage projects to meet the capacity requirements of our growing customer demand. We are also making improvements in our existing fleet to enhance the capacity and energy output of those resources. And we continue to invest in our renewable portfolio by adding new wind and repowering existing wind sites. We have proactively safe harbored our energy storage and wind projects in our plan in order to preserve tax benefits for our customers, making these projects more cost effective, providing lower fuel costs and delivering greater affordability for our customers. With our refreshed investment plan, we now have a compounded annual growth rate of 12% for rate base plus construction work in progress, reinforcing our confidence in meeting our long-term growth objectives. Moving to our financing plans. In the third quarter, we successfully refinanced $300 million of debt issuances at IPO and issued $725 million of our first junior subordinated notes at our parent company. We plan to use the proceeds from the junior subordinated note issuance to retire maturing debt in March 2026. The equity content of this debt issuance is expected to assist us in maintaining cushion in our FFO to debt metrics to retain our current credit rating. As we look to future financings and with the increase in our capital expenditure plan, we provided an updated financing plan through 2029 on Slide 13. Of note, our capital expenditures will primarily be financed with a combination of cash from operations, including proceeds expected from the continuation of our tax credit monetization and new debt, hybrid and common equity issuances to maintain authorized regulatory capital structures and a desired consolidated capital structure of approximately 40% to 45% after factoring in the equity component of hybrid instruments. We have significant growth opportunities. The $2.4 billion of new common equity included in our current financing plan for 2026 through 2029 will primarily be used to invest in the resources needed to supply our customers' growing energy needs. We believe the equity is manageable over the 4-year planning period and are anticipating settling the planned equity issuances ratably over that period of time. We plan to continue derisking our planned equity issuances on a forward basis, utilizing the ATM, while also being opportunistic with favorable market conditions. Of the $2.4 billion of new common equity, we have raised our planned 2026 amounts already through forward agreements. And therefore, we have only $1.6 billion of remaining equity to be raised over the next 4 years, excluding equity expected to be raised under our Shareowner Direct Plan. As shown on Slide 14, our 2026 debt financing plans include up to $1.1 billion of long-term debt issuances, including up to $300 million at Alliant Energy Finance or parent, up to $300 million at WPL and up to $500 million at IPL. Finally, I'll update you on our regulatory initiatives included on Slide 16 and 17 as well as those filings planned for the future. In Wisconsin, we have 4 active dockets currently in progress, 3 of which involve requests for preapproval of customer-focused investments. First, a request for investments to refurbish the Forward wind farm, targeting additional production tax credits from the project for the benefit of our customers. Second, a request for investments in a liquefied natural gas storage facility, our first ever, to add firm natural gas capacity. This will ensure we can reliably meet current and anticipated gas supply needs, while maintaining an adequate reserve margin during Wisconsin's coldest winter days. And third, a request for investments to expand the Bent Tree Wind Farm, adding over 150 megawatts of new wind to provide more 0 fuel cost energy and additional tax benefits for our customers. We are also awaiting the PSCW's decision on the individual customer rate filing for our Beaver Dam data center. In Iowa, we have 3 active dockets in progress. We have requested advanced remaking principles for up to 1-gigawatt of wind, which has the potential for customers to avoid significant fuel costs, while investing in cost-effective and responsible energy resources. And we requested 2 certificates of public convenience, use and necessity, one for 720 megawatts of natural gas-fired simple cycle combustion turbines, which will be located in Marshall County, Iowa; and a second for a 94-megawatt natural gas RICE unit in Burlington, Iowa. We expect decisions from the Public Service Commission of Wisconsin and the Iowa Utilities Commission on these dockets in 2026. Turning to our planned regulatory filings in the future. We expect to file our individual customer rate tariff for QTS Madison later this month. And in conjunction with our updated capital expenditure plan, we also expect to make future regulatory filings in both Iowa and Wisconsin for additional renewables and dispatchable resources to enhance reliability, continue to diversify our energy resources and meet growing customer energy needs. I'll now turn the call back over to Lisa to provide closing remarks. Lisa Barton: Thank you, Robert. In conclusion, we're excited about our year-to-date performance and the growth opportunities in front of us at Alliant Energy. What sets us apart? Unlocking the potential of our customers and communities is at the center of our strategy. By pursuing win-win solutions and focusing on near-term opportunities, we're driving affordability, fueling growth and creating lasting shareholder value. Thank you for your continued support. We look forward to speaking with many of you at the EEI Financial Conference and plan to post updated materials on our website later today. At this time, I'll turn the call back over to the operator to facilitate the question-and-answer session. Operator: [Operator Instructions] Your first question comes from Bill Appicelli with UBS. William Appicelli: Just a question around -- the color, if you could provide on the ramp on the demand, right, around what that could mean for the trajectory of earnings above that 7% as the load starts to come on to the system? Lisa Barton: Yes. Great question. So the way to think about the 7-plus is that it would be at least 7% to 8%, and this is before upside to the plan. And as a reminder, this is all known projects and so forth. One of the things to keep in mind in terms of that time frame, and we've talked about this being our desire to create cascading ways of growth. And as such, timing is important. So there's some lumpiness. When you think about the 50% load growth, that's really significant. So timing is something that we'll certainly be watching on a going-forward basis. William Appicelli: Okay. So the 12% rate base growth. So when we just think about backing off of that, it's really the equity dilution. Is there anything else to think about when you walk that back to earnings growth? Robert Durian: Yes. Great question, Bill. I think of the 12% is a combination of both rate base growth plus QIP growth. So roughly about 10% rate base growth, but also about 2% of QIP growth over that time period. Given the volume of capital expenditures we've got in our plan, the QIP balances are going to increase pretty significantly. But to your specific question as far as the walk between the 12%, the combination of those 2 and what we're signaling here for at least 7% to 8%, most of that is related to the equity dilution. We've also got what I would characterize as a conservative set of financial assumptions when it comes to interest rates. And then there might be what I would characterize some small regulatory lag, but it's pretty modest. So it's primarily the equity dilution and just kind of probably more our conservative nature with some of the interest rate assumptions. William Appicelli: Okay. And then just one follow-up there. Specific to Iowa because of the uniqueness of that regulatory framework. I mean, what are the assumptions here in terms of earned returns? Is it just at your authorized across the plan? There is some optionality for you to the upside to retain some of those benefits if you can outperform, right? Robert Durian: That is correct, Bill. Yes, think of the State of Iowa right now, we've got the electric side of the business that does have a new regulatory construct that was put into effect last year that does provide us a lot of certainty of our ability to be able to earn our authorized return and does have some upside opportunity for us. If we go beyond our authorized return, we share those benefits with our customers. Right now, we've just assumed that we're going to earn our authorized return. And then on the gas side, it doesn't have that similar construct. We will have to go in for future rate cases to be able to minimize the regulatory lag there, and we'll time those based on future capital projects to ensure that we can get as close as possible to earning that authorized return. Operator: The next question comes from Nicholas Campanella with Barclays. Nicholas Campanella: Maybe just your kind of calling out that it seems that this 7-plus is pretty conservative. You're in active negotiations for the 2 to 4 gigawatts of additional load. Can you just give a little bit more color on what stages of those incremental opportunities are, and what your line of sight is to maybe have another kind of signed load contract in 2026? Lisa Barton: Yes. No, great question. So yes, I'm going to go back to last year. When we talked at EEI last year, we announced a gigawatt, Q1, 2.1 gigawatts. And today, we're at 3 gigawatts. We have been very focused on making sure that there are near-term opportunities that they are less transmission dependent. And we're also having a very high bar in terms of what we're sharing with you all. So these are ones that we are in active negotiations on. These are ones where we have our transmission interconnection studies done and so forth. And so this is something to very closely watch over the next 12 months and some of which, of course, will be sooner. We will -- we are committed as we have in the past to continuing to give you a very clear line of sight and to avoid speculation on all of these. Nicholas Campanella: And then just so I'm kind of understanding it correctly, that would then kind of put this growth rate above 8%. Is that the right way to think about it? Lisa Barton: It would be above that, yes, above that 5% to 7% that we talked about. So this is all great upside to our plan. Nicholas Campanella: Maybe I could also just ask, thank you so much for the financing commentary. What is your FFO to debt going to be at the end of '25? Where do you kind of see it through '26? And then also just you have $300 million of tax credits through '26. Does that continue at that level through 2030? And just understanding if you have to eventually replace that cash flow down the line? Robert Durian: Great question, Nick. So yes, if you think about our FFO to debt metrics, throughout the planning period, we're really targeting to try and have roughly about 50 to 100 basis points of cushion. And really, that's going to let us further grow into the plan. When you think about the 2 to 4 gigawatts that Lisa indicated, we want to make sure we've got strong balance sheets to be able to grow into that at even higher levels than we've got kind of currently indicated with the 7% to 8% plus. So -- and as we think about the tax credits, there's roughly about, I want to say, $1.5 billion, $1.6 billion in the plan over the next 4 years. We've had a lot of strong interest from counterparties to be able to buy those credits and have a lot of confidence in being able to execute those as far as generating the credits and then turning those into cash. And so I feel really good about the plan with all of those aspects. Nicholas Campanella: One more, if I could. Just the 12% load growth CAGR is large. And I understand the timing of how you get above this 7% plus could also be related to just the load ramping. So just what's the starting point that's embedded in '26, so we have a base to work off of? Robert Durian: It's actually pretty modest in 2026. We do start to see some of the data centers taking more what we call production load instead of construction load in the second half, mainly in the fourth quarter of 2026. And you'll see that continue to ramp through 2020 -- sorry, 2030 is when we expect to be at that full level of the 3 gigawatts of max contract demand that we have in our plan right now. Nicholas Campanella: All right. Looking forward to seeing you guys soon. Operator: The next question comes from Julien Dumoulin with Jefferies. Julien Dumoulin-Smith: Just a follow-up on the 2 to 4 gigs in the pipeline here. Previously, you've identified something like 1.5 gigawatts of mature opportunities with a high probability of conversion, maybe 85%. Taking out QTS Madison, there's something like 600 to 800 megawatts theoretically still in that bucket, perhaps more. But how would you characterize the probability of conversion over time for the remaining 3 to 3.5 gigs there? And then -- and maybe how fragmented is this pipeline? Is the demand dispersed across Iowa and Wisconsin evenly? Just any commentary you have there. Lisa Barton: Yes, I appreciate that. So everything that we had in the 1.5 that I'll call it the blue zone from previous decks means still an incredibly high level of confidence in that. Quite frankly, we've got a high level of confidence in all of this. And think about -- this is how I think about it. You look at Iowa. We serve 75% of the communities in Iowa. We serve 40% of the communities in Wisconsin. If you're a data center, what do you need? You need fiber, you need land, you need transmission, you need a utility that's willing to work with you and that is well positioned to be able to deliver on its commitments. And that's where I think when you think about the Alliant Energy Advantage where we hit it out of the park, we are in rural Iowa and rural Wisconsin, surrounded by transmission. We've been focusing these data centers and continue to focus this 2 to 4 gigawatts on those locations where they don't have to wait for a 100-mile transmission line or anything else. We're really trying to make sure that we can bring this load in sooner and faster. So that gives us a lot of confidence in being able to price appropriately and why we're just so excited about our ability to unlock the potential of our customers and communities. And not only that, we're in MISO. And MISO is acutely focused on making sure it's got robust transmission planning, that it's got an interconnection process, both for new generation as well as for loads that allows us to grow at this very active pace. Last thing I'll mention is we've got really constructive states between Wisconsin and Iowa. Right now, it's -- Iowa is very well positioned. As is Wisconsin, I think you'll see more of the data centers gravitating a little bit more towards Iowa, and that's just simply because we've got a lot of sites there. Remember, we've invested heavily over the years in land, and we've been able to have that as an attractive source for folks. But we're confident in the fact that in both jurisdictions, the significance of this load growth is really going to be driving affordability for all customers. And I think that, that's another key differentiator for us. And that allows us to be very well positioned from a regulatory standpoint. Regulators, as we mentioned earlier in my comments, are at the key -- they're just a key gating item for the entire sector. And our performance here that you've seen with the approvals of the ICRs and the approvals that you're seeing with the generation projects and the approval of the rate settlement, the unanimous rate settlement, it really just tells you that we've got the wind at our back when it comes to making sure that we're aligned with what our regulators care about. That's what you have to solve for in this space. Julien Dumoulin-Smith: Yes, absolutely. No, I mean, given your execution thus far and kind of the plan you've set out here, that 8% plus after 2027, it seems reasonably achievable here. I kind of want to follow-up on that specifically, just as you mentioned in the slides that you have, as you integrate more load and growth into the plan, you could reassess guidance looking forward. Your current look-forward period, it coincides sort of with the end of the stay out in Iowa or there could be some uncertainty to the timing kind of as to whether you'd like to file then or how you'd like to approach the construct. But how should we think about rate case timing here? The way you're going to look at the outer years of your plans, the growth rates you're willing to commit to, knowing that you have that regulatory further out, you might have regulatory uncertainty in the forward period. Just kind of going -- bringing that together with the idea that you've got this really visible above-average growth plan that you could potentially attain with upside here. How should we think about all these factors in the outer years? Lisa Barton: So let's start with Wisconsin. Wisconsin, we've got forward-looking test years every 2 years. That positions us very well to have that clean line of sight on what we need from a generation investment standpoint, really ensuring that we're able to minimize lag. As you recall, in Iowa, we did not have that. And the introduction of the individual customer rate in combination with the structure that we have really allows us to make sure we're able to earn our authorized every year and be able to grow at the pace of our customers. So in terms of how we're thinking of that over the period, I'm just going to point back to how successful MidAm has been. And over the past 10 years, they have not gone in for a rate review because of this construct. So that is why we are doubling down on our focus on making sure that we're unlocking the potential of our customers and communities. Rural Iowa, which is what we serve at 75%, they want to grow. They want data centers. They want to grow. This allows the property base to go up as well as driving costs down for customers. So we're going to continue to focus on that. Ideally, we wouldn't have to go in for another rate review. So I don't know, Robert, any additional commentary you'd like to provide? Robert Durian: Yes, we feel confident about the future of the plan. We only went through 2029 just because that's our standard process of just adding another year to the previous year, but don't read into that, that we have any concerns about beyond 2029. With all the growth that we see in front of us, we've got a really strong plan and feel like that's going to go well beyond 2029. Julien Dumoulin-Smith: Understood. So with the certainty you kind of have here in the construct, are you confident that there's a possibility here post '27 into the '28 time frame, you could be considering an 8% plus EPS guide? Is there further upside to the upside you've said here? Lisa Barton: You really want to look at what's coming online from a data center standpoint. Everything is timing related. If we can get data centers to be coming online sooner, that's certainly good. We have transmission investments that both ATC and ITC are making. They're relatively minimal in the scheme of things, but a lot of that is going to be associated with timing. And I think a really good indicator is what we announced with Google. And Google is working with us to accelerate that load ramp. So those are all the kinds of things to be watching for. And as we mentioned earlier, we're going to be very transparent. We're not going to throw a bunch of speculation at you. We're going to give you that clean line of sight. So that should -- I'm hoping that will be very helpful to you all. Operator: The next question comes from Aditya Gandhi with Wolfe Research. Aditya Gandhi: Just on your 7% to 8% plus commentary, what should we think of as the base for that 7% to 8%? Is that the midpoint of 2026 guidance for now? Is that a good way to think about it? Lisa Barton: It is. Aditya Gandhi: Okay. Great. And then on the 2 to 4 gigawatts of negotiations that you're having, can you give some more color on whether these are expansions of existing facilities or customers you've contracted with? Or are they new customers? And then just how should we think about the cadence of updates going forward? Will you just update your plan in Q3 next year? Or could we see an update potentially before that like you did in Q1 of this year? Robert Durian: Yes. I would think of the 2 to 4 gigawatts is a combination of expansions of existing sites as well as, as Lisa indicated, we have a lot of additional sites across our service territory that have transmission capabilities, land availability that we think are going to be great spots for new data centers. So it's a combination of those 2. When I think about the counterparties to these, these are all very high-quality hyperscalers or colocators. And so that's what really gives us a lot of confidence in being able to get these to the finish line because we know they're motivated customers with a lot of financial wherewithal to be able to kind of get us to the finish line on these. And as far as the timing goes, I would say in the next 12 months, we'll probably have a lot more clarity within the 2 to 4 gigawatts. And as Lisa indicated, every quarter, we'll give updates as far as the status of those. And if we make progress within the next 3 to 6 months, we'll obviously share with you information on the quarterly call. Aditya Gandhi: Great. And just one more, if I may. Could you give us some more color on sort of the agreement that you signed with Google to accelerate the load ramp there? Can you just remind us what the load ramp looked like earlier and what it's looking like right now as you're trying to accelerate it? Robert Durian: Yes. I think of that as of the 3 gigawatts, it's about 300 megawatts in total. And yes, they were interested in just going faster. I'll go back to my earlier comments. You'll see some of that starting to come in, in the second half of 2026, and then just going to ramp quicker than we originally anticipated. So you'll see more load in '27 and '28 than we originally expected. But that's built into our base model right now and included in the plan. Aditya Gandhi: Understood. Lisa Barton: 3 of the 4 projects are under active construction. So it's an amazing thing to watch how quickly these folks grow. Operator: Ms. Gille, there are no further questions at this time. Susan Gille: No more questions. This concludes our call. A replay will be available on our investor website. We thank you for your continued support of Alliant Energy, and feel free to contact me with any follow-up questions. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, and welcome to the United Parks & Resorts Third Quarter Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Matthew Stroud of Investor Relations. Please go ahead. Matthew Stroud: Thank you, and good morning, everyone. Welcome to United Parks & Resorts Third Quarter Earnings Conference Call. Today's call is being webcast and recorded. A press release was issued this morning and is available on our Investor Relations website at www.unitedparksinvestors.com. Replay information for this call can be found in the press release and will be available on our website following the call. Joining me this morning are Marc Swanson, Chief Executive Officer; and Jim Forrester, Incoming Interim Chief Financial Officer and Treasurer. This morning, we will review our third quarter financial results, and then we will open the call for your questions. Before we begin, I would like to remind everyone that our comments today will contain forward-looking statements within the meaning of the federal securities laws. These statements are subject to a number of risks and uncertainties that could cause actual results to be materially different from those forward-looking statements, including those identified in the Risk Factors section of our annual report on Form 10-K and quarterly reports on Form 10-Q filed with the Securities and Exchange Commission. These risk factors may be updated from time to time and will be included in our filings with the SEC that are available on our website. We undertake no obligation to update any forward-looking statements. In addition, on the call, we may reference non-GAAP financial measures and other financial metrics such as adjusted EBITDA and free cash flow. More information regarding our forward-looking statements and reconciliations of non-GAAP measures to the most comparable GAAP measure is included in our earnings release available on our website and can also be found in our filings with the SEC. Now I would like to turn the call over to our Chief Executive Officer, Marc Swanson. Marc? Marc Swanson: Thank you, Matthew. Good morning, everyone, and thank you for joining us. We're obviously not happy with the results we delivered in the quarter. Performance during the quarter was negatively impacted by an unfavorable calendar shift, poor weather during peak holiday periods, a decline in international visitation, and less than optimal execution. The consumer environment in the United States appears to be inconsistent as has been outlined by a number of other leisure and hospitality businesses. Nonetheless, we can and expect to do better. Attendance in the third quarter was negatively impacted by approximately 150,000 visits from unfavorable calendar impacts, particularly the timing of the 4th of July holiday, and was also impacted by poor weather over peak 4th of July and Labor Day weekends. We saw a decline in international visitation of approximately 90,000 guests during the quarter, which was a reversal of earlier trends we saw in the first half of the year. Adjusting for these calendar shifts and the international visitation declines, attendance would have been roughly flat for the quarter. On the positive side, we are pleased to report growth in in-park per capita spending, which has grown in 20 of the last 22 quarters. Our Halloween events just concluded last week, and we saw meaningful year-over-year growth from our separately ticketed Howl-O-Scream events, including record attendance in Orlando and San Diego for these events. Looking forward, we are encouraged by the forward booking revenue trends into 2026 for our Discovery Cove property and our group business, both of which are up over 20% compared to the same time last year. We are also happy to report that our attendance at SeaWorld Orlando is up year-to-date. We're also pleased that during the third quarter, stockholders granted authority to the Board of Directors to approve and implement additional share repurchases. The Board previously announced a $500 million share repurchase program contingent on receiving this approval, and we have already repurchased 635,020 shares for an aggregate total of $32.2 million through November 4, 2025, underscoring our strong balance sheet, significant free cash flow generation, and our strong belief that our shares are materially undervalued. Later this month, we will begin our award-winning Christmas events at our SeaWorld, Busch Gardens, and Sesame Place Langhorne Parks. This year, we believe our Christmas events will be our best ever with the popular rides, attractions, and exhibits our guests have come to expect, plus additional new and exciting events, specialty food and beverage offerings, and holiday shopping for everyone. I want to thank our ambassadors for their dedication and efforts during our busy summer season and as well during our Halloween events and upcoming Christmas events. As we move into 2026 and beyond, we firmly recognize there is significant opportunity to execute better and drive meaningfully more attendance to our parks, grow total per capita spending, and continue to reduce costs and find efficiencies. While this year has been disappointing to date, we have high confidence in our ability to deliver operational and financial improvements that will lead to meaningful increases in EBITDA, free cash flow, and shareholder value. We are focused, well-positioned, and confident in the investments we are making, the operational efficiencies we expect to achieve, and the value we plan to build for stakeholders. We have announced several of the upcoming new rides, attractions, and events and upgrades for 2026. This includes the following: SeaWorld Orlando is pushing the boundaries of family thrills once again with its new attraction, SEAQuest: Legends of the Deep. Guests will embark on a vibrant, submersible adventure through dazzling undersea ecosystems where they will encounter extraordinary life forms, breathtaking environments, and inspiring stories of the sea. This groundbreaking attraction plunges explorers into an environment of awe and mystery, guided by the SeaWorld Adventure team. SeaWorld San Diego is creating a reimagined and immersive version of the Shark Encounter, which will debut in the spring of 2026. SeaWorld San Antonio is making waves once again with an all-new thrill ride, Barracuda Strike, Texas' first inverted family coaster. The one-of-a-kind attraction invites guests of all ages to dive into the deep and experience the ocean's most agile predator like never before. With every twist, drop, and tight turn, Barracuda Strike will deliver a rush of excitement that's bold enough for thrill seekers yet built for the whole family. Suspended beneath the track, riders will glide above the park's iconic water ski lake in a high-speed pursuit that captures the speed, power, and precision of the Barracuda. Busch Gardens Tampa Bay is roaring into 2026 with an all-new Lion & Hyena Ridge, an extraordinary new addition to the park's award-winning animal care portfolio and the most ambitious new habitat in more than a decade. This reimagined area of the park expands the existing space to more than double its previous size, creating nearly 35,000 square feet of dynamic Savannah terrain where two of Africa's most iconic species will thrive, a pride of 5 young male lions and a pair of playful hyenas. Busch Gardens Williamsburg will be announcing their upcoming attraction later this week. Our balance sheet continues to be strong. On September 30, 2025, net total leverage ratio was 3.2x, and we had approximately $872 million of total available liquidity and approximately $221 million of cash on hand, including restricted cash. This strong balance sheet gives us flexibility to continue to invest in and grow our business and to opportunistically allocate capital with the goal to maximize long-term value for shareholders. I'm disappointed in our management of costs during the quarter. We have made changes to address our execution issues in this area and have implemented new processes and initiatives to address cost opportunities across the enterprise. Moving on to an update on select strategic initiatives. On the sponsorship front, we have made good progress on several partnerships that we expect to announce in the coming months. As a reminder, we have over 21 million annual visitors across our park portfolio and the average length of stay is over 6 hours. We continue to expect approximately $20 million of annual sponsorship revenue in the coming years. On our international opportunities, we are in active discussions with multiple potential partners. We signed one MOU during the quarter with an international partner and have since entered a development advisory agreement and have begun concept development work. We expect to sign at least one additional MOU in the coming months. In regards to the mobile app, we continue to make progress on functionality, adoption, usage, and financial impact. The app is being used by an increasing number of guests in our parks to improve their in-park performance. The app has now been downloaded more than 16.8 million times, up from 15.6 million at the end of Q2. Total revenue generated on the app continues to grow, and we are now seeing an approximate 37% increase in average transaction value for food and beverage purchases made through the app compared to point-of-sale orders. We're excited about the potential of the app and its ability to improve the in-park guest experience, drive increases in revenue, and decreases in costs. On real estate, we continue to discuss alternatives with potential partners and have recently received specific proposals that we are actively evaluating. As we have discussed, we own over 2,000 acres of valuable real estate in desirable locations, including approximately 400 acres of undeveloped land adjacent to our parks, including significant developable land in Orlando. We do not believe that the public markets have or are appropriately giving credit to these attractive and valuable 100% owned real estate assets. I'm excited about the significant investments we are making and the many initiatives we have underway across our business that we expect will improve the guest experience, allow us to generate more revenue, and make us a more efficient and more profitable enterprise. We are building an even stronger, more resilient business that we are confident over time will deliver improved operational and financial results and meaningful increases in value for all stakeholders. With that, Jim will discuss our financial results in more detail. Jim? James W. Forrester: Thank you, Marc, and good morning. During the third quarter, we generated total revenue of $511.9 million, a decrease of $34.1 million or 6.2% when compared to the third quarter of 2024. The decrease in total revenue was primarily a result of decreases in attendance and admissions per capita, partially offset by an increase in in-park per capita spending. Attendance for the third quarter of 2025 decreased by approximately 240,000 guests or 3.4% when compared to the prior year quarter. The decrease in attendance was primarily due to an unfavorable calendar shift, including the timing of the 4th of July holiday and a decrease in international visitation compared to the prior year quarter. In the third quarter of 2025, total revenue per capita decreased 2.9%. Admission per capita decreased 6.3% and in-park per capita spending increased 1.1%. Total revenue per capita lowered due to decreases in admissions per capita, partially offset by increases in in-park per capita spending. Operating expenses increased $7.1 million or 3.4% when compared to the third quarter of 2024. Selling, general, and administrative expenses increased $5.3 million or 9.6% compared to the third quarter of 2024. We reported net income of $89.3 million for the third quarter compared to net income of $119.7 million in the third quarter of 2024. We generated adjusted EBITDA of $216.3 million in the quarter. Looking at our results for the 3 quarters of 2025 compared to 2024, total revenue was $1.29 billion, a decrease of $51.9 million or 3.9%. Total attendance was 16.4 million guests, a decrease of approximately 252,000 guests or 1.5%. Net income for the period was $153.3 million, and adjusted EBITDA was $490 million. Now turning to our balance sheet. As Marc mentioned, our September 30, 2025, net total leverage ratio is 3.2x, and we had approximately $872 million of total available liquidity. We had approximately $221 million of cash on hand, including restricted cash. The strong balance sheet gives us flexibility to continue to invest in and grow our business and to opportunistically allocate capital with the goal to maximize long-term value for shareholders. Our deferred revenue balance as of the end of September was $145.5 million. Through October 2025, our pass base, including all pass products, was down approximately 4% compared to October 2024. We have launched our 2026 pass program, which includes our best-ever pass benefits program. We're excited about our new 2026 pass program and expect to see improvement in growth in our pass base as we progress into next year. We started our Black Friday sale earlier this week. It's one of our bigger selling periods for the year, and we are encouraged with the preliminary results so far. Finally, as of September 30, 2025, year-to-date, we have invested $167.2 million in CapEx, of which approximately $142.2 million was on core CapEx and approximately $25 million was on expansion or ROI projects. For 2025, we expect to spend approximately $175 million to $200 million on core CapEx and approximately $50 million of CapEx on growth and ROI projects. Now let me turn the call back over to Marc, who will share some final thoughts. Marc? Marc Swanson: Thank you, Jim. Before we open the call to your questions, I have some closing comments. In the third quarter of 2025, we came to the aid of 192 animals in need. Over our history, we have helped over 42,000 animals, including bottlenose dolphins, manatees, sea lions, seals, sea turtles, sharks, birds, and more. I'm really proud of the team's hard work and their continued dedication to these important rescue efforts. I'm excited about the opportunity set in front of us, both in the near term, where we see a clear path to drive meaningful progress, and over the medium term, where the growth potential is greater. We are focused, well-positioned, and confident in the investments we are making, the operational efficiencies we are realizing, and the value we are building for stakeholders. Now let's take your questions. Operator: [Operator Instructions] Our first question comes from Steve Wieczynski with Stifel. Steven Wieczynski: So Marc, if we go back to your last call, which was early August, I think you noted then that attendance was up on a day-to-day basis through early August. So I'm just wondering maybe what happened from early August through the end of the quarter because that would kind of tell me that you witnessed somewhere low to mid-single-digit declines for the rest of the quarter. And this was also off of an easier comp since the third quarter of '24, I think you had a weather headwind of somewhere around 300,000 guests or somewhere in that range. So maybe just trying to figure out what kind of happened through August and September. Marc Swanson: Yes, Steve, I can help you with that. So look, August is where we started to see -- I should say, we expected to get more of the weather recovery. We got some early in the month, early on, and then we did not get as much as we expected over Labor Day and obviously into September. You also had the international attendance impact in there as well. And that was there a little bit -- it was there in July as well, but obviously, there in August and more pronounced in September and here in the October. And I think that's been pretty well reported that we view that as more of a macro issue. And I'm sure there's things we can be doing better, too, but more of a macro issue. You also have at kind of the end of the quarter, and this is just a function of how we report our results, we report at the end of the month regardless of what day a week it is. So if you kind of go back and look at the days in the quarter, right there kind of at the end of the month, you have a negative calendar shift that happens, and that's just unique to us. Some of that, we will get some benefit of that back in Q4. But that was another pretty meaningful impact in the quarter, obviously. Steven Wieczynski: Okay. Got you. And then second question, Marc, you noted -- in your words, the consumer is inconsistent. And just maybe want to understand what that means a little bit more. And then maybe if you could kind of touch on as well the impact from -- or lack of impact from Epic through the summer and into the fall so far. Marc Swanson: Sure. So I'll take your second one first. So on Epic, I mean, you heard me say in the prepared remarks that year-to-date attendance was up at SeaWorld Orlando. I'm not going to really comment much beyond that, obviously. But the thesis hasn't changed. We still view the Epic opportunity as a very good opportunity. We welcome investment into the market. We think it benefits the market in general. And obviously, we can share in that market improvement, if you will. And that's evidenced by more than 50 years of being in Orlando and continuing to grow and adding our own additional parks and things like that. So that has not changed. Obviously, it's going to ebb and flow from quarter-to-quarter, I'm sure, and they're going to do things, and we're going to do things and others in the market are going to do things. But I think we're going to continue to optimize and learn and take advantage of what will be more people coming to the market, obviously. As far as the consumer, I said last quarter -- what I look at a lot of times is the in-park spend and our in-park spend was up in this quarter. So people are -- at least in our park, the in-park spend is growing. We recognize that there's a lot of companies talking about the consumer and the health of the consumer. So it's hard for us to pinpoint if it's having a significant impact on us, but we're not ignoring that. Obviously, a lot of people are talking about it. So I'm sure there is some impact to certain guests across our portfolio. It's just really hard for us to tell. And like I said, we see our per cap on an in-park basis up in the quarter. And I can tell you, it was up again in October. So that's kind of the commentary there around. It's just a little bit mixed. We're going to continue to move forward on our end. And like I said, the things we got to do to continue to drive our results. And we know there could be some challenges with consumers, obviously, but at least from where we sit, looking at our in-park per cap, which is the one thing I do look at, that is positive in the third quarter and positive in October as well. Steve, I'll add -- sorry, just one quick thing to add to that. I kind of mentioned it, but if you do look at our pass base, we know that's been down. And look, I'm sure when we -- some of the peak selling seasons for our passes were around when the tariff noise was happening. I said this last quarter, it's hard to know if that had an impact on us. I'm sure it didn't help us is, I think, what we're trying to say. And so we have opportunities to close that gap, and I can talk more about that I'm sure a little later. Operator: Our next question comes from Arpine Kocharyan with UBS. Arpine Kocharyan: I have a couple of quick ones. First, what do you think drove the reversal in international visitation you were seeing in the first 6 months of the year? It seems like you're saying it is not Orlando. What do you think drove that? And then I have a quick follow-up. Marc Swanson: I think the -- if you're asking specifically about international attendance, I mean, we saw it up in the second quarter and then obviously, a decline in the third quarter. And I know I think Visit Orlando has put out some projections that it's going to be -- to the market in Orlando for the year. And so I think it's more macro factors. Obviously, there's always things we can do better, but I think this one is pretty well understood on the macro side that international visitation to the United States is slowing, and we see that mentioned. I think some of you guys even mentioned that in some of your reports this morning, so... Arpine Kocharyan: Okay. And you don't see that tied to some of the immigration stuff and harder to get visas and whatnot versus macro? Marc Swanson: No. All those things you said, I'm sure, are factors. That's what I'm saying. I think there are more macro factors that aren't necessarily in our control. So whether it's visas or immigration costs, whatever it may be, that's what I'm saying. I think all those things are a drag for just the international visitation in general. Operator: Our next question comes from Thomas Yeh with Morgan Stanley. Thomas Yeh: Yes, I just wanted to follow up a little bit more on that Orlando market comment. Can you maybe just flesh out what you're seeing at the regional level a little bit more because you did cite SeaWorld Orlando attendance up year-to-date. And I would imagine most of the international visitation headwind you cited stems from that market. Is that fair? And if so, then were the other markets kind of underperforming even relative to that? Marc Swanson: Thomas, I think you can, as we've said in the past, assume that the international attendance is, as you noted, more of an impact to the Florida market and Orlando. So the fact that we're up year-to-date at SeaWorld Orlando with that headwind, I think you could view that as a positive. We'll see where we shake out, obviously. But your point is a valid one on a relative basis, there's other parks that we need to see do better that are outside of the Orlando market. Thomas Yeh: Okay. That's helpful. And then for October, you cited per caps growing. How is attendance pacing? If you can comment on that, particularly given I think you're comping the Hurricane Milton issues that you were facing in early October last year. Marc Swanson: Yes. So on October attendance, we had the hurricane recovery in Tampa, which we got a good portion of that and to some extent here in Orlando as well. There's been a couple of headwinds against that, mainly the weather in Williamsburg, which is one of our more popular Halloween parks. You guys might remember over Columbus Day, a pretty big nor'easter up the East Coast that really impacted that park and to some extent, our Sesame Park in Langhorne for a number of days. And then we did have a couple of rain weekends here in Orlando. So we did get -- and then we have the continued international decline as well. I mean when you net it all up, attendance was up in October, not as much as we'd like because the weather recovery was not as strong in part due to just poor weather in other places and the international decline. I will say, I think it's important to note, I said in-park per cap was positive for October. Admissions per cap was also positive as well for the month. No one has asked me yet about this, but the comment I'd make around that is I think we're doing a better job of managing the admissions per caps here in October, and we'll see where that goes going forward, but that's a couple of data points for you. Operator: Our next question comes from Chris Woronka with Deutsche Bank. Chris Woronka: Marc, I guess, as you guys kind of collect feedback from guests and any surveys you do, your marketing approach. I mean, do you get the sense that you need a more strategic pivot, whether it's in part of offerings or marketing approach and thinking about things like social media versus traditional. But really, the gist of the question is, as you're collecting feedback from customers, is there something more different they want to see outside of price value situation? Marc Swanson: Well, look, Chris, thanks for the question. I mean when you kind of back up in the quarter and you take out the weather and the calendar shift, those are things that just kind of happened. So I don't think that has to do with necessarily what we offer in the parks or anything. The international impact is a new emerging thing, and that's more macro related. So look, there's obviously things we can do better in our parks, and we got to execute better on some things. But I think as far as the events and the rides and the attractions we offer are compelling, and we're going to continue to do that. We saw, like I noted for our Howl-O-Scream event in San Diego and Orlando, record attendance for those events. And we have a good Christmas event ready to start this weekend in one of our parks and then the rest of the parks later on. But one of the, I think, key things, I don't know that pivot is the right word, I think we will continue -- and I think this is really important. We are going to continue to invest in our parks. We're going to continue to drive improvements in putting new attractions in, updating venues, aesthetics, all those things that have been things we've done for years. And so we're not ever going to neglect the parks or anything. We're going to make sure they're fresh and reasons to visit. So we'll continue to make that capital investment. So there's no change in that strategy. That will attract people if you give them some good reason to come and it's new and exciting and things like that. Where I think we could do a better job is obviously on the execution around that. And some of that comes down to marketing. Some of that comes down to the different ticket offers we have and whatnot. So we've got to do a better job on some of those areas. But the core of what we do to our parks, the rides, the attractions, the collection of assets still remains really strong, and we'll continue to invest in those. Chris Woronka: Okay. And then as a follow-up, I think you mentioned the MOU being signed internationally in the third quarter and one, I think you said you expect to sign soon. Can you maybe give us just a little bit of an overview of the overall size of that pipeline and knowing that things may or may not happen, but how big can that get over the next 3, 5 years? And then also on the sponsorship side, you gave us kind of a run rate number you expect I think in the next couple of years. Same question, is there a -- is the pipeline growing there as well? Marc Swanson: Sure. So on international, I think what's exciting is people continue to reach out to us. And so we talked about in our release or in my prepared comments, the two things that we're comfortable mentioning the 2 MOUs, one signed, one we expect to sign in the coming months. So I think that outreach should continue. I don't want to guide you to anything. Obviously, these things can take a while to develop. But certainly, I think having people see the potential in our product, the park in Abu Dhabi, if you've not seen it, go there or look online, it's a really well-done park. I mean it just really showcases the brand well, in my opinion. And I think people see the potential of what our kind of know-how and knowledge can bring to wherever they may be located, right? And it doesn't just have to be SeaWorld. I mean we have obviously other brands, whether it's Busch Gardens or Aquatica or even Discovery Cove. So I expect outreach will continue. And -- but I don't have anything specific to guide you to. We'll update you each quarter. On the sponsorships, similar. I mean, people recognize that we have over 20 million visitors coming to our parks on an annual basis. It's somewhat of a captive audience, and there's a lot of activation and different things we can do. And so there's a list that we're working through, and we're excited about those opportunities going forward. So I expect we'll continue to find more opportunities in that over the coming years. Operator: Our next question comes from James Hardiman with Citigroup. Sean Wagner: This is Sean Wagner on for James. I guess you've talked somewhat about the international weakness. Are you able to break down domestic visitors? Are you seeing any differences there between destination of fly-in versus local drive-in? Marc Swanson: Yes. I don't know that we'll comment a whole lot on just the nuances. I mean just a lot of our parks get visitation from closer in, right? So even here in Florida, where we're sitting today, a lot of our attendance is coming from the state of Florida. And things move around from quarter-to-quarter. I think the most pronounced thing like we saw, which is why we called it out was the international attendance changing. Sean Wagner: Okay. On the attendance per cap front, are you able to provide any more color on how that breaks down by park? Are you more aggressive in Orlando versus other markets given some of the international and competitive headwinds there? Marc Swanson: Yes. I don't think we're going to break it down by park. But I think a couple of comments since you kind of asked. I mean, obviously, you have a lot of things that impact your admissions per cap. So you kind of mentioned international decline. That's typically a higher per cap guest. So when that -- for all the reasons that were mentioned earlier, why those folks -- when that attendance goes down, that can have an impact on your per cap, obviously. The weather and the holiday shift as well, you can't wait around for weather to get better in a compressed summer. I think summer is, in my opinion, getting more compressed. So you don't have a whole lot of time. You have to react somewhat quickly. And then obviously, with our pass base down, you're looking to fill the gap, and we do -- there's different strategies for doing that, which we went after. We also -- when I talk to our revenue management team. We have a little team that manages this process. They see more competitive offers, if you will, more promotions from some of our competitors in several markets, right? So I think we're not the only ones -- or maybe said another way, we're sometimes having to react to some of those offers that other competitors are putting out in more than one of our markets. The good news, as I said, is we did see improvements in the per cap in October. And I mentioned -- or I think Jim mentioned in his prepared remarks that we just launched our 2026 passes and one of the big kind of acquisition periods is around Black Friday. And that's kind of our first kind of big time of the year where we start to acquire passes for the following year. And so that sale has just started this week. It's very early, but obviously, we're encouraged by the trends, as Jim said, that we see there. We know it's very important that we close that gap. And early on here, we're encouraged, still a long way to go and still that gap can live with you for a little while because it's a yearly pass. So that will start to cycle through as we go into next year and into the spring and summer of next year and hopefully become more of a tailwind for us. And we -- I'm not going to give you specific what we did. But obviously, we've done a few things differently with some of our pass products that we think are going to be compelling to guests. And we continue to have very good benefits as well. And I think most importantly, to give you a really long-winded answer is the key thing you need -- one of the key things you need for a strong pass program is to have reasons to visit. And I said this already, but we have another exciting lineup of new things coming to our parks next year, whether it's attractions, rides, events, refresh venues, that type of thing. That you fundamentally need to have, I think, in most years to continue to have pass members visit and continue to also give them reasons to come. The second thing would be continue to give them a compelling value proposition. Our passes are among, I think, one of the best values you can buy for entertainment, for your family and friends and things like that. If you look at the kind of the value you get in a season pass for coming to our park. So the investments in the product is there. The value proposition is there. We have to do a better job of driving the awareness around those pass products, the -- how we're marketing those products and how we're driving people to buy that product. Operator: Our next question comes from Lizzie Dove with Goldman Sachs. Elizabeth Dove: I guess just to go like bigger picture for a second, it feels like as an industry and for you guys, like attendance isn't back to 2019 levels and for you guys not back to the peak levels either that you've kind of laid out in the past. Like what do you think is the kind of gating factor to growing attendance longer term? Like is it something structural, more competition, maybe not even from other parks, but just other kind of in-home, out-of-home entertainment? Or how do you kind of think about that forward trajectory? Marc Swanson: So look, I still have a lot of confidence in the industry as a whole. It's a good industry. And there's a lot of -- I kind of mentioned on the last question about the value proposition and things of going to a theme park. And I think we line up very nicely with that. And we're continuing to make the investments in the product, which I think is really important to do that, and we'll continue to do that. In our case, we've not had the best weather over the last several years here. We know there's a lot of competition for people's time more than ever. And I think we've got to continue to kind of break through on the awareness and why you should have a ticket or a pass to our park. We sometimes talk about like if you moved into town, if you moved into Tampa and you were a new resident, like it should almost be like your neighbor should be telling you like, hey, you got to get a pass to Busch Gardens. It's a great value. Everybody has a pass. So we've got to, I think, market that better, give people reasons to buy our product. And we will -- the way to do that is to continue to invest in the parks, continue to give a strong value proposition and people reasons to visit. And so I'm still real confident in not only our business, but obviously, the industry as a whole. Elizabeth Dove: Got it. That makes sense. And then just to kind of ask one of the other cost questions in a slightly different way, but you've got these kind of cost saving targets. Your margins are still higher generally than the rest of the industry. And look, I know there's nuances with footprint and operating days and all of that. But I guess just can you maybe speak to the confidence of being able to kind of grow margins from here or whether there is some reinvestment needed, whether that's events, marketing, anything like that? Marc Swanson: Sure. Well, look, you know that we hold ourselves to a pretty high standard, and we've executed over the years, I think, reasonably well with some of the cost initiatives. Now obviously, I said I was disappointed in the quarter with the cost saves and efficiencies, and I was. And we've got some new efforts around kind of how we're processing some of that, how we're managing that. And I think we're going to do a better job of managing that going forward. There's obviously, as you noted, always new costs and new things that emerge, and we have to do a better job of managing those things as well. So I think the stuff that is in our cost plan, we're managing. It's some of the new things that emerge that we've got to address more quickly and be more able to mitigate those as much as possible. So I don't know -- I'm not going to guide you to where margins can go. Margins, we're not guiding to that. But what I can say is a core kind of piece of our strategy going forward is continuing to find cost efficiencies and managing our costs. Like you said, the margins are still strong for the industry. And if you look at the cost -- I call them the adjusted EBITDA cost, the difference between revenue and adjusted EBITDA. If you look at that growth this year, it's, I think, under 2%. So it's not like we're out of control or anything. We've managed to a fairly low level. But we know we can do more, and we got to execute better on that, and we're addressing that as we speak. Operator: Our next question comes from Patrick Scholes with Truist. Charles Scholes: I got on to the call a little bit late, so I apologize if any of these have been asked already. Any initial expectations or how should we think about CapEx spend for next year? Marc Swanson: Yes. So I can take that. I mean, I think you would expect us to be in a similar range to where we are this year. And that -- it might move around slightly, but that's been our kind of target somewhere in that range. For the most part, we haven't given you anything specific. I think the key thing for you, and I know I've said this already, but we're going to continue to make investments in the parks. We're not going to suddenly change that mindset. So we'll continue to invest in the parks with capital, with new events, with aesthetics, whatever it may be to keep our parks fresh and reasons to visit. Charles Scholes: Okay. And then -- my next question is just sort of a high-level sort of thematic question. Certainly, attendance in the last quarter was soft, but then you point out some really strong initial metrics for next year with Discovery Cove and group up 20%. When I think about especially Discovery Cove, a really high-end type of exclusive type of product, would you say that -- in your business, you're seeing these bifurcated trends where, say, Discovery Cove doing initial bookings looking really well, but then sort of last minute, more mass market attendance softer. Is that something that you also see in your business, this K-shape bifurcation? And then any other those types of trends that you see? Marc Swanson: Yes. Sure, Patrick. So look, I'm glad you called out Discovery Cove. And that park is on pace this year to have record attendance and revenue. And as I mentioned in my prepared remarks, the revenue trends for next year are up. The bookings and revenue for next year are up over 20% compared to the same time last year. So that's a good sign. It's a really good park, and it's our most expensive park, right? So that kind of feeds into the comment about we look at that park, it's solid bookings. We look at our in-park per cap growing in the quarter and again in October. So there's -- are there consumers that are being impacted as part of our kind of guest mix? I'm sure there are. So I don't want to say they're not. But we see other things, like I said, like Discovery Cove and our in-park per cap that tell us there's also consumers who are fine, right? So kind of the mixed bag there, as you noted. But I think the takeaway, Discovery Cove, which is in Orlando, pacing well this year to a record attendance and revenue and looking solid for next year as well. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Marc Swanson for any closing remarks. Marc Swanson: Yes. Thank you. On behalf of Jim and the rest of the management team here at United Parks & Resorts, I want to thank you for joining us this morning. As you heard today, we're confident in our long-term strategy, which we believe will drive improved operating and financial results and long-term value for stakeholders. So we thank you, and I look forward to speaking with you next quarter. Operator: This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the OneStream's Third Quarter Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] Now I would like to introduce your host for today's program, Anne Leschin, Vice President of Investor Relations and Strategic Finance. You may begin. Anne Leschin: Thank you, operator. Good afternoon, everyone, and welcome to OneStream's third quarter 2025 earnings conference call. Joining me on the call today is our Co-Founder and CEO and President, Tom Shae; and our CFO, Bill Koefoed. The press release announcing our third quarter 2025 results issued earlier today is posted on our Investor Relations website at investor.onestream.com, along with an earnings highlights presentation. Now let me remind everyone that some of the statements on today's call are forward-looking, including statements related to guidance for the fourth quarter and year ending December 31, 2025. Forward-looking statements are subject to known and unknown risks, uncertainties, assumptions and other factors. Some of these risks are described in greater detail in the documents we file with the SEC from time-to-time, including our quarterly report on Form 10-Q for the quarter ended September 30, 2025, that we filed today. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. During our call today, we will also reference certain non-GAAP financial measures. There are limitations to our non-GAAP measures, and they may not be comparable to similarly titled measures of other companies. The non-GAAP measures referenced on today's call should not be considered in isolation from or as a substitute for their most directly comparable GAAP measures. Management believes that our non-GAAP measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses that may not be indicative of our ongoing core operating performance. Reconciliations of our historical non-GAAP measures to the most directly comparable GAAP measures can be found in this afternoon's press release and the earnings highlights presentation posted on our Investor Relations website. We are not able to provide reconciliations for forward-looking non-GAAP measures without unreasonable effort because certain adjustments cannot be predicted with reasonable certainty and could be significant, particularly related to equity-based compensation and employee stock transactions and the related tax effects. Now I'll turn the call over to Tom. Tom? Thomas Shea: Thank you for joining us this afternoon. Third quarter was a story of focused execution. Facing headwinds and contract rationalization in our U.S. Federal business, the team exceeded expectations with strong billings growth in the quarter. More recently, at our sold-out Splash EMEA user conference, I was incredibly energized by the enthusiasm we received for our purpose-built finance AI. As we usher in the finance AI era, we remain one of the most innovative vendors in the CPM space, and we're not stopping there. We are constantly pushing forward and anticipating the growing demands of the office of the CFO. Let me start with some highlights of our third quarter performance. Year-over-year subscription revenue grew 27% and billings grew 20%. International revenue grew 37% year-over-year, particularly due to strong legacy replacement momentum in Europe. In the federal business, we renewed all of our Q3 agency customers with only one exception at a discontinued agency. We added one new federal customer and began multiple SaaS conversions, including one at our largest agency customer. CPM Express and our SensibleAI portfolio continue to show early momentum with customers. We are attracting new and existing customers by leveraging the proven customer ROI from SensibleAI Forecast. Additionally, OneStream was recognized as the exemplary leader in the 2025 Record to Report Buyers Guide by ISG Research, covering financial close, consolidation and overall record to report, achieving the highest scores in both customer and product experience. With AI at the forefront across all facets of business today, the drivers of our industry have never been more important for the office of the CFO. Number one, finance is in the initial phase of its transformation. Legacy financial systems often more than 20 years old, simply do not have the agility required for today's CFOs to effectively steer their businesses, never mind to maximize the value of AI. Finance organizations continue to look to modernize by unifying corporate data and moving core financial operations to the cloud. Number two, the role of the CFO is evolving and expanding. CFOs are being asked to do more than ever by becoming a strategic partner for the business. An integral part of that is helping them proactively look around corners, to anticipate challenges and opportunities and produce more timely and accurate forecasts. Number three, the use of AI is enabling finance teams to drive more business performance, not only measure it. In many cases, CFOs are the executive leaders taking responsibility for the AI evolution at their companies. They are being tasked with identifying key functions that can leverage these AI tools for productivity improvements and cost efficiencies. We believe platforms that provide purpose-built applied AI solutions will win the AI battle given the need for a single consistent data model and security framework. At OneStream, we have always challenged ourselves to raise the bar. Our approach to AI has been both forward thinking and deliberate. Since we began this journey a decade ago, we have gained a foundational understanding of what AI can bring to the office of the CFO by combining powerful quantitative, generative and agentic capabilities throughout our SensibleAI portfolio. We understood early on that AI for finance must run on clean data, provide context and solve specific use cases because 80% accurate is 0% useful for finance. Ultimately, we believe OneStream provides the key that unlocks the value of AI for finance through unified, secure, transparent and most importantly, contextualized information. Through our many AI announcements this year, customers are beginning to realize the growing power of our platform to drive better and faster decision-making and enhance their productivity. By modernizing the financial close process, customers are now able to, number one, unify their data on a common platform. And number two, interrogate that data using financially intelligent embedded AI; and number three, enhance and optimize the close process, enabling finance teams to focus on strategic high-value priorities such as integrated planning and forecasting. Just a few weeks ago at Splash EMEA, we again pushed the boundaries of applied AI for finance. We showed real package solutions designed specifically for finance, which we expect to deliver significant value for our customers. Let me recap some of our exciting product announcements. Since we introduced SensibleAI Studio in May, we have roughly doubled the number of algorithms currently available to 60. As you recall, Studio enables customers to quickly access a library of algorithms and routines and apply them to their own workflows. We showcased an example of this power and flexibility at Splash EMEA. Just 1 month after Studio's launch, our forward deployed engineers rapidly built our AI-powered benchmarking and outlier detection routine based on real-time customer specifications. Studio allows us to meet customers where they are in their AI journey, and we believe we are just scratching the surface of Studio's potential. We also took a big step with our SensibleAI agents, moving them out of private preview and into limited availability. So now our customers can begin to take advantage of them. Our agents are unique because they do not act alone. What's important is that they have financial context. They are embedded into solutions within OneStream, giving them direct access to all the customers' secured data stored on the platform. This allows finance teams to do tasks like ask questions in natural language, generate dynamic visualizations, query financial models and analyze contract data. Agents provide the ability to help automate repetitive work, reveal insights and help every analyst operate more like a strategic partner. We also unveiled AI-powered ESG. This enhanced solution is the culmination of our 3 strategic pillars. Core finance, operational analytics and finance AI. With AI-powered ESG, finance teams are able to link ESG reporting back to the core platform using real-time operational drivers, while automating quantitative forecasting by using SensibleAI Forecast. Further, we plan to embed our SensibleAI agents throughout the workflow to assist with data interrogation and reporting. Lastly, we continue to advance our best-in-class core finance capabilities by expanding our rapid deployment CPM Express with IFRS compliance and management. This includes a number of confirmation and validation rules adhering to IFRS Accounting Standards for our international customers. This is but one example of how we plan to expand our Express offer. Leveraging our plug-and-play architecture to bring a variety of rapid deployment productized use cases to our customers. Both at Splash EMEA and during the quarter, we had several noteworthy examples of how customers are seeing increased value from our strong and growing product line. Continuing the trend in recent quarters, OneStream is quickly becoming the CPM vendor of choice for companies transitioning from legacy systems nearing their end of life. One of the largest deals this quarter came from a Swiss multinational healthcare leader and a global leader in cancer treatments. A long-time customer of a competitive legacy CPM solution, the organization moved to OneStream to better unify financial consolidation, reporting and tax processes. They chose OneStream for our extensibility and flexibility. This significant legacy replacement marks our first big pharma win, highlighting how leading enterprises are modernizing with our unified platform. Additionally, with CPM Express, commercial customers are gaining access to the full power of OneStream with rapid deployment and best practice templates, workflows and frameworks all built in. Today, companies that are earlier in their financial journeys are starting to recognize just how valuable it can be to access our single unified platform with a preconfigured offering that can be implemented in as little as 8 to 12 weeks. One significant CPM Express win this quarter was with a leading residential real estate services company. Having recently centralized its finance and other core functions under a shared services model, the company needed greater visibility, agility and standardization across the business. Facing a legacy system infrastructure across their environment, we leveraged CPM Express to give the customer confidence in a faster, best practice-driven implementation with rapid time to value. Ultimately, they chose OneStream for our superior data integration, flexibility and finance own architecture. This empowered the finance team to streamline and modernize account reconciliations and transaction matching, all while reducing their dependency on IT. Lastly, we wanted to provide an update on a few major multinational customers that have gone live with SensibleAI Forecast and the remarkable ROI that they are realizing with the product. One of the great stories comes from the domestic healthcare division of a leading global logistics provider. They implemented SensibleAI Forecast across their U.S. operations to enhance financial forecasting as the company is developing an AI-powered approach, they reported that OneStream's SensibleAI Forecast is delivering measurable results. Gross revenue forecast accuracy has improved by 5 percentage points. Payroll forecast accuracy has improved by 8 percentage points. Forecast generation time has been reduced by 94%, freeing up more than 13,000 labor hours annually and eliminating the need for third-party specialized tools and staff augmentation. With these strong results, the organization is now expanding its use of SensibleAI Forecast to the healthcare division's international operations. Another long-time U.S. customer that builds systems and technology solutions deployed SensibleAI Forecast earlier this year. The customer was looking to transform its forecasting process for key financial metrics, including revenue, margin and SG&A using OneStream's single unified data model. SensibleAI Forecast has taken their forecasting and planning cycles from 20 days to less than 2 days, a 90% plus reduction. Additionally, the customer saw a noticeable improvement in forecast accuracy. One of the key features that led to the selection of SensibleAI Forecast was its ability to provide clear insights into how internal and external factors drive forecast outcomes. It is this level of transparency that is strengthening their trust in OneStream across its finance organization. In summary, the overarching drivers of the office of the CFO remains front and center today. OneStream has always looked to the future to anticipate and invest in what our customers will need and want to run their businesses more effectively. We have consistently been ahead in recognizing industry trends and emerging technologies as we have demonstrated with AI. Today, our customers are realizing the value that a unified and infinitely extensible platform delivers. Our SensibleAI provides insights and actions that are quantifiable and supercharged because of the high-quality and contextualized data controlled in OneStream. Our comprehensive platform has positioned us to lead the finance AI era and become the operating system for modern finance. Together with our exceptional team, we believe we have built a solid foundation to grow and scale the business. This gives me confidence in our ability to deliver unparalleled value for our customers, partners and shareholders over the long-term. I will now turn the call over to Bill to provide details on Q3 financials and our financial guidance. William Koefoed: Thanks, Tom. Good afternoon, everyone, and thank you for joining today's call. We are pleased to discuss the results of our third quarter, which proved stronger than expected as the team executed well, particularly in EMEA, while managing through a tough federal government environment in the U.S. Subscription revenue increased 27% year-over-year to $141 million, while total revenue grew 19% year-over-year to $154 million. License revenue of $4 million declined 64% compared with last year due to contract rationalization and our success in driving SaaS conversions, including at our largest federal agency customer. Professional services and other revenue was $9 million, up 38% year-over-year due to demand for our consulting services. Our international business had another strong quarter with revenue growth of 37% year-over-year, representing 34% of total revenue. Billings increased 20% year-over-year to $178 million and 21% on a trailing 12-month basis, which we believe is the best indicator of our billings momentum. This included roughly $4 million of accelerated billings from Q4 due to early renewals and add-ons. Free cash flow for the third quarter was $5 million and exceeded our expectations. We ended the quarter with 1,739 customers, up 13% year-over-year. We saw exceptional new business growth in EMEA, while in the U.S., we had particularly strong add-on business, partially offsetting the federal new business weakness and illustrating the value of our multiproduct strategy. For the first 9 months of the year, subscription revenue has increased 29% year-over-year to $400 million. Total revenue grew 23% year-over-year to $438 million. AI bookings were up 60% year-over-year, and our free cash flow for the first 9 months of the year was $70 million, up 107% over last year. Our 12-month cRPO was up 29% year-over-year and total RPO was up 24% year-over-year to $1.2 billion. Non-GAAP gross margin for the third quarter was 69% compared to 71% last year, and our non-GAAP software gross margin for the third quarter was 75% compared with 78% last year, primarily due to lower license revenue in the third quarter. Non-GAAP operating income for the third quarter was $9.3 million or 6% of revenue and increased significantly by $3.8 million or 69% compared with the prior year. This increase was due to a combination of strong revenue growth and the scaling of our operating expenses. Non-GAAP net income of $15.2 million in the third quarter increased $3.9 million from the prior year and non-GAAP earnings per share was $0.08, flat with last year. Total equity-based compensation expense for the third quarter was $25 million. We ended the quarter with $654 million in cash and cash equivalents. Now let me turn to guidance. Given our Q3 outperformance, we are raising our 2025 growth and profitability outlook. Together with our strong pipeline, we entered Q4 with a growing and more differentiated product portfolio than ever. With that, we are offering the following outlook, including an update to a onetime measure that we gave last quarter. In Q4, we expect total revenue to be between $156 million to $158 million. We expect non-GAAP operating margin to be between 4% to 6%. We expect non-GAAP net income per share to be between $0.04 to $0.07. We expect stock-based compensation expense to be approximately $25 million. Taking into account the roughly $4 million of accelerated billings in Q3, we expect billings growth of roughly 20% for the fourth quarter. For full year 2025, we expect total revenue to be between $594 million to $596 million. We expect non-GAAP operating margin to be between 2% to 3%. We expect non-GAAP net income per share to be between $0.15 to $0.19. We expect stock-based compensation expense to be between $115 million to $120 million. While we plan to give formal 2026 guidance in February, the combination of our Q3 outperformance, strong pipeline and innovative product portfolio make us comfortable with current Wall Street consensus for full year 2026 revenue and non-GAAP operating income. In conclusion, Q3 was a strong quarter. Our results underscore the power of the OneStream platform to bring the office of finance into the AI era. Now let's turn it over to the operator for Q&A. Operator: [Operator Instructions] And our first question comes from the line of John DiFucci with Guggenheim Securities. John DiFucci: Listen, on the federal dynamics this quarter, first, I want to say we really appreciate your transparency here, both last quarter and this quarter. In fact, we factored it into guidance. But your overall results really didn't skip a beat, and it's great to see subscription still growing at a really healthy clip here. It sounds like you only lost one federal contract because that agency was discontinued, but you also added a new federal customer. But I'd really like to better understand the remaining account, the renewals. And Bill, you mentioned the license rationalization. Anything you can add to help us better understand renewals in the September quarter and what this means for the future? It would be great. We're just trying to better understand the federal opportunity going forward within the context of the overall beat and raise this quarter. William Koefoed: Yes. Thanks for that, John. I'll take that and appreciate the commentary on the transparency. That's certainly something that we aspire to do and appreciate the comments. Look, the federal government, obviously, there were a lot of moving pieces as we went into the third quarter. We had SaaS conversions at a couple of our biggest agencies, and that obviously impacted license revenue, but obviously will flow through our subscription revenue in future quarters. And as you noted, we only lost one federal agency that actually doesn't exist anymore. It actually got merged into another agency. And obviously, we added a new one, as you noted. So we're really optimistic about our federal government opportunity as we turn the corner into 2026 now that I think we've gotten through this quarter, and we'll hopefully execute on that as we enter the year. Operator: Our next question comes from the line of Chris Quintero with Morgan Stanley. Christopher Quintero: Tom and Bill, congrats on a solid quarter here. I want to ask about AI. We've seen some data points that suggest that finance and accounting is actually one of the top areas that organizations are looking to deploy their AI budget dollars over the next 12 months. So I'm curious, like is that aligning with kind of what you're hearing from your customer base? And what are some of those kind of initial most important use cases that you're seeing them deploy some of your technology into? Thomas Shea: Thanks, Chris. Yes, I'll take that. As I mentioned in the remarks, we really feel great about our position in AI. We feel we're primed to lead the finance AI era. And what I mean by that is there is a lot of opportunity in finance, especially when you have a platform like OneStream that has this highly contextualized high-value information. So the use cases that you can think of -- you've heard us talk about SensibleAI Forecast, that's clearly predicting the quantitative outcomes for a business in those key line items that you heard, whether that's demand, whether that's multiple cost line items, that has a profound and direct impact on how you can manage your business. But that's just the beginning. With the comprehensive AI platform that we have, and you heard me talk about Studio as well, that opens up all kinds of additional use cases, outlier and sort of benchmarking analysis, giving companies the ability to do and measure their business in ways that they haven't been able to in the past and take immediate action. And then ultimately, agents, right? The autonomous financially intelligent coworkers that were -- we've built into the platform, that is very, very high interest in our customers because of the potential to actually interpret all this information, help take action and do repetitive work. So we feel finance is definitely embracing this opportunity. And again, our understanding of the deterministic nature of AI required for finance puts us in a great position to answer that need and interest for the customer base. Operator: Next question comes from the line of Adam Hotchkiss with Goldman Sachs. Adam Hotchkiss: I think you made the comment, Bill, about being comfortable with Street estimates for '26. And I think what's notable about that is there's less of a deceleration baked into numbers for '26 relative to '25. And so you're exuding some confidence and some growth stabilization. So if you could just maybe rank order for us qualitatively what the big drivers are there that helpful. William Koefoed: Yes. Let me talk about just about the overall performance of our business, and I think that will answer your question. And we saw this this last quarter. EMEA really performed super well this quarter. As Tom mentioned, some pretty big lighthouse wins that we had there. Obviously, considerable strong growth, strong momentum, and we're really optimistic about the opportunity that we see in EMEA. Asia Pacific continues to be a small but growing area of our business, and we expect that momentum to continue. And in the U.S., certainly, Tom's talked about CPM Express and the opportunity that we see in the commercial business. That is just getting started, as Tom mentioned, and we see strong opportunity there, particularly as we get into more verticals. Actually, I didn't mention it in EMEA, but we just released IFRS Express, which is a really awesome opportunity for us there. And then on the enterprise side here in the U.S., obviously, Q4 is our biggest quarter. And we -- as I mentioned in my commentary, we feel great about the pipeline. The team is working to execute. We actually signed a really nice big deal today, which we're excited about against 2 very strong competitors, and that all gives us optimism about 2026. Operator: Next question comes from the line of Koji Ikeda with Bank of America. Koji Ikeda: I wanted to double-click on the 2026 guide and really about pipeline assumptions and conversion assumptions in the fourth quarter guide and heading into 2026. How are you thinking about those assumptions? I guess, more specifically around conversions? Is it more conservative heading into 2026? Is it the same? I mean I just wanted to understand what is giving you the confidence to level set 2026, but also kind of expressed a lot of confidence there at the same time. William Koefoed: Yes. No, I'll take that. I mean, look, every quarter, every year as we start our forecast for the quarter and as we start our budgeting process for the next year, we look at 2 things, right? We look at our pipeline, which is arguably kind of the biggest driver of growth. And the second characteristic of that is obviously our conversion rate. And it obviously varies a little bit by quarter, but we certainly look at that as we enter the quarter and as we enter the year. In addition to the fact that we have our core business, as Tom mentioned, we're really enthusiastic about our new products. Tom's talked about our Agile Financial Analytics, which we see customers really excited about. We have our SensibleAI Forecast, which is showing some very strong growth. As I mentioned in my remarks, it's up 60% year-over-year, and we continue to see very strong pipeline as customers are seeing the results like Tom talked about in the script of better forecast accuracy, improved speed to forecast and just the benefits that we see there. Obviously, AI Studio is something Tom has talked about. And again, candidly, that new customer that I mentioned earlier has -- that's part of the solution that they've acquired. And then obviously, agents, which are just being released, we just announced limited availability when we're in Splash a few weeks ago. So look, as I mentioned in my closing remarks, we have our best product portfolio we've ever had going into any year. We have a very strong pipeline, and that gives us the confidence to obviously give our outlook for 2026. And again, I would just say like we'll give you more formal numbers when we get into February, but we just kind of wanted to give you a little bit of an update like I did. Operator: Next question comes from the line of Alex Zukin with Wolfe Research. Aleksandr Zukin: I appreciate that incremental color about the pipeline. I guess to that point, it sounds like, Bill, billings growth is going to accelerate if you take the fact that you pulled in or you had some early in Q3 and yet you're still kind of calling for really strong billings numbers in Q4. So maybe just comment on the demand environment as you kind of sit here in October? And also a metric that we haven't talked about at length previously, but like as you continue to see a lot of expansion opportunities from Sensible as well as moving into other parts of the finance workflow or outside of the core finance workflow, how should we think about NRR trends from here kind of moving forward as well? William Koefoed: So Alex, let me start with the last part of your question. I know you and I spent a lot of time talking about NRR. But we had this last quarter, as I mentioned, I think in my remarks was a really great add-on quarter. And it ended up being part of the upside that we saw in our numbers was -- were the add-ons. And candidly, it's just an illustration that our multiproduct strategy is working. A couple of years ago, we didn't have all these kind of new products that we've been introducing. And as Tom mentioned in his remarks, I think we're just getting started in our innovation around our products. Look, on the billing side, I would just tell you, again, we outperformed this quarter. We did have a bit, as I mentioned in my commentary, we saw some early renewals because -- back to your NRR point because our customers wanted to add on new products. And so we saw a bit of that in the third quarter. But obviously, in the guidance that I gave you for Q4 and as I think I mentioned that I don't expect to guide billings every quarter, but I thought it was important as we kind of went through Q3 to Q4 that we gave you that color. And obviously, we're enthusiastic about the quarter ahead. Operator: Next question comes from the line of Terry Tillman with Truist Securities. Terrell Tillman: Bill, it's always nice to hear about a deal closing, an important deal closing like in real time. William Koefoed: Terry, it's pretty exciting when we have a deal close on the day of earnings. I have to tell you, Tom and I were high-fiving at each other. Terrell Tillman: Well, if one closes before the end of the call, we'd appreciate another update. William Koefoed: We'll keep our eyes out. Terrell Tillman: My one question relates to EMEA. It does sound like you're firing on all cylinders there, and there's a lot more where it came from. What I'm curious about is there something going on with this replacement cycle. We know there's a lot of technical debt in these 20-year-old systems. Is there something that seems like it's accelerating in that cycle of replacement? And part of this is also -- but your field sales coverage is probably expanding, so maybe it's becoming more productive or maybe it's partners. But just maybe you could kind of stack rank some of the drivers that's driving that momentum. Thomas Shea: Thanks, Terry. I'll take that. And you pretty much hit on it. It's the fact that we're getting more scale in the region. So we are seeing that ability to have more coverage across the different countries. Secondarily, there is the opportunity of legacy applications that are coming up. And just to remind everybody, as I've mentioned in other calls, the foundation of getting access or being trusted to take those legacy replacements is that we've had prior success. And so when we think about that and we think about that opportunity, we're building on those foundational wins in that segment and some of those transformations that are happening. And then ultimately, when we look at the product portfolio and we look at the enthusiasm for our product, that is sort of the third component that I see driving it. But I definitely want to call out the execution of the team over there and the growth that we're seeing, and there's a lot of excitement. Operator: Next question comes from the line of Steve Enders with Citi. Steven Enders: I guess I want to follow-up on the AI side of it. I think the bookings growth you called out there, I would say it was 60%. But I guess what are you seeing maybe in the pipeline? Like are you starting to see incremental builds there from the sales build-out that you've been talking about for the past year or so? And then just how do you kind of view the future pipeline opportunity as we kind of go into '26? Thomas Shea: So we look at the current pipeline as a great validation of the momentum that we're building, first and foremost, is the way that I would talk about. So as we think about the product strategy that we have in AI, our AI portfolio consists of the first product SensibleAI Forecast, which is driving that adoption through the validation that I shared in my remarks. And so as we look going forward, what we're seeing is, again, early days, but excitement around AI Studio. It just opens up so many additional use cases. And the way that you want to think about AI Studio is AI everywhere in our platform. That's why we invented that product so that we can drive AI into meaningful workflows across our customers' set of use cases that they're enjoying on the platform. And then ultimately, we are very, very excited about what we're -- the feedback that we've been getting and the partnering, frankly, that we've had with our customers in the agentic space because, again, this is all -- this is a building process for us. It was quantitative, generative and agentic working together on a contextualized platform. And so as we look to 2026 and continuing the rollout of our limited availability of the agents, we're very excited about that opportunity and bringing that to our customers and again, building on that same momentum that we're seeing from SensibleAI Forecast. Operator: Next question comes from the line of Scott Berg with Needham. Scott Berg: Really nice quarter here. Tom or Bill, I just wanted to see if you could maybe comment on what you're seeing early with the revenue opportunity for the agents. I know they're not fully released in general availability yet. But I think a key question we've all kind of had is, as you release those, I guess, what's the uplift there? And does it impact any of your seat-based model at all? Thomas Shea: Sure. I'll take that. And as we look at agents, we're still in the early days in terms of the -- going from private preview to limited availability. So pricing, you can expect to be more of a usage-based pricing the way we price the other AI services products. And we think we have a strong applied approach, which is key here, and that is demonstrated value of our finance analyst agent. What we see this is a -- as I mentioned in one of my remarks, it's an autonomous coworker. It's the ability to help the customer get more value, do work efficiently and then let their team members do more high-value work is quite frankly, what we see. So, we see this as incremental revenue rather than sort of a replacement or displacement of seats. And I think that's largely what you're going to see in the financial space. There's certainly optimizations. But as we've highlighted in some of the studies that we've done, the 2035 finance, like you have -- finance teams are generally overworked, overstressed. It's not that there are always way too many people, right? They want to have those people working on the most important areas of the business, to be a true partner of the business. And we think that we're an unlock for that, giving them efficiency to do the things they have to do and help them be more of a business partner. Operator: Next question comes from the line of Mark Murphy with JPMorgan. Mark Murphy: Can you comment on traction in some of the emerging applications that sit outside of the core, maybe shed some light on where you see the strongest growth vectors? For instance, noticing you have account reconciliations now that are driven by SensibleAI. And then the supplier analysis, I'm wondering if there's any more interest there in the wake of the tariffs? And any brief mention on the big pharma win? Congrats on that. Just wondering if you see that as a linchpin to going a little deeper in a new vertical? Thomas Shea: Thanks, Mark. Yes, there's always -- if I can just orient everybody on our platform and our platform message. And I think this is critical to helping you -- to help everybody kind of baseline this. We think of the platform as having 3 key components: core; operational; and AI, kind of think of it as a triangle. Core is the stuff everybody has to do. Every big business has to do this, the things you have to get right. We need to help our customers become as efficient as possible. And to your point, Mark, the thing they want to do, though, is they want to help -- they want to start turning that fast-changing operational data, those operational use cases into a signal that they can take action on. So we have always seen a lot of interest in that particular space. And the fact that with our AFA or what we call Agile Financial Analytics, our ability to do more real-time analytics, no ETL, directly on top of operational sources and have our agents be able to interact with that data as well is an area that we're continuing to push into. And those are, again, some of the key innovative areas that are underpinning our excitement in the business and the opportunity that we see ahead. And so -- and when you think about these operational use cases, whether that's -- you mentioned AI-powered account reconciliations. We have that under an umbrella that we call the modern financial close. That's an opportunity for us to, again, to double down and address certain personas and make sure that they understand that we're delivering the key capabilities and technologies if you're a controller, to help you not only do your financial planning, your financial reporting, but also deliver on those and become more efficient at your closing. So any and all of those opportunities are what lie in front of us. And you'll see us continue to develop more and more productized use cases in those areas, as you mentioned, supplier analytics, and these are all areas that are part of our ongoing verticalization strategy and intention to focus in these areas. Operator: Next question comes from the line of Jake Roberge with William Blair. Jacob Roberge: I just wanted to follow-up on the new agentic offerings entering limited availability. Could you talk a little bit more about the feedback you've gotten from customers and if there are any specific agents that you're seeing drive outsized interest for the platform right now? Thomas Shea: Sure. So let me first just talk about the agent set that we have in play, just to level set for everyone. So we have our finance analyst agent. You can think of that as a structured kind of data analyst that understands the OneStream data architecture, data repository, highly contextualized data and can help with analytics, can help with reporting, answer questions that can help with education because individuals that don't understand some of the data models that customers have built now have access to that information. So it's broadly applicable. And that's a very high interest agent within our customer base. The other couple of agents that are also getting a lot of interest are our search agent and our deep analysis agent. These complement and contextualize and synthesize with our finance analyst agent. So meaning if you have an interesting set of analytics that are coming out from finance analysts, but you require additional information to provide context such as contract-based analysis, our agents, we've developed an agentic workflow. So the thing that has come out of the interaction with customers is more than -- these aren't just chat-oriented interactions. We've built an entire workflow-based interaction which will allow us to truly assign tasks that can be done on a repetitive basis. And this is some of the feedback loop and the processing that our AI engineering team has been working with to rapidly innovate that and make sure that we're iterating and delivering in real-time what the customer is looking for out of these agents. Operator: Next question comes from the line of Siti Panigrahi with Mizuho. Unknown Analyst: This is Phil on for Siti. Can you talk about what you're seeing in terms of competitive displacements like Hyperion and SAP? And how important are these legacy displacements in achieving the preliminary FY '26 growth targets? Thomas Shea: So when we look at the historical legacy replacement, it's a consistent and a large opportunity that we're continuing to focus on. And so it's obviously an important part of our numbers. It's an important part of our selling [ motion ]. But the thing I do want to make sure that we all focus on is any business -- as I mentioned, the core pillars of our platform. Any business that develops any degree of complexity in their own financial operations has a very high need for OneStream's platform. And that's, again, why we tend to focus on CPM Express and the productized approach because we view all companies that have those needs as our customers. So we want to continue to focus heavily on the replacement of legacy systems and help those customers that have been in the CPM world for a number of years, but also make sure that we're extending and onboarding any company that has that growing need for a full CPM solution. So I just want to make sure that I share the way that I see this expansive opportunity consisting of both legacy and evolving companies. Operator: Next question comes from the line of Brian Peterson with Raymond James. Unknown Analyst: This is John on for Brian. Maybe following up a bit on that earlier question on sales pipeline and as we think about customer sizes. You mentioned an acceleration in legacy CPM replacement, but then CPM Express also accelerating adoption in the commercial side of the equation there. So how have those been tracking in 2025? And as we look towards 2026, realizing that both might be the answer here, what are you most excited about? And what opportunity do you see creating the most potential upside in 2026? William Koefoed: Yes, I'll take this. It's Bill. I would go back a little bit to some of the commentary that I made earlier. We're really excited about EMEA's growth and continued trajectory. Again, I think Tom mentioned CPM Express. I mentioned IFRS Express specifically for EMEA on the commercial side, and we see that as being a really big opportunity. We see EMEA enterprise as well as a big opportunity, obviously, with the legacy replacement opportunity there. And again, there's a lot of change going on, on the ERP stack there, too, which is actually tailwind in our favor. I mentioned Asia Pacific. And in the U.S., they've been our biggest driver of AI sales so far. I think that will continue to extend to other geographies. And then as Tom mentioned, just the whole opportunity that we have to continue to grow the core, to continue to offer capabilities around Agile Financial Analytics and then as I mentioned earlier, our AI portfolio. So it's hard to choose your favorite child. We love them all, and we think they're all great opportunities for us to grow. Operator: Next question comes from the line of Brett Huff with Stephens Inc. Brett Huff: On a nice quarter. I wanted to follow-up on the Agentic AI comments you made. But first, given the market is still anxious on how long it will take enterprise AI to get ROIs, congrats on those really good proof points in the forecasting business. I thought those are notable. But the follow-up question is talking more about how your agents will or won't or how they'll interact with agents from other software firms. Do you view a world where there'll be kind of Uber software or Uber agents that coordinate things across workflows? Do you aspire to have that particular position? Or is this a battle or more of a cooperation as you look beyond the 4 walls of just your data architecture? Thomas Shea: Thanks. I'll take that. It's something that I think about a lot and my evolving thought on this is OneStream has the right to be, if not the best, one of the best agents in the financial realm, meaning, because of the highly contextualized data, we want to be the best, most reliable, understanding, again, that if you're a CFO and you're trying to use a generic non-financially aware type of agent that doesn't have high context, you're going to get inaccurate results, 80%, 50%, you name it, whatever, which will become 0% useful for the CFO. And so we really feel that we have the right to be that -- in that domain, the agent set of choice. Now to your point, with agent-to-agent protocol, multi-agent orchestration, we're not naive to think that other vendors that have platforms, that have other highly contextualized information also have a right to have agents that are highly attuned and aware of that highly contextualized information. We will -- those eventually -- my -- I'm being a futurist now. My view is that we will see those of us that have platforms and highly contextualized information, our agents will work in coordination with some sort of multi-agent protocol at a higher level. And that's where I do think there will be a battle maybe by hyperscaler or there will be a real battle in terms of who wants to own that masterful entry point into the agent ecosystem and then pick the right agent for the right question and do that synthesis. So as this plays out, we're really focused at the moment on making sure that we have the right protocols in place to play in agent-to-agent communication and multi-agent orchestration. But more importantly, at this moment is delivering the ultimate value that our customers want from our agent set within the context of the CFO. Operator: Next question comes from the line of Derrick Wood with TD Cowen. James Wood: Bill, can you give us a sense how you've handicapped some of the risks around the government shutdown as you guided for Q4? And then looking beyond just with FedRAMP High authorization with DOGE behind us, just how are you feeling about building -- rebuilding momentum in the U.S. Fed? Do you think they'll have kind of a bigger appetite to come back and spend or modernize? Or how do you feel about the visibility there? William Koefoed: Yes. No, great question. I'm going to answer your second one first. Look, this Q3 was a challenge, obviously, as all software companies were kind of coming up to the end of the government's fiscal year-end. And again, I think we executed -- we were really happy to have SaaS conversions because obviously, that's the genesis of our business. And so that was something that we were certainly hoping for, and it's nice to have that behind us for sure. As we look forward, as you mentioned, we're the only kind of cloud CPM vendor that is FedRAMP High, and that gives us the opportunity to serve agencies within the government that require that level of security, and we feel exceptionally well positioned to be able to take advantage of that opportunity. And so we're definitely taking advantage of that as well as we're working to get AI FedRAMP High certified as well because the government has actually asked us and has strong demand for AI capabilities that, again, no one else has similar capabilities that we do in that arena. Look, as it relates to the government shutdown, I think we all hope the government shutdown ends quickly. We're obviously working with our customers to kind of navigate through it. And I think all of us on this call probably have our fingers crossed that it ends quickly. Operator: Next question comes from the line of Andrew DeGasperi with BNP Paribas. Andrew DeGasperi: I just wanted to ask without getting a guide for next year, like in terms of the balance of license and services and subscription, would you say that the license revenue sort of decline, is it going to be reflective of what happened this year? Or are you expecting a more muted kind of deceleration there? And I have a follow-up. William Koefoed: Yes. Well, you're our last call -- so we'll let you do the follow-up. Although I think the operator might have cut you off. But anyway, look, this was a big year, particularly this last Q3 for a transformation from license to SaaS, arguably our biggest year. You should expect to see overall SaaS migration over the next couple of years, and at which point we likely won't have very much license revenue remaining. And as I said before, on the PS&O side, I think you'll see that be some slight growth, but we certainly -- it was a big growth quarter this year. But if you recall from last year, we had a tough Q3 last year. So -- but I think on a run rate basis, our PS&O business is probably in pretty good shape where it's at. Operator: And our last question comes from the line of Mark Schappel with Loop Capital Markets. Mark Schappel: I have a question around the sales team. Just a question around the sales team, which has been obviously executing very well here. Could you just comment on any changes or fine tuning to the sales and marketing strategy that maybe we could expect in the coming quarter or 2? And also where maybe you plan to just prioritize additional sales investments? Thomas Shea: Sure. So as we've talked about, selling the -- I'll kind of go back to my overview of the opportunity that we have in front of us, right? We're selling the -- we have the legacy market that our sales team is geared towards, understands and knows and we've been selling for years and years. We also are introducing the steady pipeline of products. So what you can expect to see from us is a more concentrated effort on scaling across those different product lines, while we maintain a strong focus on our core business that we've been talking about. So the way that I view the investments in the sales and marketing team is in that scale-based approach to make sure that we're properly positioning all the AI innovation, the CPM Express. The good news is it's that straightforward to sell a more productized solution is contained, and we're excited because you get to really scope in and meet the customer in a use case-oriented fashion. Operator: That concludes the question-and-answer session. I would like to turn the call back over to the management team for closing remarks. William Koefoed: Yes. I'd just like to say thanks, everybody, for joining us. We look forward to seeing you at upcoming events, and hope you have a great rest of your day. Thomas Shea: Thank you. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining in. You may now disconnect.