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Operator: Greetings, and welcome to HASI's Third Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Aaron Chew, the Senior Vice President of Investor Relations. Aaron Chew: Thank you, operator, and good afternoon to everyone joining us today for HASI's Third Quarter 2025 Conference Call. Earlier this afternoon, HASI distributed a press release reporting our third quarter 2025 results, a copy of which is available on our website, along with the slide presentation we will be referring to today. This conference call is being webcast live on the Investor Relations page of our website, where a replay will be available later today. Some of the comments made in this call are forward-looking statements, which are subject to risks and uncertainties described in the Risk Factors section of the company's Form 10-K and other filings with the SEC. Actual results may differ materially from those stated. Today's discussion also includes some non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is available in our earnings release and presentation. Joining us on the call today are Jeff Lipson, the company's President and CEO; as well as Chuck Melko, our Chief Financial Officer. And also available for Q&A are Susan Nickey, our Chief Client Officer; and Marc Pangburn, our Chief Revenue and Strategy Officer. To kick things off, I will turn it over to our President and CEO, Jeff Lipson. Jeff? Jeffrey Lipson: Thank you, Aaron, and thank you, everyone, for joining the call. Welcome to the HASI Q3 2025 Earnings Call. Before we discuss the prepared slides, I'd like to start the call today by reiterating 4 aspects of our business model and how they interact with recent market developments. One, the demand for energy continues to increase and virtually all forecasts expect this trend to continue. This demand will clearly result in greater supply, facilitating ongoing development by our clients, which in turn increases HASI's total addressable market. Therefore, the current underlying economic trends are a tailwind for our business. Additionally, if demand causes power curves to increase, our existing portfolio of investments will become increasingly more valuable. Two, the operating environment remains conducive to business-as-usual activities. Capital markets have experienced relatively low recent volatility, and our clients' pipelines continues to be active and growing. Therefore, the backdrop remains very supportive for expanding our investment volumes. Three, we continue to demonstrate that our business is able to achieve meaningful EPS growth in all interest rate environments. Since interest rates began to rise in 2022, we've been able to continue to grow our earnings with higher-yielding investments, prudent hedging strategies and opportunistic debt issuances. With 3 investment-grade ratings and our CCH1 co-investment vehicle, we have become even less exposed to changes in interest rates. If the yield curve steepens going forward, we do not expect any material impact on our profitability. And four, virtually all of our investment markets are currently providing attractive opportunities. Utility scale renewables and storage, distributed solar and storage, energy efficiency, renewable natural gas and transportation have all been active markets for us in 2025 and continue to be well represented in the pipeline. And we remain excited with the emergence of our pipeline of Next Frontier opportunities. In summary, these 4 items reinforce the framework of our successful business model, further evidenced by our outstanding results this quarter. We just completed the most profitable quarter in our history and closed the largest investment in our history as we continue to consistently achieve our goals and provide outstanding returns to our investors. Now let's turn to the slides, beginning on Slide 3 and highlight a few key metrics. Our adjusted earnings per share in Q3 was $0.80, the highest quarterly EPS we have ever reported. This result was driven by strong growth in all of our components of revenue, which Chuck will discuss in more detail. Adjusted recurring net investment income, the new financial measure we introduced last quarter is 27% higher year-to-date over last year. And our managed assets, which includes our portfolio as well as our partners' assets in CCH1 and the assets we have securitized off balance sheet, were up 15% year-over-year to $15 billion. And our year-to-date adjusted ROE also has experienced significant year-over-year growth, rising to 13.4%. We are reaffirming our guidance for 8% to 10% compound annual EPS growth through 2027 and noting that we expect to achieve roughly 10% adjusted EPS growth in 2025. As detailed on Slide 4, we continue to make progress in the key areas of value creation for our business: one, originating new investments; two, optimizing return on our existing assets; and three, managing our liabilities and lowering our cost of capital. First, in terms of new investments, as the box on the left indicates, both volumes and returns have been strong year-to-date. Not only did we close more than $650 million of new transactions in Q3 for a total of $1.5 billion through the first 3 quarters of 2025, but we closed on a $1.2 billion investment early in Q4 that has put us on a path to close more than $3 billion for the full year 2025, up more than 30% year-over-year. We will discuss this investment in greater detail later in the call. Importantly, it is not only volumes that have been elevated, but our returns as well, with new asset yield in Q3 greater than 10.5% for the sixth quarter in a row. Meanwhile, our pipeline remains above $6 billion, even after taking into account the large October transaction. Second, we do not simply create value originating investments, but also in how we optimize returns over the life of the investment. One example of this is the targeted asset rotation strategy we executed in 2024 through which we were able to monetize certain lower-yielding assets in our portfolio for a gain while generating cash that we were able to recycle into higher-yielding assets. In Q3 of this year, we refinanced the senior ABS debt within the SunStrong residential solar lease portfolio, resulting in significant paydown of our mezzanine debt investments and a meaningful cash distribution to the SunStrong equity owners, of which we are 50%. This distribution created significant earnings in the quarter as we began to monetize the increasingly valuable SunStrong platform. We have also maintained a strong risk return profile in our portfolio as evidenced by minimal annual realized loss rate of under 10 basis points. This low level of losses reinforces the predictability of our cash flow and our ability to effectively underwrite investment opportunities. And lastly, we maximize value in our business with our low-cost, diversified and efficient debt and capital platform. It's notable to highlight that even after refinancing a portion of our low-cost debt due in 2026 at today's higher market rates, the increase in our cost of debt was only 10 basis points at 5.9% in Q3. In addition, we opportunistically added $250 million in hedges in September that reduced the base rate risk for our next debt issuance. Turning to Slide 5. As I briefly mentioned a moment ago, we are excited to announce a new investment that closed in October but is significant enough to mention on our Q3 call. It is a $1.2 billion structured equity investment in a major component of what will be the largest clean energy infrastructure project in North America once completed in Q2 of next year. HASI's involvement in providing capital to this project is truly a milestone event for our company and a reflection of the transaction size we can now accommodate given our access to capital. Developed and managed by one of the world's largest developers and owners of clean energy and transmission infrastructure, the project has several components. Our specific investment is for 2.6 gigawatts of wind power supplied by the largest U.S. turbine manufacturer and backed by PPAs with a weighted average life of almost 15 years, including counterparties spanning energy majors, utilities, community electricity providers and universities. Consistent with our discussion last quarter, we are investing at a derisked stage as most of our funding will occur in the first half of 2026. The expected return on the investment is consistent with our typical return targets on recent utility scale investments. The total investment commitment is $1.2 billion. However, the net impact to HASI's balance sheet will be much lower due to the investment closing in CCH1, resulting in an initial proportional commitment of approximately $600 million. Subsequently, we may add back leverage to the investment, further reducing our long-term hold. As noted earlier, this is not included in our Q3 financials and will be considered a closed transaction in Q4 with the vast majority of funding expected in Q2 of 2026. Turning to Slide 6. Our pipeline remains above $6 billion, including a pro forma adjustment to remove the $1.2 billion project just discussed as other investment opportunities have replaced this amount in the pipeline. Our pipeline of new investments remains highly diversified with strong undercurrents of demand in each of our key end markets. Higher retail electricity rates are facilitating demand in our BTM asset classes, including not just rooftop solar, but importantly, energy efficiency as well. Meanwhile, residential solar leases are expected to gain market share from loans and cash sales following the expiration of the 25D ITC at year-end. And our business is largely focused on leases and serving this end market. In addition, the grid-connected end market is experiencing larger project sizes to accommodate the growth in U.S. power demand, clearly driven by data centers, but also domestic manufacturing and the expanding use cases of electrification in general. Likewise, demand underpinning our fuels, transport and nature end market remains strong with RNG facilities in construction or in development expected to double the current installed base in North America. And finally, our Next Frontier asset classes remain an exciting new opportunity. And with that, I will ask Chuck to discuss our financial results. Charles Melko: Thank you, Jeff. On Slide 7, we highlight our Q3 profitability. And as you can see, we had meaningful growth in many of our key metrics. Jeff already highlighted our record quarterly adjusted EPS of $0.80, and our year-to-date adjusted EPS is at $2.04, up 11% year-over-year. This growth is driven largely by our primary source of revenue, adjusted recurring net investment income, which grew year-over-year by 42% in the quarter and 27% year-to-date. We are growing the recurring earnings portion of our adjusted EPS, and our equity efficiency has also helped us increase our year-to-date adjusted ROE to 13.4% compared to 12.7% for the same period last year. This growth in our adjusted ROE is demonstrating the meaningful benefits from our CCH1 co-investment vehicle, which I will speak to in a few slides. One last point on our metrics. Our GAAP net investment income does not include the earnings from our equity investments. Therefore, the adjusted recurring NII will continue to be greater than our GAAP NII. Now that I have highlighted the key results for the quarter, some additional context is useful. Jeff mentioned our diversified business model earlier, and I will add that it is also versatile, where we can generate value in different ways, such as through recurring earnings from the underwritten returns on our investments and also optimization transactions where we capture additional value that is embedded in our portfolio, such as through project-level refinancing activities, which we saw this quarter. These optimization transactions may not occur every quarter, but we consistently identify these opportunities year after year. Now on to Slide 8. Through the first 3 quarters of this year, we have closed $1.5 billion of transactions, which is greater than the same period last year. And when incorporating the transaction that Jeff spoke to earlier, we are on track to meaningfully exceed last year's total closed transactions. While transaction closings on their own are not an indicator of profitable growth, if you take into account our ability to generate new balance sheet transaction yields at an attractive level above 10.5%, we're also setting the stage for continued growth in adjusted EPS and ROE. Even as interest rates and our own cost of debt have risen over the last couple of years, it is important to note that we have been able to maintain our margins through the increase in our new asset yields and our hedging program. We expect we will continue to maintain attractive margins as well in a declining interest rate environment given our approach to investment, funding and managing interest rate risk. Next on Slide 9, we are experiencing double-digit growth in our managed assets as well as our portfolio. They have grown 15% and 20%, respectively, from a year ago. This is the base of assets from which we generate our recurring income. As we have discussed previously, we are migrating to a business model that is less dependent on new equity issuance to generate earnings growth. And the factor in accomplishing this is our CCH1 co-investment vehicle. As of the end of Q3, CCH1 has completed funding of $1.2 billion of investments, leaving $1.4 billion of available capital for future investment with the potential to increase it to $1.8 billion with additional debt at the CCH1 level while keeping its leverage level below a debt-to-equity ratio of 0.5. Our portfolio yield is at 8.6%, up from 8.3% last quarter as we are starting to see the new asset investments with yields greater than 10.5% start to come through our portfolio. The portfolio yield is the largest contributor to the growth in our adjusted recurring net investment income that is illustrated on the next slide. On to Slide 10, we provide a buildup of our new financial measure that we introduced last quarter, adjusted recurring net investment income. We are now utilizing this metric in addition to our adjusted EPS to measure the profitability of our managed assets as a whole, inclusive of both the net investment income from our portfolio as well as the recurring fee income from the other assets we manage that are not on our balance sheet. Our year-to-date adjusted recurring net investment income of $269 million has grown 27%. This component of revenue is a consistent source of earnings generated from our existing managed assets. Turning to Slide 11. We highlight a few items that will contribute to managing our liquidity and liability structure and further reduce our cost of capital. Over the past couple of years, we have significantly broadened our sources of capital and between our bank facilities, commercial paper program and our investment-grade ratings, we have a capital platform that is well-positioned to fund our growth needs at an attractive cost. First to mention is a $250 million term loan that closed after quarter end that will provide another source of potential liquidity for the refinancing of our senior bonds due next year. As we reported last quarter, we retired a large portion of the upcoming maturity through a tender offer. With our current liquidity at $1.1 billion at the end of the quarter, this term loan and our access to the investment-grade debt market, we are well-positioned to retire the remaining notes outstanding. Next, in furtherance of our focus on managing our interest rate risk, we executed an additional $250 million of SOFR-based hedges related to anticipated debt issuances and now have hedged up to $1.4 billion of our future debt issuance. On to Slide 12. This slide is a good illustration of the changes we have made to the business over the past couple of years that is accelerating our growth and returns for shareholders. We have historically just provided the total adjusted ROE metric that is highlighted in the dark blue. And while it was steadily increasing over time, it is not painting the complete picture on where our business is headed. With the introduction of CCH1 last year and obtaining our investment-grade ratings, we have meaningfully changed the profile of our adjusted ROE for new transactions. It may take some time for the higher profitability from our incremental business to fully show up in our adjusted ROE given the previous transactions on our balance sheet. So we want to illustrate where our business is headed with the adjusted ROE from incremental business by period. As you can see with our current business model since the start of CCH1 early in 2024, our newer transactions are generating a higher adjusted ROE with year-to-date being 19.6%. We expect this trend to continue and even increase as CCH1 investments are funded from debt at CCH1. Over time, you will see our adjusted ROE increase to the higher ROE that we are generating from our new business. I will now turn the call back to Jeff for closing remarks. Jeffrey Lipson: Thanks, Chuck. Turning to Slide 13, we display our sustainability and impact highlights, noting our cumulative carbon count and water count numbers reflect the significant impact of our investment strategy. We also remain very proud of our recognition, our targeted advocacy activities and the generosity of the HASI Foundation. Concluding on Page 14. To summarize the themes of this call, we just completed the most profitable quarter in the company's history, and we expect our investment volumes to exceed last year's by more than 30%. Economic trends remain favorable to our continued profitable growth. This success is the result of a resilient business model that focuses on asset level investing with long-term programmatic partners. Our approach also relies on disciplined underwriting and reasonable assumptions, and the model is further enhanced by a diversified and prudent approach to obtaining access to attractive sources of capital. Combining all of these elements with a talented and dedicated team results in consistent success despite periodic market volatility. Thank you, as always, to our talented team for this outstanding quarter. Operator, please open the line for questions. Operator: [Operator Instructions] The first question comes from Jon Windham from UBS. Jonathan Windham: Great result, by the way. I'll be very specific. It sounds a lot like you're describing the SunZia project on Pattern Energy in New Mexico. Is there a reason you're not naming the project? That's sort of a quick question. And then any color you can talk about what sort of equity stake and the economics of it would be interesting. Jeffrey Lipson: Thanks, Jon. I appreciate the question. It is the SunZia project and as you described. And -- in terms of returns, I think we talked about it being consistent with returns on recent other transactions we've had in our grid-connected portfolio. So, I think that's probably the best way we could describe the return. And it is a preferred equity investment. So, it has some structure to it. It's not a common equity investment. Jonathan Windham: Right. This is similar to other wind investments you've made in the past, you sort of get paid first. That's on the equity stack. Jeffrey Lipson: Yes. That's correct. Operator: The next question comes from Chris Denginos from RBC. Christopher Dendrinos: Echoing Jon's comments on the solid quarter. I wanted to ask about the pipeline. And I think you mentioned $6 billion, so flat quarter-on-quarter, but you've got -- I guess, if you adjust in the $1.2 billion transaction in October, it'd be up significantly. So can you just maybe talk about the pipeline here? It looks like it's strengthened quite a bit quarter-on-quarter. And just curious what you're kind of seeing from that perspective, if there's any sort of demand pull forward going on as a result of? Jeffrey Lipson: Sure, Chris. I would say, as we discussed in the prepared remarks, we did replace the grid-connected pipeline, in particular, with enough new volume such that it didn't go down after this $1.2 billion transaction that we described. Beyond that, our pipeline disclosure is, of course, not precise. We say greater than $6 billion. So I know it's hard from the outside looking in to tell if it actually went up or down in the quarter. But it's certainly at above $6 billion at a level that we're comfortable we'll have enough to invest in, in 2026 to achieve our goals. And we're not seeing too much in the way of pull forward. I would describe what we're seeing as ordinary course. And as we talked about last quarter, folks executing on their pipeline, meaning our clients, everything they're working on now is grandfathered or safe harbor, but I don't really think this is the result of any kind of pull-through. Operator: The next question comes from Noah Kaye from Oppenheimer. Noah Kaye: I want to ask sort of a broader question around investments resulting from this announcement today, the $1.2 billion. We've historically thought about the business as making smaller investments spread across a large number of projects. This is a pretty big one. But of course, as you said, energy projects are getting bigger. You've talked about data centers as the Next Frontier asset class and they're getting just on the energy infrastructure, this type of investment. So, I guess, how should we think about this investment and what it signals for your appetite to take on larger single projects going forward? Jeffrey Lipson: Well, it's a good question, Noah. We've built the business on some small and modest-sized transactions over time, but we've always, at least after -- since 2020, supplemented that with some larger transactions as well. I think this transaction is a reflection in many ways of our access to capital through both being investment grade and our CCH1 relationship. The amount of capital we can bring to the table is more significant. So, we've become a player in these larger transactions. And when it makes sense, we'll do that. We're, of course, going to manage our risk accordingly. I talked about half of this being in CCH1 and some other pathways to a lower long-term hold level. So, we're certainly managing our risk. But in terms of your broader question of how we think about the business, I think you should think about the business as we're being active in both smaller transactions where we've historically found great value and continue to find opportunities, but also supplemented by some periodic larger transactions where it makes sense for us. And so, I think this is in many ways -- I use the word milestone, but it's we graduating into access to some of these larger transactions, which are going to be more frequent, as you mentioned, because of data centers and the grid-connected development focusing on larger projects. Noah Kaye: It is a milestone, and we want to recognize that. A housekeeping item, just the ABS, the SunStrong ABS refinancing. Can you kind of quantify what the benefit was to the quarter in that because the ROE expansion this quarter was pretty noticeable? Jeffrey Lipson: Sure. And I'm going to ask Chuck to do that. But before I do that, Noah, I'm going to clarify a little bit a few items around SunStrong. I expected us to get a question on it, and I don't want there to be any confusion about what this distribution was. So let me just answer that a little more broadly and say we often refer to SunStrong and folks talking about us refer to SunStrong in a singular capacity, but we actually own 50% of 2 separate entities. One of them is SunStrong Capital Holdings, which is an AssetCo that primarily owns solar leases, most of which have been securitized. And the distribution we received this quarter was the result of refinancing the ABS debt, which due to de-levering and the very strong performance of the underlying leases resulted in essentially a cash out refi. So, there was meaningful cash distribution to the equity owners. And going forward, as an equity owner in SunStrong Capital Holdings, we'll just get the normal distributions from the waterfall of the securitized assets. The refi was a bit of a onetime. Now separate from that, we own 50% of SunStrong Management or SSM, as we call it, which is truly an operating business that provides servicing to consumer and commercial loans and leases, including the legacy SunPower and Sunnova portfolios. Now SSM is an operating business. It has its own executive team. It's performing very well. It has a business plan, which includes ongoing growth in the platform and expansion ideas. And our accounting for our SSM investment is as an equity method investment that we hold at fair value. So to the extent the underlying value of SSM increases, that would positively impact HASI's earnings. So I just wanted to create that clarification of when we say SunStrong, what we actually mean. This distribution that we're talking about in the third quarter was from SunStrong Capital Holdings. So sorry for the deviation to your actual question, I'm going to defer to Chuck. Charles Melko: Noah, so our investment in SunStrong consisted of both mezzanine level loans as well as a small amount of equity. The total proceeds from the ABS that we received was around $240 million. And the composition of that was roughly about $200 million of it went to pay off our mezzanine loans. of which we're redeploying back into additional accretive investments. But then we also -- the other remaining $40 million was related to our equity, of which we did have some small investment, like I said. And of that $40 million that we received, roughly about $24 million of it was a gain in excess of our investment. So the impact to the quarter was $24 million. Operator: The next question comes from Davis Sunderland from Baird. Davis Sunderland: Congrats on an awesome quarter. Just one for me. I wanted to ask just how much the tax credit changes from Big Beautiful Bill have maybe impacted the types of investments you're seeing by asset class? And I guess the root of my question is just wondering if you've seen any opportunities in the last couple of months in discussions to step into a potential hole in the cap stack or any other ways that there have been puts or takes. Jeffrey Lipson: Sure. Thanks, Davis. I'm going to ask Susan to answer that one. Susan Nickey: I think at this point, with the extension of the tax credits for wind and solar, by and large, for 5 years with safe harbor and started construction and storage and some of the other credits that extend longer, I think we're still seeing the traditional combination of tax equity structures and transfer structures to dominate the market. So, we're still -- we still have this longer transition period before we expect to see a change in the capital stack to not include tax credits. Operator: The next question comes from Maheep Mandloi from Mizuho. John Hurley: Jack on for Maheep here. Congrats on the quarter. A lot of third-party ownership have talked about prepaid leases. Is that a kind of product that would interest you guys? And would you see similar yields as traditional leases? Jeffrey Lipson: Sure. Thanks, Jack. I'm going to ask Marc to answer that one. Marc T. Pangburn: Jack, that's something that we could certainly take a look at but haven't been presented any opportunities yet. So we'll have to defer on that until the future. Operator: The next question comes from Vikram Bagri from Citibank. Unknown Analyst: It's Ted on for Vik. Just looking at the principal collections, it looks like it was a larger quarter with about $382 million returns. Could you just give some insight into what the maturity profile and roll-off schedule of the existing portfolio looks like? Should we expect the pace of that to potentially increase as you approach the new wind investment? Charles Melko: Yes. This is Chuck. So, the $300 million number that you're seeing there, the biggest driver of why that's a little bit higher has to do with the SunStrong refinancing that I just mentioned. When I said that roughly about $200 million of the proceeds went to pay down the mezz loans that came through that line. So that was a little bit of an acceleration of normal amort profile that you'll see from our portfolio. But the way I generally think of it is that the lives of our assets, weighted average life is around 10 years or so. So you could expect looking at our portfolio that our amort in any given period will mirror that. Operator: [Operator Instructions] The next question comes from Mark Strouse from JPMorgan. Michael Fairbanks: This is Michael Fairbanks on for Mark. Just wondering if you could talk about how this large transaction and the $3 billion of volumes this year might impact the EPS growth algorithm in '26 and beyond. I know you reaffirmed the 8% to 10% range, but should we be thinking about a possible step-up in '26 from these volumes? Jeffrey Lipson: Thanks, Michael. Good question. Our cadence has consistently been to talk about guidance in February, and I think we're going to stick to that. So we're working diligently right now on our business plan with our Board. And I think we'll have more to say about '26 and '27 in February. Michael Fairbanks: Okay. Great. And then maybe just for a follow-up. It looks like SunZia was excluded from the greater than $6 billion pipeline, which makes sense. Just wondering if it was included in that number last quarter? Jeffrey Lipson: It was. It was in last quarter's pipeline. That's correct. Operator: The next question is a follow-up question from Chris Dendrinos from RBC. Christopher Dendrinos: I just wanted to follow up here. And I think you mentioned during your prepared remarks, the really low rate of bad debt. I think bp Lightsource or subsidiary had reported a default with one of their suppliers. And I'm curious, I think you all have worked with them in the past. Is there anything related to that, that would impact you all? Jeffrey Lipson: Thanks, Chris. No, there wouldn't be. We do work with bp Lightsource. But again, we're monetizing project cash flows. And the challenge that you discussed has no impact on the project in which we're invested. Operator: Thank you very much. There are no further questions at this time. Ladies and gentlemen, that does conclude today's conference for today. You may now disconnect your lines at this time, and thank you very much for your participation.
Operator: Good day, everyone, and welcome to the Leatt Corporation Third Quarter 2025 Results Conference Call. [Operator Instructions] Please note this call is being recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Michael Mason. Please go ahead. Michael Mason: Thanks, Nikki. Good morning, and welcome to the Leatt Corporation investor conference call to discuss the financial results for the third quarter 2025. The company issued a press release today, Thursday, November 6, 2025, at 8:00 a.m. Eastern and filed its report with the SEC. The press release is posted on Leatt's website at leatt-corp.com. This call is being broadcast live and may be accessed on the company's website. An audio replay of this call will be available for 7 days and may be accessed from North America by calling (844) 512-2921 or (412) 317-6671 for international callers. The replay pin number is 11160350. A replay of the webcast will be available immediately following this call and will continue for 7 days. Certain statements in this conference call may constitute forward-looking statements. Actual results could differ materially from those discussed in this call. Leatt Corporation does not undertake any obligation to update such statements made in this call. Please refer to the complete cautionary statement regarding forward-looking statements in today's press release dated November 6, 2025. The company will make a presentation on the quarterly results and then open the call to questions. I would now like to turn the call over to Mr. Sean MacDonald, CEO of Leatt Corporation. Good afternoon to you in Cape Town, Sean. Sean MacDonald: Good morning, and thank you, Mike, and thank you all for joining us today. The third quarter of 2025 was a solid quarter on a global basis. We achieved double-digit revenue growth for the fourth consecutive quarter and double-digit profitability. It was the fifth consecutive quarter of year-over-year growth following the post-COVID industry-wide revenue contraction and inventory overhang. Revenues for the quarter were $14.34 million, an 18% increase over last year's third quarter. Net income was $539,000, a 366% increase. International distributor sales increased by 17% as demand for our products and market conditions continue to improve. All of our product categories and our core head-to-toe markets, MOTO, MTB and ADV grew by double digits on a year-to-date basis compared to last year, which is especially encouraging. Our recent expansion into the ADV market with a range of products designed for off-road adventure riding has been exceptional, and we believe ADV is a growing and exciting market that represents an important growth opportunity for us. Gross profit as a percentage of sales continued to improve from 43% to 44% when compared to last year's third quarter as domestic trading conditions continue to improve despite some tariff uncertainty. Our U.S. MOTO and MTB sales teams are gaining momentum at the dealer level, and our supply chain team is managing shipping costs and logistics costs efficiently. We continue to build and refine the multichannel selling organization and consumer-facing brands and have added some promising new team members like our new Head of Brand, Marketing and Creative, Nick Larsen, who has a proven track record of building and driving iconic global brands. Continuing to build out a great team is a cornerstone of our future growth plans, and we are excited to have Nick as a key member of our team. For the first 9 months of 2025, our revenues increased by $13 million or 40% to $45.89 million. Net income for the 9 months increased by $4.56 million or 259% to $2.8 million. Cash flows generated from operations was $1.45 million as our liquidity continues to improve. All of our product category revenues have grown by double digits on a year-to-date basis. Body armor has grown by 30%, helmets by 60% other products, parts and accessories, including apparel, goggles and components by 49% and neck braces by 18%. We are confident that consumer direct sales will continue to be a highlight in terms of growth as brand momentum continues and consumer demand remains strong. For the third quarter of 2025, consumer direct sales increased by 61%. And over the first 9 months of 2025, sales increased by 37%. Our digital team continues to focus on building innovative digital platforms and consumer engagement strategies. Now I will turn to more details on sales of our product categories for the third quarter of 2025 compared to 2024. Sales of our flagship neck brace were $860,000, a 14% increase, primarily attributable to a 39% increase in the volume of neck braces sold when compared to the third quarter of 2024. Neck braces represented 6% of our total revenues for the quarter. Our body armor products are comprised of chest protectors, full upper body protectors, back protectors, knee braces, knee and elbow guards, off-road motorcycle boots and mountain biking shoes. Body armor revenues were $6.1 million, a 6% increase, primarily attributable to a 46% increase in revenues from the sales of footwear, including motorcycle boots and mountain biking shoes. Body armor sales represented 43% of our revenues for the quarter. Helmet sales were $3.33 million, an 11% increase, primarily attributable to strong ADV helmet sales. Our ADV helmets are designed for off-road adventure riding. Helmet sales represented 23% of our revenues for the third quarter. Our other products, parts and accessories category is comprised of goggles, hydration bags and apparel items, including jerseys, pants, shorts and jackets. Revenues were $4 million, a 53% increase, primarily attributable to a 49% increase in sales of MTB, ADV and motor apparel when compared to the third quarter of 2024. Other products, parts and accessories accounted for 28% of our revenues for the quarter. Now I will turn to our financial results in a bit more detail. Total revenues for the third quarter of 2025 were $14.34 million, up by 18% compared to $12.14 million for the third quarter of 2024. This increase in worldwide revenues is primarily attributable to a $360,000 increase in body armor sales, a $320,000 increase in helmet sales, a $1.41 million increase in other products, parts and accessory sales and $110,000 increase in neck brace sales. Income from operations for the third quarter was $630,000, up by 2,333% compared to $20,000 for the third quarter of 2024. Net income for the third quarter was $539,000 or $0.09 per basic and $0.08 per diluted share, up by 366% as compared to net income of $116,000 or $0.02 per basic and $0.02 per diluted share for the third quarter of 2024. Leatt continued to meet its working capital needs from cash on hand and internally generated cash flows from operations. And at September 30, 2025, the company had cash, cash equivalents and restricted cash of $12.39 million and a current ratio of 5:1. Looking forward, we remain very enthusiastic about our future. Although there are still some challenging geopolitical conditions globally and economic risks in the U.S. that may potentially impact inflation and demand, inventory continues to be digested. Our domestic sales are gaining strong traction. Participation remains strong and international ordering patterns continue to improve and deliver strong revenue growth. The consistent growth in all of our product categories is being driven by strong demand for Leatt products around the world. We expect this trend to continue. In conclusion, while we monitor the international trade situation, we are continuing to invest in Leatt as a global consumer-facing brand and to build out a strong and diversified global multichannel sales organization. All of us at Leatt's are energized by the growth of our product categories and our pipeline of cutting-edge products and categories for a much wider rider community. With a strong portfolio of innovative products in the market and in the pipeline, a return to profitability and a robust balance sheet to fuel brand and revenue growth, we remain confident that we are very well positioned for future growth and profitability. As always, I'd like to thank our entire Leatt family, our dedicated employees, business partners and team riders for their continued strong support. With that, I'd like to turn the call over for any questions. Operator? Operator: [Operator Instructions] We'll take our first question from Nick Fisher with Pilot Capital. Nick Fisher: First of all, just wanted to get some color on the plan for stock buybacks, what your framework is, et cetera. I see that you were able to purchase some shares here in the quarter. Sean MacDonald: Yes, correct. So we did manage to purchase some shares in the quarter. And I believe that will be open until the end of December. And we're going to continue, obviously, through our plan with the broker to try and buy back some shares within a range. Nick Fisher: Got you. Okay. I appreciate that. Obviously, marketing and sales has been a focus here. I was a little bit surprised to see advertising and marketing decrease in the quarter. Could you just talk a little bit about future plans and investments from that perspective, if you're able to? Sean MacDonald: No, absolutely. So I mean, marketing, sure, was down. A lot of that is primarily just for timing reasons and some cost efficiencies that we've had on the marketing side with video production and photographic production. Having brought Nick Larsen on board, he's a very focused and experienced marketing professional. And I'm expecting to get really great return on investment on all of our marketing activities moving forward. Things are going to be a lot more focused, a lot more driven in terms of creating more consumer demand, creating more brand awareness to a much wider rider audience. So you can expect a strong drive to add fuel to the marketing fire and to the brand fire to generate demand for Leatt products moving forward. Nick Fisher: I see. Got you. And then my last question is with regards to impact of inflation and tariffs and things like that. Are you able to comment on plans for price increases and the like? Sean MacDonald: Sure. So we have increased pricing marginally across the board, 8% to 10%, which is very much in line with industry norms at the moment. We've been following the competitive landscape very, very carefully. So we've managed to increase pricing without having too much of an impact on sales and inventory holdings at the dealer level. I think it's obviously expected that pricing will go up. I think from a general inflationary perspective, I think quite a lot of inflation has still been -- is still to filter through into the market. Just generally, I think a lot of consumers have been shielded by -- basically by companies up until now. So we are expecting to see inflation potentially increasing in the short to medium term. We don't expect it to have a huge impact on our margins or on our profitability or on our demand. I think if the tariffs remain relatively stable moving forward, I think we'll be in a strong position to have strong margins and also to retain strong demand. So I think hopefully, the impact of tariffs so far has been -- we're over the worst of it. And moving forward, things will continue to improve. Operator: We will move next with Christopher Muller, private investor. Christopher Muller: Just a few questions, if I may. First, with regards to the international distributor revenues, I believe you historically had some seasonality there with a stronger back half of the year, Q3 and Q4 benefiting from the initial stocking of next year's line. Looking at the modest sequential decline today in Q3, I'm trying to understand whether those orders were pushed more into Q4 this year or if those distributor order cycles have changed or whether that past seasonality is even applicable to the business today? Sean MacDonald: Yes. I mean I think you can expect a strong Q4 international distributor deliveries. A little bit of a timing impact there. I think some of the seasonality has moved slightly into Q4. I certainly am expecting, as I said, a strong distributor revenues in Q4, and that should all, of course, even out over the year. So when you look at the whole year, international distribution is going to be a strong part of the business as our distributors continue to restock with demand increasing. Christopher Muller: Okay. Very good. And then second, regarding the MTB components line, how is that performing relative to your expectations at last year's launch? Sean MacDonald: Yes, we're continuing to push there. I think exceeded our expectations in terms of the initial push. And we're busy right now refining a lot of those products and a lot of the supply chain around those products, which I think is going to help us to be able to meet the demand that is out there. So I think performing well, expecting further growth in the future as we continue to improve efficiencies around that product line. Christopher Muller: Okay. Very good. Regarding the share repurchase, could you maybe speak to the Board's decision-making that led to the $750,000 size? Was this dictated by market factors like the limited trading volume and float? Or was this just purely the Board's assessment of excess cash after your operational needs? Sean MacDonald: Yes. I think obviously, we had some -- we do have cash on our balance sheet, and I think there's no better investment in Leatt. We do believe that there's still a lot of value potential in the stock price. We just felt that this would be a great investment actually for the company at the moment, considering some of the plans that we have in the pipeline moving forward. So the decision was taken to give some of that cash for those shareholders out there that would like some kind of an exit with the limited liquidity and it really just made sense in terms of the optics right now for us to reinvest back into Leatt and into the shareholders. So that's really why we took the decision. We felt that it was a good valuation opportunity right now. Christopher Muller: Okay. Understood. And then finally for me, it seems like there's quite a wide range of outlooks and forecasts being issued by bicycle brands this year and really across the outdoor recreation space. You've been in a strong financial position to reinvest in recent years when others have been pulling back. So I'm just wondering, today, when you're thinking about product expansion, marketing spend, pricing discipline, how does the competitive environment feel today relative to recent years? Sean MacDonald: Yes. I mean I think on the bicycle side, it's -- I mean, I think it's still tough for many bicycle brands. But I do feel that there's a huge amount of opportunity. So we are continuing to invest in product development, in research and development for new exciting products and absolutely in marketing. I think there's a huge amount of potential for you to reach a much wider group. We still have market share in many, many categories that are still in its infancy and we are doing solid numbers. So my reading is that participation is still strong across the board in terms of riding. And I think that's really what we are focusing on. We do believe that, I mean, riding is the future and off-road riding, which is where our focus is, has been very strong for us, continues to be strong. MTB is recovering quite nicely. MOTO is our most established category and market, and that's also growing on a year-to-date basis. So that's great to see. And of course, ADV has been fantastic. We're quite diversified now, of course, with these 3 different markets, different demographics that we're selling to. And I think that diversification is a strength. And of course, with NCD coming back, I think that's going to really have a positive impact on our results moving forward, Chris. Operator: We will move next with Aaron Gelband with Warren Street Capital. Aaron Gelband: I had one question on the direct business. So big -- last quarter was pretty good with 35% year-on-year growth, and then we accelerated to 60% year-on-year growth. You talked a little bit about digital marketing initiatives. But can you just give a little more color on what's going on to drive that big acceleration? Is it sustainable? Is it concentrated in any specific products? Or is it just a result of the digital marketing campaign? Any color on that would be very helpful. Sean MacDonald: Sure. I mean there's a couple of reasons. I mean, particularly in Q3, we actually launched a new web platform. We're using a new platform now, which has got a lot of capabilities in terms of consumer engagement and creating brand awareness across the Internet, and that's been pretty strong for us. And also, I think a lot of this is about focus, Aaron. We have a new digital department that we set up at the beginning of the year, and they are driven by consumer direct business. And that means this is targeted marketing. It's very specialized. There's a blend between, of course, reaching end consumers with targeted online campaigns and e-mail campaigns. And also, of course, the website is also the home of the brand. So there's fantastic content on there now. So I think it's really about focus. The new digital team is doing really, really well, exceeding our expectations in terms of growth. I think moving forward, direct-to-consumer business is going to be a more important area of our business just in terms of growth and also just in terms of contribution to overall revenues. And I think I'm talking primarily in the U.S. and in South Africa, where we have direct online channels. And I think it's -- as I said, of course, there's the selling opportunity, but there's also the marketing opportunity. I think it creates a lot of brand equity when you can actually target consumers. And it's been exciting to see how the demand has continued to surge online. It's really exciting to be able to see the return on investment when you do, do marketing campaigns that are targeted and to see that filtering through to your revenue. So we've got some specialist skills on board, and we pulled that all together now into a strong digital team that's very focused on the direct-to-consumer business. Of course, it's not only about the website. It's also about having customer service in the back end that can satisfy the needs of consumers when you are used to being a distribution business and traditionally, we've been in distribution and selling, of course, to dealers who might have been online or brick-and-mortar. In order to move over to the consumer space, especially with consumers these days that have got very high expectations in terms of service levels, we've had to invest in customer service, and we have a full customer service department now in the U.S. and also in South Africa to take care of consumers' direct needs. So it's a growing area. It's a focus area for us. We've been putting a lot of energy into it, and it's great to see the increase in demand. And we do expect this to be an important area for us going forward where we are expecting double-digit growth. Aaron Gelband: I'd also assume that the gross margins are higher on that. If this becomes a much meaningful piece of the business, would you expect that to have a positive impact on the company gross margins? Sean MacDonald: Absolutely. When you're selling direct, your margins are better. There are costs involved, obviously, in terms of the marketing. And there's a blend in terms of the margins because you're selling full price items, but when you have Black Friday and those kinds of events, of course, it's also an opportunity to turn some of your inventory into cash if it's maybe a little bit slower moving. We don't have a lot of that. But if it is a bit slower moving, it's an opportunity because you have margin available. So for sure, it should have a positive impact on margins moving forward. Aaron Gelband: Got it. And then one more question on -- so overall performance of the company, 18% growth, I think we'd be happy with that if that continues for sure. But there was a big kind of deceleration, especially in international, which had grown 79%, 74%, and then it dropped off to 17%. And so I think -- and you've been very positive on your comments for international ordering patterns, both last quarter and this quarter. And so maybe just to parse your language a little bit. I mean, when you talk about good international ordering patterns, are you just talking in an absolute sense? I mean, a big deceleration from 74% to 17% would -- it seems inconsistent with kind of saying that the ordering pattern is continuing to improve. But maybe you can just give some color on that. And maybe that just ties into Chris' question about kind of the timing of shipments. Sean MacDonald: Yes, sure. I mean I think when I talk about ordering patterns continuing to improve, I'm talking about like on an annual basis. I'm not talking about a 3-month period of a particular quarter. So when I look at the ordering patterns in general, there's a real strong improvement. So if you look at it on a year-to-date basis, and we've had fantastic growth in terms of ordering patterns, and I do expect that to continue. A little bit of it is timing, as I said. I don't think that our current ordering patterns at 17% is really a reflection of where we're at on the international side. And I think it will be good to also discuss this maybe when we get to the end of Q4 and then we can look back on the year and we can make a real solid assessment because that will take into account all of the seasonality and all of the shipping timing differences. We'll be able to see how the international distribution business has grown on a year-to-date basis at 31 December. Aaron Gelband: Got it. That's helpful. And just to be clear in your response, you said the ordering pattern was up 17%, but you meant that the shipping. Sean MacDonald: Shipping, sorry. The shipping, correct. I meant -- yes, correct. I meant the shipping, correct. So the shipping, which is obviously driven by the orders that we got actually probably a few quarters ago. So absolutely, it's the shipping. Operator: And this concludes our Q&A session. I will now turn the call over to Sean MacDonald for closing remarks. Sean MacDonald: Thank you all for joining us today. We look forward to our next call to review the results of the 2025 fourth quarter. Operator: Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.
Operator: Hello, everyone, and welcome to the GoPro Third Quarter 2025 Earnings Call. My name is Charlie, and I'll be coordinating the call today. [Operator Instructions] I will now hand over to your host, Robin Stoecker, Director, Corporate Communications of GoPro, Inc. to begin. Robin, please go ahead. Robin Stoecker: Thank you, Charlie. Good afternoon, and welcome to GoPro's Third Quarter 2025 Earnings Conference Call. With me today are GoPro's CEO, Nicholas Woodman; and CFO and COO, Brian McGee. Today's agenda will include brief commentary from Nick and Brian, followed by Q&A. For detailed information about our third quarter as well as outlook, please read our Q3 earnings press release and management commentary, we posted to the Investor Relations section of GoPro's website. Before I pass the call to Nick, I'd like to remind everybody that our remarks today may include forward-looking statements. Forward-looking statements and all other statements that are not historical facts are not guarantees of future performance and are subject to a number of risks and uncertainties, which may cause actual results to differ materially. Additionally, any forward-looking statements made today are based on assumptions as of today. This means that results could change at any time, and we do not undertake any obligation to update these statements as a result of new information or future events. To better understand the risks and uncertainties that could cause actual results to differ from our commentary, we refer you to our most recent annual report on Form 10-K for the year ended December 31, 2024, which is on file with the Securities and Exchange Commission and other reports that we may file from time to time with the SEC. Today, we may discuss gross margin, operating expense, net profit and loss, adjusted EBITDA as well as basic and diluted net profit and loss per share in accordance with GAAP and on a non-GAAP basis. A reconciliation of GAAP to non-GAAP operating expenses can be found in the press release that was issued this afternoon, which is posted on the Investor Relations section of our website. Unless otherwise noted, all income statement-related numbers that are discussed in the management commentary and remarks made today other than revenue are non-GAAP. Now I'll turn the call over to GoPro's Founder and CEO, Nicholas Woodman. Nicholas Woodman: Thanks, Robin, and thanks, everybody, for joining us today. As Robin mentioned, Brian and I will share brief remarks before going into Q&A, and I want to encourage all on the call to read the detailed management commentary we posted on our Investor Relations website. The third quarter marked significant progress in our strategy to grow our business by developing our hardware and software offerings, and diversifying our hardware and software offerings. In Q3, we launched 3 new hardware products and several new software products that helped us exceed our Q3 revenue guidance. Our teams are executing with efficient precision, and we're excited to build on this momentum. As you'll hear from Brian, we believe we have turned an important corner, and we expect to return to unit revenue and profitability growth on a year-over-year basis this Q4 and for 2026. Our innovation machine is accelerating to increase our TAM beyond the 3 million unit action camera category. In Q3, we launched our highly anticipated MaX2 360-camera, our new ultra-compact LIT HERO camera and Fluid Pro AI, our new multi-camera compatible gimbal designed for creators that own multiple types of cameras and need one gimbal to meet their multi-camera stabilization needs. MaX2 360-camera opens up a new growth segment, which we estimate the TAM to be nearly 2 million units annually. We're excited to regain market share with the launch of our MaX2 360-camera, and we're fully further expanding our TAM with LIT HERO, with its playful aesthetic, ease of use and versatility, making it especially appealing to a younger demographic looking to capture and share moments on the go. Additionally, the low-light capable camera segment, which we estimate the TAM to be 2 million to 2.5 million units annually, represents a significant opportunity for GoPro as we do not currently participate in this market, but plan to. Our tech-enabled motorcycle helmets initiative is progressing and collaboration with AGV is already underway. Both teams are working closely to deliver innovative safety and performance features combined with the fun of effortlessly capturing immersive GoPro video while riding. We look forward to providing updates as development progresses. Starting with MAX2, what a game changer. Its industry-leading 360 technology combines with its True 8K video resolution to capture up to 21% more resolution than the competition. MAX2 also features convenient and durable twist-and-go replaceable lenses, making it easy to swap out a lens in the field without tools or calibration, an inconvenience inherent with competitive products. And we recently launched an innovative and expansive new line of 16 360-centric accessories and mounts that expand MAX2'S creative potential and versatility. Early customer feedback has been resoundingly positive with many praising MAX2'S superior image quality, ease of use and durability. And in September, GoPro won a 2025 Technology & Engineering Emmy Award in recognition of our innovative 360 technology, which is core to our 360 cameras and software. This is GoPro's third Emmy for innovations related to digital imaging and our first in the 360-technology category. We believe MAX2 will help grow share in the global 360-camera market. MAX2 is now available online and on shelf at retailers globally. We're also excited about a second new camera we launched in Q3, LIT HERO, an ultracompact lifestyle camera designed for "whatever, whenever" capture with its built-in photo and video light. LIT HERO opens up creative possibility in any setting, day or night, and delivers a fun retro-inspired look to the images it captures. And the third new hardware product we launched in Q3 is Fluid Pro AI, our advanced multi-camera, AI subject tracking gimbal designed for today's multi-camera content creators looking for a high-performance gimbal that meets their multi-camera needs. Fluid Pro AI is compatible with all GoPro cameras, smartphones and point-and-shoot cameras up to 400 grams, making it remarkably versatile for capturing smooth, professional-looking content while vlogging, capturing sports or documenting life's most meaningful moments. Fluid Pro AI represents an exciting opportunity for GoPro to participate in the global gimbal market. As we enter the holiday season, GoPro now offers a diversified line of 8 industry-leading camera SKUs that range from an MSRP of $199 to $649, more than 70 versatility expanding camera mounts and accessories and an industry-leading mobile app and subscription experience that adds enormous convenience and value to GoPro subscribers. And we're just getting started. We believe our current offerings serve as an incredible foundation to build on with the planned launch of several exciting new products in 2026 that we believe will result in revenue, profit and market share growth across our business. Turning to software. In Q3, we launched several new 360-related editing tools that make immersive 360 content creation easy for everyone. And we updated our Quik mobile app with several new 360 editing features, including AI-powered subject tracking, convenient POV and selfie modes and cloud-based 360 editing. These powerful new features significantly enhance the convenience and creative experience for MAX and MAX2 owners and GoPro subscribers. Our subscription model continues to exceed our expectations, contributing enormous value to both subscribers and our bottom line. We anticipate renewed subscriber and associated revenue growth in 2026, fueled by camera unit growth and the launch of new editing and content management features that we expect to significantly enhance convenience, capability and value. And we continue to see strong engagement from subscribers, opting into our AI training program, which will earn them 50% of the third-party licensing revenue we expect to generate on their behalf. GoPro subscribers have contributed more than 270,000 hours of video content during the AI training program's invitation-only outreach period, which began in July 2025. We are in discussion with several AI data licensees to address their demand for authentic real-world video content for AI model training. We believe this program represents a meaningful opportunity over time for both our subscribers and GoPro, and we look forward to sharing progress as the program continues to evolve. As Brian will detail, we've amended our Second Lien Credit Agreement to address volatility in tariff rates. Given our commitment and expectation to achieve the minimum $40 million in trailing 12-month adjusted EBITDA by year-end 2026, I'm personally backing our commitment with a $2 million equity infusion into the company. In summary, we're executing against our strategy, and we're seeing the results, improved product diversification via the launch of industry-leading hardware and software products and an expected return to unit revenue and profitability growth in Q4 2025. We expect to build on this momentum in 2026 with the launch of several new innovative and differentiated products and services that we believe will lead to consistent quarterly camera unit and revenue growth on a year-over-year basis and a swing from losses in recent years to solid adjusted EBITDA profitability in 2026. Many thanks to all of GoPro's incredibly talented, passionate and committed employees. Your execution is enabling us to realize our vision to the benefit of our customers and investors alike. Now I'll turn the call over to Brian to share some details on our financials and outlook. Brian McGee: Thanks, Nick. For the third quarter of 2025, revenue was $163 million and gross profit was 35.2%, in line with guidance. We achieved a second consecutive quarter of positive cash flow from operations of $12 million, a $14 million improvement year-over-year. Demand for our cameras as measured via sell-through was 5% better than we predicted. Channel inventory declined 30% from the prior year quarter and has reduced for 4 consecutive quarters as we prepare for the upcoming holiday quarter. As we look to the fourth quarter, our outlook is prefaced by highlighting by heightened uncertainty that exists due to volatility in tariff rates, consumer confidence, competition, component supply chain and global economic uncertainty. For the fourth quarter, we expect revenue growth at the midpoint of guidance of 10% to $220 million, non-GAAP net income per share of $0.03, plus or minus $0.02 and adjusted EBITDA positive $12 million compared to a prior year adjusted EBITDA loss of $14 million, a $26 million improvement. All of these expected improvements are due to the actions we took in 2024 to launch new products in the second half of 2025, reduce operating expenses, diversify our supply chain and drive product cost reductions, which were partially offset by higher tariffs. We estimate street ASP in the fourth quarter to be approximately $350, up slightly year-over-year. We expect unit sell-through to be down 18% year-over-year at the midpoint of guidance to 625,000 units and channel inventory to be nominally up sequentially. We continue to actively manage the balance sheet and expect to further reduce inventory sequentially in the fourth quarter. In addition, we expect to end the year with cash and cash equivalents in the range of $60 million to $65 million, along with an additional $50 million available under our ABL facility. We expect gross margin in the fourth quarter to be 32% at the midpoint of guidance, down compared to the prior year quarter of 35%, primarily due to tariffs. Excluding tariffs, gross margin in the fourth quarter 2025 would be approximately 37%. We expect fourth quarter 2025 operating expenses to be $63 million at the midpoint of our guidance range, a more than 25% reduction from the prior year quarter due to lower spending on wages from lower headcount, reduced marketing and lower engineering expenses. We expect shares outstanding to be approximately 177 million in the fourth quarter. As we look ahead to 2026, we expect the following: to grow units and revenue in 2026 based on both our existing lineup of products as well as new products and services expected to be introduced next year. Our expectation is to grow units and revenue each quarter in 2026 on a year-over-year basis. Full year 2026 operating expenses to be approximately $250 million, slightly down year-over-year to continue to offset approximately half of our expected tariff costs of $45 million in 2026 with modest price increases and continued supply chain diversification. Subscription ARPU growth of 5% and to end 2026, up 2% to 2.4 million subscribers. Our liquidity position to be more than adequate during 2026, and we expect to end 2026 with approximately $80 million in cash, plus or minus $5 million, along with an additional $50 million available under our ABL facility. To experience some margin pressure year-over-year due to tariffs and increasing component prices, which we expect to partially offset with improvements in supply chain. As detailed in the management commentary in our filing, we have amended our debt agreement due to changes in tariff rates. We expect adjusted EBITDA to be greater than $40 million in 2026, an improvement from losses of $18 million in 2025 and $72 million in 2024. In closing, we believe our strategy is working. We are in the midst of an innovation cycle with the continued launch of new products and services expected over the next several years. Combined with the initiatives we undertook in 2024 to reduce operating expenses and improve supply chain in 2025, we believe we will restore unit and revenue growth and deliver strong adjusted EBITDA of at least $40 million in 2026. Operator, we are now ready to take questions. Operator: [Operator Instructions] Our first question comes from Erik Woodring of Morgan Stanley. Erik Woodring: Nick, maybe if I just start on 4Q sell-through, I think it was saying that you expect sell-through to be down, I think it was 18% year-over-year. Can you just talk about kind of the puts and takes there? You launched 3 new cameras this year versus 2 last year. I think the timing of the launches this year was a little later than last year. So just why we're seeing sell-through down as opposed to others because there's no flagship camera. Just any detail you could help us understand there, please? Nicholas Woodman: Yes, you nailed it. I had to be a little hesitant. It's clear that we didn't launch a new flagship HERO camera this year in Q3 for Q4 sales. And what I can say is, that is strategic in preparation for 2026 launches. So a little bit of patience now, yields, we believe, significant upside in 2026. So it's a bit of -- we've got something special planned. So we appreciate market patience, investor patience, and we think that this decision is going to significantly help us grow units, revenue and profits in first half of 2026. And to give us a little more context, I have to be a little bit careful as it relates to competition, obviously, but we believe that by focusing on a bigger upgrade, we can have a more significant outcome than if we were to have launched a product in the third quarter of this year. Erik Woodring: Okay. All right. Super. Looking forward to that. And I was going to ask you a question on innovation. And so realizing you just made that comment, but I'd love if you could just talk where you think kind of the camera innovation can, needs or should go from here? Obviously, you got 360 into the market. That's great. You've launched a lifestyle camera. You have the gimbal system. You've talked about the motorcycle helmets. Again, without disclosing things that -- obviously, for competitive reasons, where do you think there are differentiated end markets or use cases that are compelling from here? Whatever you can share would be super helpful. Nicholas Woodman: It's clear that the opportunity for growth is in diversification and meeting more of the specific needs of the market, not through one SKU. Traditionally, the HERO camera, the product that GoPro was built on, was a bit of a Swiss Army knife that did it all for everybody. And that was terrific for a time. But as consumer and professional demands have grown and become more specialized, and we've seen the end customer want to not have a do-it-all Swiss Army knife as much as they want additional tools, multiple tools, multiple cameras that help them achieve more specifically the solution for whatever capture scenario they're solving for. So that's terrific for us because that can expand the TAM, help us relate GoPro to more end users and not burden any one product with the burden of doing everything for everyone. So what I would say is diversification, diversification, diversification. You're seeing that already in our product line, and you'll see that scale in 2026. And we believe that will result in TAM expansion, unit growth, subscriber growth and sustained profitability growth. Brian McGee: Yes. Nick, I think on top of that, GP3 processor is also market-leading in its capability and what we're able to do with that from an imaging and innovation perspective. So that's another area where we're leading with the product that will come out -- products that will come out with next year using that processor. Nicholas Woodman: Yes. What Brian just alluded to is 2026 will be the year of GP3. Our current cameras are based on a GP2 processor. And 2026 is the debut of our line of GP3-based processors that will take GoPro and the industry to the next level of performance. Erik Woodring: Okay. Super. And then maybe last one for me quickly, is just I appreciate all the color on 2026. I guess at a high level, kind of how are you -- or what are you assuming the world looks like in 2026? Obviously, there's a lot of uncertainty even as it just relates to like the holiday period coming up. So like what gives you the degree of confidence to kind of guide the way that you did? And how are you kind of embedding the world view in 2026 underlying that guidance? That's it for me. Nicholas Woodman: Yes, I'll start and then... Brian McGee: Go ahead. Nicholas Woodman: What I was just going to say -- to add to what I said about market demand for diversification, that's how we see consumers behaving today. That's -- all of our research shows that there's clearly an opportunity to diversify our product lineup to better meet the diversified needs of the market. That's what the road map delivers in 2026. And when you combine that diversification with the next-generation GP3 processor from GoPro, that is going to, we believe, make GoPro a market leader in all of the important categories that we're participating in. So the demand that we see for our products today, we see increasing as we enter this new era of performance and capability at GoPro next year. Brian, you can add to that. Brian McGee: Yes. I think on top of that, I'll add even in the fourth quarter of this year, which arguably is challenging with consumer and everything else that's going on, we remain on track for our sell-through and sell-in targets for the fourth quarter. So -- and now we have newer products in 2026 that are going to add to that. So that's pretty exciting as we look ahead actually to have both unit growth and revenue growth finally now in the fourth quarter as we have 2 new products or 3 new products in now -- this year and more coming next year. Nicholas Woodman: Yes. And just to be clear, the cadence of launching new products next year will be steadily throughout the year. So that's also something to look forward to as opposed to being so back-end loaded. Operator: Thank you. We have no further questions registered on today's call. So I'll hand back over to the management team for any further or final remarks. Nicholas Woodman: Thank you, operator, and thank you, everyone, for joining today's call. To summarize, we're executing well against our strategy to launch industry-leading hardware and software products with improved product diversification expected to restore unit revenue and profitability growth this fourth quarter and throughout 2026. Thank you, everyone. This is Team GoPro signing off. Operator: Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect.
Operator: Good day, everyone, and thank you for standing by. Welcome to the Quebecor Inc. financial results for the third quarter 2025 conference call. I would now like to introduce Hugues Simard, Chief Financial Officer of Quebecor Inc. Please go ahead. Hugues Simard: Ladies and gentlemen, welcome to this Quebecor conference call. My name is Hugues Simard. I'm the CFO. And joining me to discuss our financial and operating results for the third quarter of 2025 is Pierre Karl Peladeau, our President and Chief Executive Officer. Anyone unable to attend the conference call will be able to access the recorded version by logging on to the webcast available on Quebecor's website until January 5. As usual, I also want to inform you that certain statements made on the call today may be considered forward-looking, and we would refer you to the risk factors outlined in today's press release and reports filed by the corporation with the regulatory authorities. Let me now turn the floor to Pierre Karl. Pierre Péladeau: [Foreign Language] and good morning, everyone. So more than 15 years ago, recognizing a huge opportunity in Quebec and across Canada, Quebecor set out on a growth strategy based on wireless. First, launching as an MVNO, then building our own network and further acquiring Freedom Mobile. We have never wavered in our resolve or direction. We invested wisely and established ourselves as a better alternative to the big 3, a solid market disruptor with the best growth momentum and the strongest balance sheet in the Canadian telecom industry. As proof that our strategy is paying off, we continue to outperform our competitors, and I'm proud to report our strongest quarterly wireless service revenue growth since the acquisition of Freedom Mobile. As well as an impressive loading performance of 114,000 net addition in the quarter with more than 323,000 new lines year-over-year despite a generally softer market. Collectively, Videotron, Freedom and Fizz now have over 4,328,000 mobile active lines, a significant milestone achieved in quite a short time in a competitive market. Each of our 3 brands continue to improve its performance quarter after quarter, resonating more and more with Canadians across the country with innovative and affordable product and services. We have created a healthy competitive environment, giving Canadians more choice, lower prices and a better experience, all the while improving our profitability, growing cash flow and continuing to reduce our leverage to maintain the lowest ratio in the Canadian telecom industry. We will spare no effort as we press on with our strategy of sustainable, profitable wireless market share growth. I will now review our operational results, starting with our telecom segment. So our telecom segment continued to deliver strong operational and financial results both in wireless and broadband, reflecting the disciplined execution of our growth initiatives, the strength of our brand portfolio, and our commitment to provide innovative and reliable services to our customers. Our service revenues are up for a second consecutive quarter at 2%, fueled by a 6.4% increase in mobile and 1.1% in Internet. Our mobile service revenue grew by $27 million in the quarter, surpassing our Q2 performance and our best since we completed the integration cycle of Freedom Mobile results. This results from our adding 323,000 new net line over the last year despite the Canadian market affected by lower immigration levels and organic growth, but also from our effective pricing strategy with a balanced and cohesive positioning of our brand. Our consolidated mobile ARPU continued to improve its performance, recording its best since the acquisition of Freedom Mobile, which bodes well for the next few quarters despite a market that remains unpredictable and highly competitive, especially in Quebec where discounting is comparatively and, in our view, irrationally heavy. At this point, we expect current market conditions to continue through the upcoming holiday season's promotional period, but we intend to maintain our disciplined approach, focusing on the quality of our products while continuing to rapidly improve our network. Specifically, on ARPU, we are very pleased with our second sequential quarterly increase, reaching $0.35 and $0.05 compared to $0.34 and $0.76 last quarter, a $0.29 gained in the 3 months. Our year-over-year performance continued to improve with a $0.66 decrease this quarter compared to a drop of $2.30 in Q2 as compared to the same period last year. Our effective mitigation of the dilutive impact of the prepaid services of Fizz and Freedom was an important contributor. As you will have noticed, we adjusted our wireless subscriber base by 51,000 to eliminate 0 revenue accounts, which translated into an approximately $0.40 ARPU pickup. To be completely transparent and contrary to our competitors, we adjusted our ARPU numbers retroactively. With our ever-improving network quality and stellar customer service, more and more Canadians enjoy the richness and peace of mind of our plans, which continues to strengthen our market position and share. Freedom's marketing plans are honest and transparent without any fake employee purchase program, new customers only or B2B offers. We have been upfront with all Canadians since day 1, offering them better services at everyday best prices. Canadians have clearly embraced our approach as evidenced by our significant churn improvement, ARPU and market share growth. An internal survey even reveals that the global satisfaction score of Freedom customers approaches that of Videotron. We are very proud to have successfully transposed the key contributors of our great success in our own market to the other regions of Canada. In terms of new adds, as I alluded to at the beginning of my address, we delivered 114,000 new net lines to our mobile customer base in the third quarter, a strong growth considering the softer market this year. This performance is also attributable to our effective retention strategy, which kept our consolidated churn among top of the industry and thus helped to defend Videotron's solid market position in Quebec and to continue to improve Freedom performance. In wireline, our service revenues continue to improve as we recorded for a second consecutive quarter our lowest decline in year-over-year. Fueled by Internet revenue growth of $3.3 million and net additions of 10,500 in the quarter, these results are very encouraging as we are only still scratching the surface of the opportunity with new services like Freedom home Internet and Fizz TV. We are also counting on the expansion of our Helix technology-based Internet and television services in new territories where they will complement our wireless services already available. Since the end of the second quarter of 2025, Videotron has announced the expanded coverage of more than 180,000 new households in Drummondville, Magog, Rimouski, Saint-Hyacinthe, Trois-Rivieres, Salaberry-de-Valleyfield and Huntingdon, as well as in many cities in Saguenay–Lac Saint-Jean region. Customers will now be able to benefit from a full complement of telecommunication services in competitive packages. We intend to enter these new markets with a disciplined pricing strategy in line with our pricing elsewhere in Quebec, counting on state-of-the-art Helix solutions and our second to none client experience to make ourselves a strong contenders in this territory. In addition to our wireline footprint, we are also expanding our wireless coverage and services areas in the Haute-Mauricie region in partnership with Ecotel and with the support of the Quebec government. This will significantly improve mobile communications in this region of Quebec, making it possible for more than 10,000 residents to subscribe to Videotron mobile services and enhancing connectivity along several highways. Freedom Mobile is also continuing to increase its service coverage now in the Ontario region of Chatham-Kent, where the resident of this large and growing region can now access our fast and reliable wireless network. These expansions reflect our continued progress in delivering on our ongoing commitment to always give our customers more with state-of-the-art advanced technology. This is but one reason why Videotron was ranked as Quebecor's preferred telecommunication provider in a recent Leger survey. Videotron stands out for its remarkable results, confirming its position as an undisputed leader in customer service among telecommunication providers in Quebec, while being recognized as the most reliable and trustworthy telecommunication company in Quebec. Turning now to our Media segment. TVA Group generated EBITDA of $18.5 million in the third quarter of 2025, an increase of $6 million compared to the same period in 2024. This favorable variance is primarily attributable to the impact of streamlining initiatives undertaken over the past 2 years as well as certain favorable nonrecurring retroactive adjustments. These measures are helping, but are in no way sufficient, to mitigate the impact of the structural crisis threatening the sustainability of Quebec television industry, particularly due to the accelerated decline in advertising revenues compounded by the negative impact on the absence of foreign blockbusters in MELS' studios. Having acted recently and respondly over the years by implementing numerous measures and a number of major restructuring plans to address the crisis, TVA Group has done its part. It is high time for our government to take the necessary action on their end. After countless advocacy efforts, hearings and meetings with successive CRTC chairpersons, Canadian heritage ministers and Quebec culture ministers over the years, we can only repeat yet again that we urgently need real action and long-term solution to protect our industry. It was particularly disappointing that the federal government in its budget deposited this Tuesday completely ignored our industry and turned a blind eye to the crisis that is hitting television broadcasting so hard. There is no tax credit for television journalism, no tax incentive for advertising in Quebec and Canadian media, and no information about when the digital services tax already paid by private broadcaster will be refunded. Furthermore, CBC/Radio-Canada annual funding had been increased by $150 million without any requirement to eliminate advertising on its platform and to curb its unfair commercial competition with Canada private television broadcasters. Regrettably, this new government has missed an opportunity to support an industry facing ever-growing challenges and job losses at an alarming rate. Regarding the Quebec government, we reiterate that it must quickly introduce concrete measures to implement the recommendations in the report of its task force of the future of Quebec audiovisual industry filed in October 2025. I will now let Hugues review our detailed financial results. Hugues Simard: [Foreign Language] On a consolidated basis in the third quarter of 2025, Quebecor recorded revenues of $1.4 billion, up 1%, EBITDA of $628 million, up $34 million or 6%, resulting from improvements across all of the corporation's business segments. Cash flows from operating activities increased $36 million to $582 million or 7% compared to the same quarter last year. In our telecom segment, total revenues grew by 1% or $13 million, a first favorable variance since Q1 of last year when we completed the integration cycle of Freedom Mobile results. This positive delivery is largely attributable to our strongest mobile service revenue growth of 6.4% fueled by a significant customer growth, but also by the favorable improvement of our mobile ARPU in the last quarter, resulting from strategic market positioning of our multiple brands and our pricing strategies. This quarter, mobile revenues were offset by our lowest wireline services revenue declines in more than a year, resulting from our effective strategies and mitigating the impact of organic declines of these services. Combined with rigorous cost management initiatives, our EBITDA reached $602.5 million, increasing by $16.6 million or 2.8%, our highest EBITDA growth since Q1 2024. As a result, our EBITDA margin improved by 0.8%, ending at 49.5% compared to 48.7% in the same period last year. Telecom CapEx spending was up by $13 million in the quarter, regulating the timing difference explained in Q2 for wireless equipment deliveries required for our 5G and 5G-plus network expansions and subscriber equipment rentals. Even with that regulation, we still anticipate higher investment levels in the last quarter to stay on track with our objectives, mainly expanding and improving our mobile network. Accounting for these investments, our quarterly adjusted cash flows from operations increased $3 million or almost 1% due to our solid EBITDA growth. Our Media segment recorded revenues of $152 million or 2% decrease, an EBITDA of $23 million, a $9 million favorable variance compared to the same quarter last year. Our Sports and Entertainment segment revenues increased by 7% to $68 million, and EBITDA was up by 28% to $15 million. We reported a net income attributable to shareholders of $236 million in the quarter or $1.03 per share compared to a net income of $189 million or $0.81 per share reported in the same quarter last year. Adjusted net income, excluding unusual items and losses on valuation of financial instruments came in at $242 million or $1.05 per share compared to an adjusted net income of $192 million or $0.82 per share in the same quarter last year. For the first 9 months, Quebecor's revenues were down by 0.3% to $4.1 billion, and EBITDA was up by $4 million to $1.8 billion, partly impacted by a $44 million increase in stock-based compensation charges. Excluding this factor, EBITDA would have increased by $48 million or 3%. EBITDA from our telecom segment grew 2%, an improvement of $38 million over last year, excluding the impact of stock-based compensation. At the end of the quarter, Quebecor's net debt-to-EBITDA ratio decreased to 3.03x, still the lowest of all our telecom competitors in Canada. We remain committed to further deleveraging in the coming quarters and intend to continue operating in this low 3 range, consistent with our current financial strategy. Our balance sheet remains very strong with available liquidity of over $1 billion at the end of the third quarter. I would also like to highlight the success of our recent refinancing where Videotron issued $800 million of senior notes yielding 3.95%. This demand -- the high demand from investors, it was very strong with a book more than 3x oversubscribed, and we were able to negotiate very favorable conditions, most notably the lowest 7-year credit spread seen in the Canadian telecommunications sector, a convincing testament to the strength of our financial foundation, our disciplined management and our growth prospects. The net proceeds will be used for the redemption of our -- or Videotron's rather 5.125% senior notes maturing on April 15, 2027. During the first 9 months of the year, we also purchased and canceled 3.7 million Class B shares for a total investment of $140 million. We thank you for your attention, and we'll now open the lines for your questions. Operator: [Operator Instructions] First, we will hear from Maher Yaghi at Scotiabank bank. Maher Yaghi: [Foreign Language] I would like to first ask you the strong performance in wireless, you mentioned that it came from lower churn and also improved gross loading. Can you maybe dissect a little bit more what drove that strong performance in the quarter? Q3 usually is a strong quarter for Freedom, but how are you thinking about Q4 so far? And which markets -- which submarkets in wireless you still haven't been able to gain market share from that you think over time could provide you more growth down the line? Hugues Simard: Thanks, Maher. So in wireless, yes, I mean, as you said yourself, the Q3 and the back-to-school period is -- has historically been a very strong quarter for us. These are the target markets that we -- that particularly resonate well with us. And again, even though organically and in terms of immigration and all the things we've talked about, the market is a little softer, we've been able to maintain our performance. And why have we been able to maintain our performance? It is because we are increasingly resonating with other cohorts whereas the freedom of the past used to be very strong with first-time buyers and immigrants and people looking for a deal or the cheapest deal. We are now able to attract and retain customers that are willing to -- they want a bit more, that want better performance. We have an increasing number of 5G-plus customers because we have been expanding the access to 5G-plus to many more of our customers. Fizz is also continuing to perform increasingly well quarter after quarter, which should not be a surprise because you will remember us telling you that Fizz was created with a very specific objective -- with very specific objectives in mind, and that was to go after and to target the younger, more urban, more digital savvy generations, which are representing the future. And I think we are showing that we're better than our competitors at reaching out to these people, to these customers. In terms of going forward in the following quarters, I think you will see if you look back that we are very -- not stable, but very consistent in our penetration, in our growth. We are continuing to retain our customers more longer, so churn is down. Our ARPU is going up. So this is really the story in this one. Look at our wireless service revenues, $27 million more in the quarter, which flows down to margin with -- considering our very disciplined cost containment. That's basically how I would call the story of -- the wireless story of the quarter, which bodes, as we said in our -- as Pierre Karl said in his note, bodes very well for the historically competitive Q4, where we intend to continue to perform very well. Pierre Péladeau: That's a pretty good answer, ain't it? Maher Yaghi: It's a very good story for sure, very good story. Maybe just one… Pierre Péladeau: May I add just one thing, is -- well, we all know that when Freedom was under the previous ownership for whatever reason, I mean, historically, the weakness was the network, the quality of the network. And I think it's important to mention that we are investing in the network. And we've been always Videotron an enterprise culture, considering that we need to deliver the best product in our available customers. So we inherit a good brand and certainly also some very good people in this organization. But now I think that we've been doing what is appropriate to improve our product by investing in the network. We will continue to do so and we will continue to do it on a disciplined basis as we've been doing, obviously, in Quebec for the last about almost 15 years now. Maher Yaghi: Yes. And maybe just to touch on the improvement in the cable segment revenue growth rate with the pricing that you passed last December starting to really kick in. But I'm trying to gauge that with Karl's -- your prepared remarks. You specifically called out the very aggressive pricing competition happening in Montreal and Quebec in general on the combo plans, very low prices. Is it easy to pass another price increase this year like you did last year amidst the competition that we're seeing right now in the marketplace? Pierre Péladeau: Well, obviously, you can easily expect that you're going to have an answer for that. But I'll tell you, we're used to that. We've been always in the same kind of environment. So there is nothing new for us. And what we're doing to make sure that we're for this situation is by being as much as disciplined as possible, watching our core cost. And we've always been in that kind of business and we will continue to do so. Historically, pricing between Quebec and all the other areas in Canada for whatever product, it was the same for cable, it's the same for wireless had been lower. So is our competitor, our main competitor, the blue guys have been trying to get market share by having lower prices than elsewhere. They certainly, in the past, being able to benefit from a higher margin elsewhere. Are they using this to compete even more aggressively in Quebec? It's not impossible. But they can do whatever they want. At the end of the day, we're going to continue to be the preferred supplier of Quebecers for many reasons, one of which is that we're offering better customer service and our products are of higher quality. Operator: The next question will be from Stephanie Price at CIBC. Sam Schmidt: It's Sam Schmidt on for Stephanie Price. I wanted to ask a question about ARPU. The declines have been improving sequentially for the last few quarters. How do you think about the timeline to return to positive ARPU growth? And it was strong in this quarter. Any onetime items to call out there? Hugues Simard: I'm sorry, I missed your first name. You're replacing Stephanie, right? Sam Schmidt: Yes. Sorry, it's Sam Schmidt on for Stephanie Price. My first question was just around the ARPU declines that have been improving sequentially for the last few quarters and how you're thinking about a timeline to return to ARPU growth. Hugues Simard: Yes. It's -- you saw our performance. We're very confident. ARPU is turning the corner, and I would expect that corner to be very, very soon. Sam Schmidt: That's helpful. And then just one more for me on mobile equipment revenues. How are you thinking about device financing heading into Black Friday? Hugues Simard: With discipline, how would I say, continued disciplined, reasonable offers. We've said this in the past that Black Friday is a time of the year where we can easily go crazy and lose our shirt, as we say, on equipment device -- on equipment or device subsidies. And we certainly do not intend to do that and to continue to be, as I said, disciplined and reasonable in our equipment offers for the rest of the year. Operator: Next question will be from Matthew Griffiths at Bank of America. Matthew Griffiths: Just on churn, firstly, if I could. It seems as though across the industry, everyone is reporting churn being lower this quarter on a year-over-year basis. I was wondering if you had any comments about how much of your churn benefit in the quarter is just kind of that halo effect of industry churn falling. Or were there things that you were doing that you kind of can see that there's -- that would have been responsible on your side for reducing the churn? And then secondly, if you can make any comments on the kind of decision and how you evaluate the network expansion question. Specifically, you mentioned this quarter expanding the wireless network into the Chatham-Kent area. So if you could share kind of just how you evaluate it, how many more opportunities you see for this going forward, it would just be helpful on our side. Hugues Simard: Matt, thanks for your question, Matt. On churn first, probably a little bit of both, to be fair. Our churn, as you know, started from very high with Freedom, the highest in the industry by far, and is now fairly equal to the lowest of the industry. And that was mostly due to the improvements to our network, its performance, its coverage, its reliability, roaming packages, marketing agility, customer experience. I mean it's a -- who knows -- and bundling opportunities. There are so many factors that collectively contributed to this lowering or this decrease in our churn. Now that it has reached, as I said, a very competitive level, then obviously, it becomes naturally a little bit more affected or more influenced by maybe more market-related metrics. And it is our goal to maintain that churn through the various improvements. I mean we're nowhere done. I mean it's not as if we're at the end of the -- of our plan here in terms of improving everything that I've talked about and going after different cohorts, as we said earlier. And as our experience keeps getting better with our customers, we're very confident on the churn level that we have not only reached the industry's best, but that we will maintain the industry's best. Of course, there are the investments that Pierre Karl talked about that will continue. We're taking this very seriously. When we relaunched -- when we bought and relaunched Freedom, we said very clearly that we went about very diligently about fixing all the pain points and making sure that the experience was quickly very much better. And we still have work to do. This is a never-ending work, and we certainly intend to, as Pierre Karl said, continue to invest in our networks and also in our marketing agility to make sure that we continue to resonate with Canadian customers. As to the network expansion, this is the -- these decisions are made on a -- it's a bit of a -- how would I say, it's a bit of a balance between going after strong and interesting regions with -- and balancing it with the investments needed in these regions. So this is something we have a plan, and we're continuing to be very diligent and very disciplined about our network expansions going forward. Focusing on the MVNO areas where we're starting to resonate well, where we're building the business, you will remember us saying that we're not going to build and hope that people come. We will launch MVNOs and where it will make sense for us, we will prioritize network investments. And I think that's the good business way to do it, and that's still what we intend to continue to do. Operator: Next question will be from Jerome Dubreuil at Desjardins. Jerome Dubreuil: The first one is on the free cash algorithm. We were seeing a bit of EBITDA growth, but also CapEx increases. So I'm wondering if you're seeing a potential for free cash growth in the coming year or if value is going to be created more through deleveraging and buybacks. I appreciate there was the share-based comp situation this year. But essentially, will absolute EBITDA growth outpace CapEx growth in the next few years? Hugues Simard: Thanks Jerome, [Foreign Language]. I think you're seeing it in the numbers. We look at our performance in terms of generating margin, generating cash, which provides us with the opportunity to continue to invest in the network, which we had said we would. And from -- I think you will remember, again, us saying from the beginning of the year or even last year that we were going to maintain very strong, stable cash flow, even though we were intending to invest more in our network. So in terms of buybacks, as you know, we flexed in the past on this, and we will continue to do so. And dividends will be -- we will continue stay true to our dividend increase, reasonable increase that we've had in the past. We're still in the soft in the -- not in the soft, in the best spots that we announced between 30% and 50% of our payout. So we feel pretty comfortable with our continued capability to generate cash, very strong cash flows that then give us the leeway to continue to invest in the network and the -- eventually in the network builds. Jerome Dubreuil: I'm just going to push a little bit on the capital allocation point here. You said in the prepared remarks that you're probably happy with leverage in the low 3s. It seems like you're getting real close to destination here on the balance sheet side. So does that mean that we should be expecting a ramp-up in the buybacks probably? Or is that a fair assumption? Hugues Simard: It's not an unfair assumption, but I wouldn't necessarily agree to it now this morning. Pierre Péladeau: And Jerome, I think that we should say it's a prerogative of the Board of Directors. And look at the sequence previously where we've been changing our balance sheet policies. I guess that we should -- that would be a good example or a good illustration of what we can expect being the situation in the future. Operator: Next question will be from Vince Valentini at TD Cowen. Vince Valentini: Let me spin that free cash flow question just more specifically to the near term. Hugh, you've done $1.06 billion of free cash flow through the first 9 months of the year. In the fourth quarter of last year, you did over $300 million in free cash flow. Is there something material in terms of timing issues we should be thinking about for the fourth quarter? Or are you going to -- like, you're going to smash through $1.2 billion or $1.3 billion of free cash flow for the year? Hugues Simard: Vince, no, we've talked about this, I think, last quarter. There are some timing issues. Our CapEx did increase a little bit in Q3, as you've seen, but there still is some timing ahead of us -- timing issues ahead of us in terms of CapEx, which you should expect to be higher in Q4. So I wouldn't go all out in our expectations of us breaking the bank in terms of cash flow. It will be a very strong cash flow and we will more than deliver what we had said we would deliver, Vince. But yes, there definitely is going to be a catch-up in CapEx towards the end of the year -- between now and the end of the year, yes. Vince Valentini: But you would definitely expect to have positive free cash flow in the fourth quarter? Hugues Simard: For sure. For sure. Yes, yes. Vince Valentini: Okay. The second thing, your Internet adds were a bit better than I expected. Is this in Quebec in your core Videotron business? Or are you starting to see some benefit from Freedom Internet in the rest of the country using TPIA? Hugues Simard: Well, a little bit of both. It is in Quebec, but it is also in Freedom home Internet is performing well. Fizz Internet is performing well. So it's -- we are in a very competitive situation and an ever-increasing competitive situation in Quebec. But we've talked about the quality of our services and network. And so we've been performing well essentially everywhere in terms of broadband. Vince Valentini: Okay. And last one, I don't know if there's any materiality to this, but as you know, I'm a happy customer. These roaming SIM cards that you guys have and people on other carriers are allowed to use them when they're traveling, how are you counting those? Are they being counted as a subscriber in the third quarter sub adds? Hugues Simard: No, no. No, they're not -- if you've turned on that SIM card, as I know for a fact that you were finally successful in doing, Vince… Vince Valentini: Yes, I did. Hugues Simard: After some help, you are not counted as a subscriber, no. Vince Valentini: So that is actually -- it is obviously service revenue. So it's going to be helping your ARPU even more than just the underlying trends in the business going forward? Hugues Simard: Yes. That's correct. And by the way, it's high time that you do become a customer of Vince. We're counting on you. Vince Valentini: I'm waiting for your Black Friday offer. Pierre Péladeau: Thanks for your business, Vince. Operator: Next question will be from Aravinda Galappatthige at Canaccord Genuity. Aravinda Galappatthige: Just a couple of quick ones from me. Hugues, you mentioned that one of the reasons for the success of Freedom sub trends is because you're kind of going into other cohorts that the old Freedom did not. I mean should we translate that comment as suggesting speaking to sort of the prepaid-postpaid mix? Any comment around how that mix has changed as you sort of progressed with gains on the subscriber front? And then secondly, just a small follow-up. The wireless ARPU redefinition, can you just clarify what that was? Hugues Simard: As to your first question, Aravinda, postpaids and prepaids for us, we're continuing to perform well on both. We have -- we're a bit agnostic, to be honest, and have continued to work well. So on all the cohorts that I talked about, I think that was more of a general comment applying to both to both postpaid and prepaid -- not specifically a move from one to the other. But we -- to be quite transparent, we're continuing to perform well on postpaid. And your second question, sorry, I've forgotten was to do with what? Aravinda Galappatthige: The ARPU redefinition. I think it was a small definition change of $0.40. Hugues Simard: Yes. Yes, it's about $0.40. We've restated it. But as those were $0 accounts, you'll see that it's almost consistently $0.40 over the last so many quarters that we restated. Operator: Next question will be from Drew McReynolds at RBC. Drew McReynolds: So a couple for me. Maybe for you, Hugh, on the CapEx trajectory in telecom. It looks like you're running a little hotter than the initial kind of $650 million or so of CapEx. Just wondering, and I think your commentary from Q4 would say you come on above that. Is there any kind of change overall to the kind of medium-term trajectory on CapEx from your perspective? And then just tied to that, we are seeing a pretty efficient kind of cable CapEx intensity come down from -- with some of your cable peers. Just wondering your cable CapEx, how you expect that to trend again through the medium term? Hugues Simard: Thanks, Drew. So on medium-term CapEx, both wireless and wireline, we will -- as I said earlier, we will, in Q4, be a little bit higher. That doesn't necessarily change our midterm -- what we said about the midterm that we are -- and we've said this before, that we're in a -- we're continuing to invest, and we're continuing to improve and ultimately expand as well our networks. And as such, it will be -- you should expect a gradual CapEx increase over the medium term. Nothing -- again, gradual, nothing -- no CapEx wall. I have some of your colleagues unfortunately use the term in the past. I don't think there's anything to be worried about, but just very reasonable and very sensible investments in both of our wireline and wireless network going forward. So no change to our midterm CapEx trajectory. Drew McReynolds: Just in the MD&A, you alluded to some favorable kind of provisioning in Q3 within telecom. I'm assuming the 2.8% year-over-year telecom EBITDA growth ex the provisioning is still a reasonably good growth rate. Can you just comment on quantifying those provisional -- favorable provisions? Hugues Simard: I won't give you the number, obviously, Drew, but it's -- no, I think your statement is fair. There's no -- yes, there was some provision adjustments as we do in a number of quarters and almost all quarters and as everybody does, but it's not material enough to impede or to change the conclusion on our increase in profitability for the quarter. Drew McReynolds: Okay. No, that's great. And last one for me, just the usual fixed wireless impact in Quebec, just how that's kind of contributing to the competitive environment, if at all? And that's it for me. Hugues Simard: To be honest, nothing significant. It is -- and by that, don't misread us. We're not saying that this is something to be dismissed. As we said in the past, fixed wireless is -- we're not saying it's not a thing. It may very well become a thing. And we are certainly in our own shop, looking at opportunities for fixed wireless. But certainly, to your -- in answer to your question, so far the impact on us has been very limited in our home turf of Quebec. But we are definitely -- and we've got the teams already lined up to start reflecting on how we will turn that into an opportunity for us in our various markets outside of Quebec. Aravinda Galappatthige: And congrats on great wireless results. Operator: Our last question will be from Tim Casey at BMO. Tim Casey: Hugh, just one modeling question and a couple of others. Working capital is running very positive so far this year. Should we expect a reversal in Q4 or maybe into Q1 next year? And what's driving that? Is that cash management or is it just timing? Hugues Simard: Tim, no, you should -- the answer your question, there should not be -- I don't see any material difference in Q4 or Q1 of next year in terms of working capital. It is -- to be honest, it is something that we've been focusing on for the past year or so, 1.5 years, where we recognized -- I think sometimes you have to be -- you have to question yourself on various occasions. And we weren't as efficient in working -- in managing our working capital as we should have been in the past. And we've tightened up a lot of things and I think it's showing. But we certainly intend to continue to perform well on working cap. And I wouldn't expect -- I mean, there's no bump either way that you should expect in the next quarters. Tim Casey: Okay. Just 2 for me. On the 50,000 subs you removed out of the base, can you give us any color on why they were $0 subs? Was this an aggressive promotion from the relaunch of Freedom? Were they -- was it an enterprise deal? What was happening there that they were so poor ARPU? And second one, as you think about expanding out of footprint on wireline, do you expect to retain similar type economics maybe on a margin basis? I would -- or should we assume that it will be dilutive to ARPU on the wireline side? Hugues Simard: Tim, to your first question, the 50,000 or 51,000 were $0 accounts. It's basically people who had opened an account but never -- or had a SIM card, mostly from before the acquisition and who never really bought a package. So they -- we had them as an account, but they weren't active and they weren't generating any revenue. So we just took them out. In terms of our out-of-footprint wireline, we -- again, our intent is to remain very disciplined and very -- I think that was your question. If I'm not answering the right question, you can ask me. We certainly -- as we've said in our notes today, both Pierre Karl and I, we intend to -- whether it's out of footprint wireline or eventually fixed wireless, whatever, it is our intent to remain very disciplined. And I think if I may make the point right now, we have been and for quite some time, been very disciplined and very predictable in our approach. We say what we're going to do, and we do what we said we were going to do, which I don't think can be said for everybody in telecom in Canada. But we certainly, in terms of wireline, intend to continue to apply that philosophy, if I can call it that. Pierre Péladeau: So we would like to thank you all attending this conference call and expect the same for our next quarter that will be our year-end. So don't miss Hamilton game, the Alouettes against the Tiger-Cats on Saturday. Hugues Simard: And you should root for the Alouettes, right? Pierre Péladeau: Sure. Thank you very much and have a nice day. Hugues Simard: Thanks, everyone. Operator: Thank you. Ladies and gentlemen, this concludes the Quebecor Inc.'s financial results for the third quarter 2025 conference call. Thank you for your participation and have a good day.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the nLIGHT, Inc. Third Quarter 2025 Earnings Call. After today's prepared remarks, we'll host a question and answer session. [Operator Instructions] I will now hand the conference over to John Marchetti, VP, Corporate Development and Investor Relations. John, please go ahead. John Marchetti: Good afternoon, everyone. Thank you for joining us today to discuss nLIGHT's Third Quarter 2025 Earnings Results. I'm John Marchetti, nLIGHT's VP of Corporate Development and the Head of Investor Relations. With me on the call today are Scott Keeney, nLIGHT's Chairman and CEO; and Joe Corso, nLIGHT's CFO. Today's discussion will contain forward-looking statements, including financial projections and plans for our business, some of which are beyond our control, including the risks and uncertainties described from time to time in our SEC filings. Our results may differ materially from those projected on today's call, and we undertake no obligation to update publicly any forward-looking statement, except as required by law. During the call, we will be discussing certain non-GAAP financial measures. We have provided reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures in our earnings release and in our earnings presentation, both of which can be found on the Investor Relations section of our website. I will now turn the call over to nLIGHT's Chairman and CEO, Scott Keeney. Scott Keeney: Thank you, John. Q3 represented another solid quarter of execution for nLIGHT with total revenue at the high end of our guidance range and both gross margin and adjusted EBITDA beating our expectations. Third quarter revenue of $67 million grew 19% year-over-year and were once again driven by record aerospace and defense revenue of $46 million, with defense product sales growing more than 70% year-over-year. I am particularly pleased with the expansion of our product gross margin, which came in at a record 41% and increased from 29% in the same quarter a year ago. Our adjusted EBITDA was also above our expectations at more than $7 million in the quarter. The expansion in our gross margin and the subsequent growth in our adjusted EBITDA demonstrate the leverage that is inherent in our operating model. In Aerospace and Defense, we remain focused on 2 key markets: directed energy and laser sensing. And revenue from both markets outperformed our expectations in the quarter. In directed energy, we are uniquely positioned with our vertically integrated and industry-leading high-power laser technology, developed over the past 2 decades, and spanning the entire technology stack from chips to components to full laser systems and beam directors. All of which are designed and manufactured in the U.S., have generated revenue at nearly every level of vertical integration in the directed energy market, and we have established ourselves as one of the most comprehensive suppliers to the U.S. government, other prime contractors and foreign allies. During the third quarter, we continued to make solid progress on our HELSI-2 program. As a reminder, this is a $171 million program to develop a 1-megawatt high-energy laser with a completion date expected in 2026. The shipment of critical components towards the HELSI-2 program was a significant driver of our record defense product revenue in the quarter and is expected to be a substantial contributor to growth through the remainder of the year and into 2026. We continue to transition our latest generation of amplifier products into advanced production by leveraging nLIGHT's experienced manufacturing teams and implementing quality and control processes. This transition, while not without risk, is progressing well and is critical as we continue to optimize our amplifier production line for higher volumes. Our work on the Army's DE M-SHORAD, Short-Range Air Defense program is nearing completion, and we look forward to delivering this 50-kilowatt high-energy laser and beam director to our partner. Once delivery is completed, the system will begin field testing. Overall interest in U.S. directed energy programs remains high, particularly for counter-UAS applications, and we expect new contracts to be awarded in the coming quarters from different agencies as part of the President's Golden Dome executive order, which specifically highlights non-kinetic missile defense capabilities as an area for development. With a mandate to build these systems in the United States, we believe we are well positioned to benefit from these efforts over the coming years, and we are hopeful that the coming quarters will provide additional details on the scope and timing of these initiatives. We've also continued to have success in the international markets for directed energy. We began shipping to a new international customer last quarter, and we have a growing pipeline of new global opportunities as allied nations look to accelerate directed energy programs for cost-effective counter-UAS and other threats. Our laser sensing markets are also performing well. Our laser sensing products include missile guidance, proximity detection, range finding and countermeasures, and we have been incorporating in several significant and long-running defense programs, all of which are poised to grow in 2026. During the third quarter, we signed a new $50 million contract for an existing long-running missile program that incorporates one of our laser sensing products. nLIGHT has been a long-term supplier into this program, which our customer expects to remain a key priority associated with the nation's munitions restocking efforts. Our historical performance on these programs and our early success in multiple classified programs has increased both the number of prospects and the size of our sensing pipeline. In addition, further opportunities under Golden Dome initiatives have emerged and could also become significant contributors to our growth in 2026 and beyond. Commercial revenue was slightly ahead of our expectations at $21.2 million on a sequential increase in microfabrication sales and relatively flat results in our industrial markets. We have been pleased with the stability of our microfabrication markets year-to-date and have been encouraged by the growth in our advanced manufacturing products, where we see alignment with our aerospace and defense customers and our technology remains differentiated. Let me now turn the call over to Joe to discuss our third quarter financial results. Joseph Corso: Thank you, Scott. Our third quarter results were characterized by another quarter of strong execution. Healthy revenue growth, a favorable mix of business and continued execution from our manufacturing and operations teams drove meaningful upside to our gross margin. That upside, combined with operating expense discipline, resulted in significant improvement to profitability and cash flow, demonstrating the leverage that is inherent in our model. Total revenue in the third quarter was $66.7 million, an increase of 19%, compared to $56.1 million in the third quarter of 2024 and up 8%, compared to the second quarter of 2025. Aerospace and defense revenue was a record $45.6 million in the quarter, up 50% year-over-year and 12% sequentially. A&D growth was driven by record aerospace and defense products revenue, which grew 71% year-over-year and 32% compared to last quarter. Development revenue of $19.1 million grew 28% year-over-year as we continue to execute on multiple directed energy programs. The quarter-over-quarter decline of 8% was the result of several smaller programs having been completed in the prior quarter. We expect A&D revenue to continue to grow sequentially in the fourth quarter. Third quarter revenue from our commercial markets, which includes industrial and microfabrication, was modestly ahead of our expectations at $21.2 million, a decrease of 18% year-over-year, but up slightly compared to last quarter. Revenue from our microfabrication markets was in line with our expectations at $11.6 million, while revenue of $9.6 million from our industrial markets was slightly better than expected as an increase in demand for our additive manufacturing products offset continued declines in cutting and welding. While we are pleased with the overall stability that we saw in our commercial markets in the third quarter, we do not believe that the overall demand picture has significantly changed from what we described in prior quarters. Total gross margin in the third quarter was 31.1% compared to 22.4% in the third quarter of 2024 and 29.9% last quarter. Products gross margin in the second quarter was a record 41%, compared to 28.8% in the third quarter of 2024 and 38.5% last quarter. Third quarter products gross margin was positively impacted by a favorable customer and product mix driven by record revenue from our A&D markets and an overall increase in volume. Development gross margin was 6.4%, compared to 4.7% in the same quarter a year ago and 13.1% last quarter. The sequential decrease in development gross margin was largely the result of some smaller, higher-margin programs that finished in the prior quarter and did not contribute to the third quarter results. Going forward, we expect development gross margin to remain in the 8% range. GAAP operating expenses were $28.1 million in the third quarter, compared to $24.4 million in the third quarter of 2024 and $22.7 million in the second quarter of 2025. Included in our third quarter GAAP operating expenses were higher stock-based compensation expenses associated with previously announced performance shares and a restructuring charge of approximately $1.7 million as we further reduced our activities in China and in cutting and welding. Non-GAAP operating expenses were $17.5 million in the quarter, down from $18.3 million in the third quarter of 2024 and up from $16.8 million last quarter. We expect non-GAAP OpEx to remain in the $18 million range in the fourth quarter. GAAP net loss for the third quarter was $6.9 million or $0.14 per share compared to a net loss of $10.3 million or $0.21 per share in the same quarter a year ago and a loss of $3.6 million or $0.07 per share in the second quarter of 2025. On a non-GAAP basis, net income for the third quarter was $4.3 million or $0.08 per diluted share compared to a non-GAAP net loss of $3.7 million or $0.08 per share in the third quarter of 2024 and non-GAAP net income of $2.9 million or $0.06 per diluted share last quarter. Adjusted EBITDA for the third quarter was a positive $7.1 million, compared to a loss of approximately $1 million in the same quarter last year and a positive $5.6 million in the second quarter of 2025. We ended the third quarter with total cash, cash equivalents, restricted cash and investments of $116 million. We generated $5.2 million in cash flow from operations despite continuing to invest in working capital ahead of growth, and we were free cash flow positive in the quarter. Turning to guidance. Based on the information available today, we expect revenue for the fourth quarter of 2025 to be in the range of $72 million to $78 million. The midpoint of $75 million includes approximately $55 million of product revenue and $20 million of development revenue. We expect sequential growth in A&D in the fourth quarter, and we expect full year 2025 A&D revenue growth to exceed our prior outlook for A&D growth of at least 40% year-over-year. Overall gross margin in the fourth quarter is expected to be in the range of 27% to 32%, with products gross margin in the range of 34% to 39% and development gross margin of approximately 8%. As we've mentioned previously, as a vertically integrated manufacturing business, gross margin is largely dependent on production volumes and absorption of fixed manufacturing costs. Finally, we expect adjusted EBITDA for the fourth quarter of 2025 to be in the range of $6 million to $11 million. With that, I will turn over the call to operator for questions. Operator: Your first question comes from the line of Greg Palm with Craig-Hallum. Greg Palm: Congrats on the results. I was wondering, first, if you could just address HELSI-2, I mean, based on the results, the guide, I mean, is there a chance that you're pulling ahead the completion date here? I know you've talked about completion in 2026, but curious if that time line has changed at all just based on the volumes that you're able to complete. Scott Keeney: Greg, it's Scott here. Thanks for the question. No, we're on track is the bottom line. We will announce progress results when we are able to do so, but we're on track for 2026. Greg Palm: And then as it relates to product, so your guiding revenue up quite a bit sequentially, but gross margins down. I know you're coming off of a pretty tough compare, I guess, sequentially when you put up 40-plus percent product gross margins. But just can you give us a little bit more color what's going on? It doesn't sound like mix is going to change all that much? Joseph Corso: Yes. No, Greg, thanks for the question. As we've talked about in the past, you can have some pretty -- what seems like a pretty big swings from a gross margin perspective when you're still talking about revenues at the levels that we are at. Really not much in terms of Q3 to Q4 on the gross margin guide, probably 150 or 200 bps of it is related to actually freight and duties, right, as we've had the higher cost of materials that are going to -- we're now going to start to feel in Q4. And then the rest is really just mix within each of our end markets. The mix within defense, the mix within commercial can change in any given quarter. And then there's just a handful of other items that as we forecast in any given quarter that are there. But generally speaking, we're pleased that gross margin has expanded, and it remains really a function of 3 things: higher volume mix, where we are and then just overall how we're levering the factory. So we're pretty happy with where we were in Q3 and not much to think about for us in Q4. Operator: Your next question comes from the line of Ruben Roy with Stifel. Sahej Singh: This is Sahej Singh on for Ruben Roy. First off, congrats. You guys are past your breakeven point, which I think was $55 million to $60 million and turning profitable, so congrats on that. HELSI-2, I think if I do the math is, you said it earlier, $171 million contract with 3-year estimated time line. So annualized, that's about $57 million ceiling per year, which is about $14 million lower than what you're operating on, on a trailing 12-month basis within Aerospace and Defense products. So 2 questions there, and then I have a follow-up. It seems like a fixed firm price contract with the moves you're making on amplifiers. Can you give us some sense of how much incremental margin benefit you're seeing from that this quarter and expect to see maybe through the course of next year as you're ramping down on that contract? And the second part to this is as that contract ramps down, do you see sensing tied to Golden Dome and the classified programs and maybe international sales more than offset that HELSI-2 contract revenue loss, which I imagine will be probably starting second half of '26? Joseph Corso: So there's a lot there. So help me if I don't get it all right, I can follow up. I would say on the HELSI-2 contract, first, it's a good way to look at it, right, it's $171 million contract, but it's not going to be recognized linearly, right? So it's a cost-plus type contract. So it really depends on the type of activities that we are engaged in at any given period of time during that contract. So you shouldn't think about that linearly. Certainly, it is a big driver of the A&D products revenue that we have been generating and amplifiers are the key component that we are selling into that contract. Now more generally, as we think about products gross margin expansion, we've really focused on products that enable us to drive incremental gross margins of meaningfully north of 50%. And so amplifiers and other products that we are selling are meeting that today, and we expect that to continue to expand. I think the last part of your question just around the trajectory of HELSI-2 into 2026, you're absolutely right, right? At some point in the back half of 2026, we'll start to see the revenue that we're generating from HELSI-2, everything around HELSI-2, start to trail off. But we've got plenty of other programs, both in directed energy and in laser sensing that will make up for that reduction in the second half revenue. Sahej Singh: Very helpful. And then the second -- the follow-up I have is -- on DE M-SHORAD, which I guess is now ramping down, if I'm not wrong, and please correct me if I am, it's an R&D contract, which means it probably sits in advanced development. That said, advanced development seems to be ramping quite nicely also on a trailing 12-month basis. What's driving that growth? And I guess, to what degree should we look at that as a leading indicator for future sales on the A&D laser products, as you're mentioning into '26, '27, let's say? Joseph Corso: So you are correct that DE M-SHORAD is ramping down. So we are at the very end stages of delivering that product to the customer. So that's not really contributing meaningfully at all to revenue this quarter nor will it contribute to revenue going forward. The advanced development segment of our business includes all of the development revenue that we do, including HELSI-2 and other programs. And while not all of the programs that we are working on that are classified as advanced development go into -- will ultimately end up as programs of record, it is a good indicator that the activities that we have in directed energy and in laser sensing are putting us in a good position so that when those programs do transition or there are new programs, where there are opportunities to become program of records that we're well positioned to capture them. But you can't draw a line directly from our advanced development revenue to what long-term defense product revenue will be. Operator: Your next question comes from the line of Jim Ricchiuti from Needham & Co. James Ricchiuti: So the question I had is just relating to the previous question. If HELSI-2 does wind down in the second half of the year, you've talked about a pretty full pipeline. If you -- when would you have to see new orders come in, should be able to offset some of the hole that we could see from having completed HELSI-2. In other words, is it -- do you anticipate orders coming in, in the next couple of quarters that would allow you to fill a potential hole related to HELSI-2 in the back half of next year? Joseph Corso: Jim, based on what we are working on today, the hole is already filled. What is somewhat dependent upon timing of bookings and how quickly we can get to work on a handful of new programs will determine how much we grow in 2026. James Ricchiuti: Could you also maybe just clarify, I just maybe misheard. On the laser sensing contract that you alluded to, is this a follow-on piece of business? Scott Keeney: Yes is the short answer. It's an ongoing program of record that we have been supporting for over a decade. James Ricchiuti: So Scott, this basically just extends that. And then one final question. I know all of the questions have been around the A&D business, but it's interesting to see, I guess, what, a second quarter of sequential improvement in the microfabrication area. You're characterizing it as stabilizing. What is leading to some of the stabilization? Where is it coming from? Joseph Corso: Yes, it's coming from -- certainly, in microfabrication, that has always been a business that is difficult for us to predict. It's largely book and ship in the -- during the quarter, it's a really long tail of customers. And the last couple of quarters, we've seen some stabilization in that business. So it's difficult to point to 1 or even 2 things that are driving that business, but we're pleased to see stabilization there. Similarly, on the industrial side of our business, the quarters have been, frankly, a little bit better than we had expected, which is a welcome development for us. But what we'll say is our overall view of the commercial business as we go into 2026 is the same as we've been saying now for a couple of quarters, right? That business is expected to again decline in 2026. James Ricchiuti: And just with respect to microfabrication, the seasonality of that business tends to fall off a little bit in Q1. But the levels that we're seeing Q2, Q3, is that a reasonable level moving aside from the seasonality we might see in Q1? Joseph Corso: Yes. Jim, you're absolutely right. That is probably the most seasonal of our businesses. And in the last couple of quarters, we've seen that plus or minus $10 million of revenue. I think that a good range for us is probably $8 million to $12 million. We don't have better visibility than that. And obviously, China microfab business has declined precipitously over the last couple of years, and we've seen continued sequential declines in that business as well. Operator: Your next question comes from the line of Keith Housum with Northcoast Research. Keith Housum: Congratulations on a great quarter, guys. I think I heard you guys say the amplifier transition continues to progress. One, I guess, is that correct? And then once that's complete, how should we see that reflected in results? Will it make for more efficient and easier recognition of revenue? Or is it going to be lower cost? Or what's going to be the financial statement impact when the transition is complete? Joseph Corso: Well, I'm not sure the amplifier transition is not complete per se. I think what is going to be complete is the amplifiers that are delivered into one particular program, which is HELSI-2, and that will happen over the course of 2026. Generally speaking, we have a lot of programs into which we are delivering amplifiers domestically. And as we've said the last couple of quarters, there's also opportunities for us that we are working on with a host of allies internationally. So we expect our amplifier business to continue to grow. And so that is one of the reasons that you are starting to see some of the margin expansion is due to the fact that we are selling higher volumes of amplifiers. And at the same time, we're working hard to take what is a really difficult product that is pushing the limitations of physics and make it more manufacturable. So I think over time, you're going to see both revenue growth and margin expansion as we start to mature our ability to manufacture those amplifiers. Keith Housum: That's helpful. Appreciate it. Your restructuring charges in China cutting and welding, is that more to rightsize these businesses based on your expectations going forward? Or what's the reason behind that? Joseph Corso: Yes. No, that's exactly what it is, right? I mean we were operating in Shanghai for a very long time, not an easy transition to move assembly of our lasers from Shanghai to Fabrinet and to the U.S. And so there's lots of ongoing support activities that are required to do that. And so you're seeing some of that in that restructuring charge. And then there's also a bit of expectation that the cutting and welding business are going to continue to decline. And so we want to make sure that we are rightsizing our investments for our expectations of those markets going forward. Keith Housum: Appreciate it. And then I'm not sure if it's a true statement or not, but is there an opportunity for you guys in the counter-drone technology space? Scott Keeney: Sure. Yes, absolutely. That's one of the big applications for directed energy. Keith Housum: So we're still in relatively early innings in that area as well. But obviously, it gets a lot of press that we read today. Scott Keeney: Correct. And direct energy goes well beyond counter drones. Operator: [Operator Instructions] We have a follow-up question from Greg Palm with Craig-Hallum. Greg Palm: You said something that I thought was pretty important in terms of programs next year that could offset or that could make up the absence of HELSI-2. So I just want to make sure we're clear. Are those programs that have been booked? Or is that still in the pipeline? Joseph Corso: Those are programs that have been booked, Greg. Greg Palm: And then I'm just curious, can you talk a little bit about -- are those directed energy? Are those laser sensing? And I don't know if I missed it, but the 2 confidential laser sensing programs, one of them was supposed to go to LRIP by the end of this year. Is that still the case? Has that begun? And what's the status of the second one? Scott Keeney: Good. So let's see your first question is the work for '26 that is key that we're highlighting is in both directed energy and in sensing first. Let's see your second question was around. Greg Palm: Yes, the 2 major sensing programs that you -- the confidential ones that we've been talking about for the past, well, multiple quarters. Scott Keeney: Yes. The summary is they're both progressing. I want to be pretty sensitive to the specifics of the time line, but they're both progressing that supports the outlook that we're providing generally in the business. Greg Palm: But -- and then to be clear, going back to my first question, there are programs -- these are not the programs that are necessarily supposed to offset, it could help, but there's new additional programs that have been once booked, that is going to help offset that loss in HELSI-2 business. Joseph Corso: Yes, Greg, so let me parse it a little bit more finely for you. So there are programs that we are on today that are not HELSI-2 that we expect to continue to grow. There are new programs that we've won, right, that will plug the hole that we will see as HELSI-2 trails off. Those are both directed energy and laser sensing. And then there are other very high probability of win and go programs that we expect in 2026 that will drive growth in defense beyond what it is today. Hopefully, that helps. Operator: Your next question comes from the line of Brian Gesuale from Raymond James. Brian Gesuale: Really nice job on the quarter. I'd like to maybe talk a little bit when I've spent some time in D.C. the last few weeks, and it just seems like there's a lot of opportunities around directed energy. Could you maybe take -- give us the thoughts on the pipeline, both domestically and globally? And then maybe talk about your capacity because it seems like demand is pretty vibrant right now. Scott Keeney: Yes, that's right, Brian. I've been spending a lot of time in D.C. also. And I think there is a lot of new work that's going on. It's a little frustrating, obviously, with the details around the shutdown on some of the details. But at the senior level, we are seeing very good engagement across all levels, whether it be from Pentagon to the services and really across the breadth of direct energy from the lower power systems through the higher power systems. So we are seeing continued progress in the U.S. programs and that is supported, it's reinforced by also some of the international programs. I think over the last quarter, we've seen news out of Israel of the demonstrations of the success of Iron Beam out of the U.K. We've seen success out of Dragonfire, and there have been other international efforts that both are opportunities for us as we engage internationally, but they also have played a role in reinforcing what's going on in the U.S. So high level, yes, direct energy remains a very important area for us in addition to sensing. Brian Gesuale: Fantastic. Is there any thoughts on the urgency with some of the things that are happening in Europe? Do you see more rapid adoption there over the next few quarters, particularly with the government shutdown or it seems like the domestic market has accelerated a lot when I talk to a lot of the customers and look at some of their demand outlook over the next year or so. Scott Keeney: Yes, I think that's right. And I think in the coming weeks, you'll learn more about the acquisition reform that's being promulgated to address that. So I think we're all eager to see some of that formally launched to change the way that at least the U.S. pursues procurement to more rapidly implement some of these systems. So I think we will see some of that. I think there is urgency around the world actually to get the technology implemented in new ways. Operator: Your next question comes from the line of Troy Jensen. Troy Jensen: Sorry, can you hear me? Scott Keeney: Yes. Troy Jensen: Sorry about that. So first of all, congrats to another great print for you guys. Just a quick question. I know you're getting lots of questions on the development revenues here, but can you just give us the number of customers that are in your development product line or revenue line? Joseph Corso: We're probably working in total on a dozen, just plus or minus a dozen programs. They're all of obviously different sizes and at different periods of time, but that's a pretty good number. Troy Jensen: And then just on the sensing stuff, I did -- as you were going through your prepared remarks, Scott, it kind of felt like you're upticking on that. I guess most of the strength in A&D over this past year or so has been on the directed energy side. Would that be a true statement? Do you feel like you're upticking? Or are these contracts just kind of sustaining? Scott Keeney: On the sensing side, Troy, you mean? Troy Jensen: Yes, sensing specifically. Scott Keeney: Yes. Yes, I think you read that correctly. I think that direct energy, there's a greater awareness of the set of applications in directed energy and what's going on. Sensing, it gets a little more challenging to describe how lasers are, I would say, supplementing, augmenting radar and other systems, but that is a very important area and listed as one of the critical technologies by the Pentagon and one that we're very well positioned for. Operator: We have a follow-up question from the line of Ruben Roy with Stifel. Sahej Singh: Just trying to understand, so your comment on HELSI being an R&D contract makes sense, while it's an advanced dev. And of course, it is my mistake there. But the jump up in revenue really looks like it's coming from your products within A&D. And I know you guided advanced dev to $25 million next quarter. So I'm assuming that's either -- I'm assuming that's mostly HELSI. But can you maybe talk through the A&D product side and just help us understand what drove this jump this quarter? I think someone asked whether it was government shutdown or are you expecting this to sort of sequentially improve? Joseph Corso: Yes, we are expecting A&D products to continue to improve. When we sell -- so we sell a variety of products that are booked as in the products segment of our financial statements. Amplifiers that we sell into the HELSI-2 program, which is a cost-plus development program, those amplifiers are reflected in our revenue as product revenue. There are also laser sensing products that are being sold that are A&D product revenue. And so you start to look at that, and that's why you see the growth in the A&D product side of the revenue. Operator: There are no further questions at this time. I will now turn the call back to John Marchetti for closing remarks. John Marchetti: Thanks, everyone, for joining us this afternoon. And as always, thank you for your continued interest in nLIGHT. We will be participating in a number of conferences over the next several months. So we look forward to speaking with everybody as we continue to go through the quarter. And thank you again for joining us today. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Pacira BioSciences Third Quarter Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Susan Mesco. Please go ahead. Susan Mesco: Thank you. Good afternoon, everyone. Welcome to today's conference call to discuss our third quarter 2025 financial results. Joining me are Frank Lee, Chief Executive Officer; Brendan Teehan, Chief Commercial Officer; and Shawn Cross, Chief Financial Officer. Jonathan Slonin, our Chief Medical Officer, is also here for our question-and-answer session. Before we begin, let me remind you that this call will include forward-looking statements subject to the safe harbor provisions of federal securities laws. Such statements represent our judgment as of today and may involve risks and uncertainties. This may cause our actual results, performance or achievements to differ materially. For information concerning risk factors that could affect the company, please refer to our filings with the SEC. These are available from the SEC or the Pacira website. Lastly, as a reminder, we will be discussing non-GAAP financial measures on today's call. A description of these metrics, along with our reconciliation to GAAP, can be found in the news release issued earlier this afternoon. With that, I will now turn the call over to Frank Lee. Frank Lee: Thank you, Susan, and good afternoon to everyone joining today's call. We're pleased to report another successful quarter of strong execution across our corporate, clinical and commercial initiatives. We're seeing top line growth accelerate with year-over-year revenues increasing by 6%, driven by a strong quarter for EXPAREL and iovera. We continue to make important progress advancing our 5x30 path to growth and value creation. To remind you, this plan supports 2 broad strategic initiatives: first, growing our best-in-class commercial-based business; and second, advancing an innovative pipeline of potentially transformative assets such as PCRX-201. Notable third quarter highlights include increasing EXPAREL demand with year-over-year volumes up approximately 9%. This is the highest quarterly growth we've seen in over 3 years and underscores the value of our commercial investments, improving manufacturing efficiencies and favorable gross margin supporting our second increase in full year guidance, significant cash flows and a strong balance sheet, enabling investments in new growth initiatives, meaningfully expanding our clinical pipeline with the in-licensing of AMT-143. This complementary long-acting non-opioid directly aligns with our 5x30 strategy and has the potential to provide longer pain relief versus currently available local analgesics. Disciplined and strategic capital deployment, including share repurchases of another $50 million. And finally, solidifying our exclusivity runway with the listing of our 21st EXPAREL patent. This now appears in the FDA's Orange Book and additional patents are forthcoming. I'll begin with a high-level overview of our commercial portfolio, where we're seeing improving trends for each of our products. For our flagship product, EXPAREL, momentum is on the rise as a result of strong execution, expanding market access, awareness and utilization. On the market access front, we continue to make important strides improving patient access to opioid-sparing pain therapies. To that end, our GPO partnerships and performance-based contracting are delivering and growing our EXPAREL user base. We continue to secure key wins with additional national and regional commercial payers now providing separate EXPAREL reimbursement. We remain ahead of plan and expect to surpass our full year goal of 100 million covered lives across commercial and government payers. Turning to Zilretta, new initiatives to better support this promotionally responsive product are underway. We're confident the foundation is in place for a return to growth. Our colleagues at Johnson & Johnson MedTech are now trained and active in the field. This partnership is a great example of 5x30 in action. We have tripled our commercial footprint, which we believe will provide a meaningful incremental growth. Lastly, iovera had a strong third quarter as a result of its dedicated sales force and other commercial investments. On the manufacturing front, the team continues to make important progress with third quarter gross margins supporting another increase in guidance. Switching gears to the pipeline. Here, we're focused on becoming the therapeutic area leader in musculoskeletal pain and adjacencies. These are large markets with high unmet need. Our clinical initiatives center around advancing an innovative pipeline along with life cycle management for our commercial base. For new product development, we're prioritizing complementary mid to late-stage derisked opportunities spanning the patient journey. PCRX-201 is a great example that's advancing in a Phase II study for osteoarthritis of the knee. Interest in this study has been high, and we recently concluded enrollment for Part A ahead of plan, placing us on track for 12-month data next year. The data continue to underscore PCR-201's potential to revolutionize OA treatment landscape and be at the forefront of local gene therapy for the masses. Last month, we presented 3-year follow-up data from the Phase I study at the American College of Rheumatology Convergence. These data demonstrated sustained efficacy with improvements in pain, stiffness and function for over 3 years. Importantly, efficacy was observed across all structural severity subgroups, including the most severe. Investigators also highlighted that pre-existing neutralizing antibodies did not affect PCR-201’s efficacy or safety at all 3 doses. Natural immune responses are a major obstacle for gene therapies, and these preliminary data indicate the potential for redosing. We also expanded our pipeline with the recent in-licensing of AMT-143, a novel long-acting formulation of bupivacaine. This asset sits squarely in our wheelhouse, given our deep expertise in long-acting locally administered pain therapeutics. This franchise-enhancing asset is highly complementary to EXPAREL and will allow us to serve a broader range of patients and health care professionals. Its innovative hydrogel technology is a proprietary combination of 2 polymers. It's easy to administer, requiring only installation into the surgical site with minimal reliance on specialized technique. The hydrogel rapidly forms a slow-release depot as it warms to body temperature. In a Phase I study, AMT-143 demonstrated sustained analgesic release through 14 days. This supports its potential for several days of pain control, which would be the longest duration among currently available local analgesics. These data, along with bupivacaine's validated mechanism of action provide an attractive development risk and differentiated product profile. We expect to initiate a Phase II program next year, which places on track for commercialization to begin within our 5x30 time frame. Given its strong commercial synergies, we expect it to be meaningfully accretive to cash flows and earnings. With respect to our HCAd-based preclinical portfolio, we prioritized 3 programs, all with disease-modifying potential in painful conditions of high unmet need. PCRX-1003 for degenerative disease, addressing a major cause of chronic back pain with few currently available effective therapies. PCRX-1002 for dry eye disease, a widespread condition where current treatments offer only temporary relief and PCRX-1001 for canine osteoarthritis, which has strong out-licensing potential for a large market lacking durable solutions. Switching gears to life cycle management. Here, we're highlighting the value of our products with real-world data. Last month, we presented 3 health economics and outcome studies at the AMCP Nexus. The use of EXPAREL was associated with reduced opioid use, lower costs and improved recovery outcomes. Our comprehensive real-world IGOR registry now has more than 3,000 OA patients enrolled. As you know, OA is a unique condition that patients live with for decades and receive a myriad of pain treatments as their disease progresses. IGOR is positioned to provide in-depth insights into the patient journey. We're capturing clinical and economic data as well as patient-reported outcomes for all 3 of our products. Its potential for meaningful evidence is better than any known OA registry of its kind. And to round out the pipeline discussion, our 2 registrational studies for Zilretta in the shoulder OA and iovera in spasticity are progressing. We expect to have interim data readouts from both studies next year. The last item I'll touch upon are the recent Paragraph IV notifications. And as you know, generic attempts are common for successful products like EXPAREL. A great deal has changed since the first genetic filer, where we had one patent at the time. Our current EXPAREL patent estate is stronger than it's ever been, and the team continues to innovate to further solidify our runway. Bottom line, any [ ANDA ] filer has a very high series of hurdles they will need to overcome to be commercially successful. We intend to vigorously protect our intellectual property and have an expert team focused on advancing our legal strategy. As for the rest of us, we're sharply focused on driving growth and remain confident EXPAREL will be a key growth driver of our success for the foreseeable future. With that, I'd like to turn the call over to Bren to share more details on our commercial performance in the third quarter. Bren? Brendan Teehan: Thank you, Frank, and good afternoon to all joining us today. I'm excited to share highlights of the terrific progress we've made over the past few months on the commercial front. Building on our first half trends, we further increased our revenue growth rate in the third quarter, driven by improving EXPAREL volume growth of roughly 9%. This is nearly 3x the first quarter volume growth rate of 3% and significantly higher than our second quarter volume growth rate of 6%. As Frank mentioned, this underscores the value of our commercial investments and positions us for significant and sustainable revenues going forward. We're seeing continued momentum from leading indicators as we head into year-end. These data reinforce our confidence that EXPAREL will be a key driver of our 5x30 objective of 5-year double-digit CAGR for revenue. I'll start with market access, where we continue to reshape the value story for our customers. In addition to clinical value, our accounts consider market access for their specific patient population when making treatment decisions. Here, we're using real-world evidence to highlight EXPAREL's clinical and economic value to national, regional and local commercial plans. We're excited to report that we continue to track ahead of plan and are maintaining an accelerated pace, expanding our commercial coverage map with NOPAIN like policies covering EXPAREL outside of the surgical bundle. We currently estimate that approximately 60 million commercial lives now have access to EXPAREL via the separate reimbursement mechanism. This places us ahead of plan with a total covered population of nearly 90 million lives across both commercial and government payers. As we build this critical mass of coverage, we're communicating these advances to our customers and are very encouraged to see them expanding EXPAREL utilization as evidenced by our growth. Our access efforts continue to be strategic, focusing on key markets with high procedural volumes. We have prioritized our top 5 states, which collectively account for approximately 40% of EXPAREL volumes, where we are steadily expanding coverage. Access here is increasing utilization with third quarter volumes up more than 10% collectively in these markets. Coupled with this progress, we continue to see strong and growing utilization of the EXPAREL J-code for both commercial and Medicare claims. We're also expanding access through compelling strategic pricing programs. Through these preferential pricing programs, health care systems for the opportunity to be at the forefront of opioid-sparing pain management. Our pricing strategy is having a positive impact with our contracted business delivering year-over-year volume growth in the low teens. We expect volumes to improve over time with only a modest impact on net sales dollars. On the GPO front, our third partnership went live in June and is off to an excellent start. Since launch, we have seen significant growth in volumes from accounts within this network, exceeding our forecast. With our 3 GPO networks and individual agreements with health care systems, more than 90% of our EXPAREL business has contracted pricing. Importantly, these are performance-based and designed to maintain and grow both volumes and revenues. In addition to providing our customers with favorable pricing, we are assisting patients in new ways with our recently launched patient assistant programs to further support best practice patient care. Our support specialists are helping qualified patients overcome financial and administrative barriers, minimizing patient out-of-pocket costs. All of these programs have created market access that is more favorable than it has ever been with more key milestones on the horizon for all 3 of our products. Given our strong progress on the market access front, we believe the time is right to mobilize patients to ask for EXPAREL to be part of their treatment plan for postsurgical pain. We rolled out several targeted digital pilot programs in the first half of the year to advance patient and physician awareness and engagement. We're seeing encouraging early signs from these campaigns. Since launch, overall EXPAREL website traffic is up more than 70% across both consumer and health care provider platforms. This is an excellent indicator that our refreshed marketing approach is resonating. Importantly, patient and caregiver awareness, coupled with improved access is translating into real-world volume growth for EXPAREL. Looking at the sites of care, we continue to see strong adoption in ambulatory surgery centers with this setting delivering third quarter volumes up more than 25% over last year. As you know, decision-making in these settings is more streamlined, enabling faster adoption to take advantage of the new reimbursement policies. In the hospital setting, year-over-year volume growth has improved from mid-single digit to a high single-digit percentage. As expected, faster adoption is taking place within community hospitals, where we saw third quarter volume growth in the low teens. Switching gears to our other commercial products. For Zilretta, we're currently expanding our reach through our new partnership with J&J MedTech. In addition, we've rolled out key programs to expand utilization, including our new patient support hub and co-pay assistance programs as well as performance-based agreements with our top customers. We believe these will help meaningfully overcome barriers to Zilretta utilization. For iovera, our sales force realignment is kicking in, and we are seeing a small but growing uplift from the [ MEDEO ] branch launch and improving reimbursement from NOPAIN. We are also ramping up reimbursement training and launching additional customer-facing materials around our new patient services hub. In summary, we believe we are well positioned for a strong finish to 2025 with improving growth ahead. I will turn the call over to Shawn for his review of the financials. Shawn Cross: Thank you, Bren. I'll start with an update on sales and margin trends. Third quarter EXPAREL sales increased to $139.9 million versus $132.0 million in 2024. Volume growth of 9% was partially offset by a shift in vial mix and discounting from our third GPO going live with each having a roughly equal impact. As Bren mentioned, third quarter volumes within this network were ahead of plan, which resulted in a slightly higher-than-expected single-digit year-over-year impact to our net selling price. As we move forward into 2026, we expect volume growth and revenue growth to converge over time as we anniversary these 3-year agreements. Third quarter Zilretta sales were $29.0 million versus $28.4 million in 2024. Looking ahead with our new partnership with J&J and other commercial investments, we believe the stage is set for improving growth. For iovera, third quarter sales grew to $6.5 million versus $5.7 million in 2024. Turning to gross margins. On a consolidated basis, our third quarter non-GAAP gross margin improved to 82% versus 78% last year. Gross margins continue to benefit from the improved cost and efficiencies of our large-scale EXPAREL manufacturing suites. For non-GAAP R&D expense, the third quarter increased to $22.5 million from $17.3 million reported last year. This increase relates to strong enrollment in Part A of our Phase II study, PCRX-201 as well as expenses associated with the Zilretta and iovera registrational studies. Non-GAAP SG&A expense came in at $81.7 million for the third quarter, which is up from $65 million last year. This increase is largely due to investments in our commercial, medical and market access organization, targeted marketing initiatives and field force expansion. All of this resulted in another quarter of significant adjusted EBITDA of $49.4 million for the third quarter. As for the balance sheet, we continue to operate from a position of strength. We ended the quarter with cash and investments of approximately $246 million. With a business that is producing significant operating cash flow, we are well equipped to advance our 5x30 strategy and create shareholder value. We continue to take a disciplined approach to capital allocation where we're focusing on 3 areas: first, accelerating growth of our best-in-class base business; second, advancing an innovative pipeline and becoming the leader in musculoskeletal pain and adjacencies; and third, opportunistically returning capital to shareholders. During the third quarter, we executed an additional $50 million in share repurchases and retired approximately 2 million shares of common stock. To remind you, we have approximately $200 million remaining under our current share buyback authorization, which runs through the end of 2026. We will continue to be opportunistic with stock repurchases given what we believe is a significant disconnect in our market valuation. As we execute 5x30, we expect to prioritize accretive opportunities that benefit operating margins to enhance shareholder value. That brings us to our full year P&L guidance for 2025. Today, we are increasing our guidance for non-GAAP gross margins to 80% to 82% from our previous range of 78% to 80%. 2025 margins benefited from increased manufacturing efficiencies, favorable production volumes and the elimination of our EXPAREL royalty obligation. For all other guidance, we are narrowing our full year ranges as follows: revenues of $725 million to $735 million. While EXPAREL and iovera had a strong uptick in the third quarter as expected, Zilretta's acceleration has been slower than anticipated. Non-GAAP R&D expense of $95 million to $105 million, non-GAAP SG&A expense of $310 million to $320 million, stock-based compensation of $56 million to $59 million. And lastly, for those modeling adjusted EBITDA, we expect our full year 2025 depreciation and amortization expense to be approximately $30 million. Looking ahead, we expect sustainable and significant earnings driven by improving sales, enhanced gross margins and stabilizing operating expenses. In addition, opportunistic stock repurchases and reduction in share count will further enhance EPS. So with that, I'll turn the call back to Frank. Frank Lee: Thank you, Shawn. In closing, I want to thank our entire team for their strong execution, advancing our 5x30 strategy and dedication to the patients we serve. I'm proud of the significant strides we've made this year across our corporate, clinical and commercial objectives. Looking ahead, we believe we're well positioned for sustainable success and significant value creation. Thank you again for joining us today and for your continued support of our important mission. With that, we're ready to open up the call for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Les Sulewski from Truist. Leszek Sulewski: So in the prepared remarks, you commented that the GPO had a higher volume than expected, which pulled down the ASP. How much of that total volume growth was tied to that GPO? And then second, was there anything noteworthy about the difference in the number of selling days in the quarter? And could you share any metrics around average volumes per day? And then I have a follow-up. Frank Lee: Les, this is Frank. Thanks for the question. Yes, we had strong uptake from the GPO that we signed in June. That's a favorable thing. And so as we anniversary that, that will flow through the system in Shawn mentioned the gap between volume is very strong, as you heard, 9% and sales will start to close as we get into next year. So Shawn, I don't know if you want to say anything more. Shawn Cross: I completely agree. We anticipate them narrowing over time, and we're feeling good about the volume trajectory. Frank Lee: Les, you had another question, remind me the second question? Leszek Sulewski: Yes. The second day was around the selling days in the quarter, any potential impact from that and metrics around average volumes per day. Frank Lee: [ No ] So let's just come back to -- it's an important point overall about as we now think about, as you heard, the volume growth of EXPAREL going from 3% to 6% to 9% and as we get into next year and flow through these GPO agreements. And of course, there will be -- we'll take price at some point. This will all add up into dollar sales that are running more at double digits as we had talked about. So we're encouraged that the second half is starting to turn out the way we start to articulate that at the beginning of the year in terms of growth accelerating in the second half. Leszek Sulewski: Okay. Okay. That's helpful. And just one last one for me, and I'll jump in the queue. What's the rationale [ between ] the AMT-143 program? And then how do you think about the trial design, specifically which pain indications would you pursue? And how do you envision the label ultimately to look like? Will it be indication specific or broad based on your design? And then thoughts around the IP protection around this technology given the compound is generic. Frank Lee: That's a good question. So I'm going to come back to our thinking around how we think about building our pipeline in a disciplined manner. We are certainly well, I would say, from a capability standpoint, well versed in developing products like this. We think there's a place in the market for a product that has longer durability and ease of use, that is installation as opposed to any other method that requires technique and so that's the rationale behind it. We think there's a place in the market. We think it's complementary to EXPAREL. And of course, we have the infrastructure in place, so it will be highly synergistic. When it comes to our development programs, it's early to say, Les, we need to work through this. But my sense of it is that we'll be very consistent with the way that we've built other programs in the past, and we'll provide more light on in terms of specific trial design as we get into next year. So that's broadly what it is. In terms of IP, I believe you can speak to that, AMT-143. Brendan Teehan: Sure. The IP goes out to [ 2042 ]. They have a solid state, and we're going to look to expand upon that. Frank Lee: Yes. Jonathan, anything more on your end? Jonathan Slonin: I agree with you, Frank. opportunity here to provide another non-opioid pain solution. And so we're excited about the potential of this asset. Operator: The next question comes from the line of Gary Nachman with Raymond James. Gary Nachman: So where are you in terms of improving awareness of NOPAIN with the bigger hospitals? Where are you seeing the bigger challenges in getting faster adoption there? And when will that accelerate? Will it be next year potentially? And then what was the overall market growth for elective procedures in the third quarter? And maybe what you're seeing, how that's trending in the fourth quarter so far? Frank Lee: Yes. Thanks for the question, Gary. Let me say a few words, and I'll turn it over to Bren for any of his comments. Just to set the stage, I think we've been very consistent in saying that we've seen a good growth uptake when it comes to the smaller hospitals and ASCs. And these bigger institutions will take more time because it's obviously more decision-makers and of course, they have to implement this into their overall system. So it will take some more time. There's clearly an effort behind it. But let me turn it over to Bren for any additional thoughts here. Bren? Brendan Teehan: Yes, for sure. Thanks for the question. I think we are seeing increased awareness for NOPAIN. And I would reference a couple of our prepared comments. Obviously, where there are fewer decision-makers in ASCs and community hospitals, that's where we have our fastest growth. But we've also seen improvement in the larger and broader hospital segment. And despite the fact that there are more decision-makers, we are seeing formulary and P&T decisions in favor of EXPAREL that would be reflective of an audience that's not only taking into account NOPAIN, but are starting to see the significant commercial wins that we have along the way. And it is one of our key commercial initiatives to make sure that we're engaging more of those economic stakeholders, particularly pharmacists and the C-suite, so they have a broader understanding of not only the reimbursement that's being generated, but the potential for EXPAREL, not just clinically but from a profitability standpoint to be of value to the IDN. Frank Lee: And Gary, you had asked about procedures overall, the market-- and from what we've seen, maybe, Brendan, you can comment on that a little bit. Brendan Teehan: For sure. The first half of the year, elective procedures were sluggish, even a little bit down. Having looked at the data in the third quarter, I would say there are modest improvements, but not monumental. And certainly, I think EXPAREL's performance in terms of continuing to drive increased volumes are despite what I would consider to be sluggish or somewhat headwinds in that space. Fourth quarter to be determined, but I would say that fourth quarter, we tend to see more elective procedures simply as a function of seasonality. Gary Nachman: Okay. Great. And then just a couple more quick ones. Just any early indicators for how the J&J partnership is helping Zilretta so far? When do you expect to see somewhat of an inflection there in sales? I know it's still early days and probably didn't see much of an impact in the third quarter, but could it be as early as 4Q or it's going to take more time? And then just on the gross margin, should that continue to improve next year from the 80% to 82% level that you're at right now? Frank Lee: Gary, with regard to Zilretta, I'll just say a few words here and turn it over to Bren. Just a big picture, as Shawn mentioned, we're very pleased with the way that now EXPAREL has grown and also now iovera with this new dedicated field force it's taken a little bit more time to get Zilretta where it needs to be. And when you take a look at our numbers, that's really what was flat instead of growing. So with that said, let me turn it over to Bren for any other thoughts here about how we're going to maximize J&J MedTech partnership. Brendan Teehan: Yes. Thanks, and thanks for the question. I would say 2 things have been important changes in the third quarter. Obviously, we have a dedicated Zilretta sales force. In doing so, they have an expanded footprint and are engaging a number of customers that for that singular group will be first-time customers. And I think that's just a little bit of disruption you would have expected in the third quarter. Also, the J&J MedTech team was fully trained in the third quarter, but that's a good way to describe it, trained and not yet fully out there to see the entire footprint that we have an opportunity to address. So I expect us to begin to see further momentum in the fourth quarter and then significant progress in 2026 as we see a larger audience multiple times with our message. And I would say that Zilretta fits very nicely into the J&J story of the osteoarthritis of the knee treatment journey, and there are a lot of market dynamics that would help us to incorporate Zilretta logically into that treatment journey. Frank Lee: Thanks, Bren. And for the question, Gary, about gross margin, certainly, we're very pleased with the progress we've made. And I think your question was how we see that going forward. And so let me turn it over to Shawn here. Shawn Cross: Yes. Thanks, Gary. So maybe just a step back from a big picture, the guidance we put out for goals we put out from a long-range plan perspective are in our 5x30, which is the 5 percentage point improvement over the 2024 margin. And just as a reminder, the non-GAAP was 76%. So that's the big picture. So just with regard to the performance we've seen this year, first of all, terrific execution by the team and better-than-expected yields from both the 200-liter facilities. So these higher volumes, simple math have resulted in lower per unit costs that have benefited the margins this year. So inventory target is 6 months. We're a little bit ahead of that. We're selling through the lower cost inventory. And so going forward, as the production volumes normalize, we expect to be back on track for our 5x30 plan for a 5% point steady improvement in gross margins over 2024, 76%. Gary Nachman: Okay. That sounds great. So you should at least be in that level looking out into next year, it sounds like. Frank Lee: Bottom line, inventory levels are higher this year, Gary. And so per unit, the margin is better. Next year, as we work it down, it will be slightly less favorable, but then we'll come back to that favorability probably in the second half of the year as we work through the inventory. Operator: The next question comes from Dennis Ding with Jefferies. Dennis Ding: I have 2, if I may. Number one is on BD. Should we expect more deals like [ Amicathera ], i.e., things that seem fairly early? Or do you plan to do more of these types of Phase I deals or can you be more opportunistic and bring something that's in Phase III or even commercial? And then number two, just on PCRX-201, I know you referenced docs who are excited about 201. But what about feedback from docs who aren't as excited? What's the major barrier there? Is it just data? Or do you think there's broader skepticism around gene therapy, especially in the ortho community who may be unfamiliar with the modality? Frank Lee: Thanks for the question, Dennis. First on BD and then on 201, I'll say a few words and turn it over to Jonathan. BD, as we've talked about, we're going to take a very, very disciplined approach to BD. And so that means that these are things that fit into the broadly defined musculoskeletal pain and adjacencies. And certainly, AMT-143 fits into that. As we look at assets, certainly, we favor those assets that are further along in the clinic that have validated mechanisms of action. And so we're not going to take target risk. And so those are some of the guideposts, so to speak, as we think about bringing things into the pipeline. And so we remain open to those kind of opportunities, and we're going to look at those very, very carefully in a disciplined way and bring in those things where we can really add value to those programs. With respect to 201, what I'd say there is, overall, I believe we've seen very good enthusiasm for PCRX-201. And so let me turn it over to Jonathan to have his thoughts. He's been the recent meetings, et cetera. Jonathan Slonin: Yes. All the feedback has been extremely positive and exciting. To your point, I think we continue as we do education and address some of the misnomers around what our platform is compared to current gene therapy. And we explain the benefits around the safety, the cost, the flexibility because of the payload size, it becomes very favorable, not just over current treatment options, which we see lasting maybe 3 to 6 months. And our research shows that patients just aren't happy, and that's all they have. So once we explain to them the benefits of 201 in that we're not giving you a drug produced in a factory, but we're just helping your body cells become that factory and the safety that we've seen so far in our clinical trials, the first question is usually like when can I get this? So we are very optimistic moving forward with 201 and excited that Part A of Phase II enrolled ahead of schedule for us. Frank Lee: Yes. Thanks, Jonathan. Look, I'd summarize it as this is gene therapy for the masses. And so when we come from that line of thinking, that opens up people's minds this opportunity because the way we do that is by, as you know, a local approach as opposed to systemic and that has obviously favorability when it comes to safety and cost of goods and all the things that Jonathan talked about. So we remain optimistic. We're running the Part B and manufacturing process will -- from a commercially viable standpoint is well underway. And so we've got good momentum on this one. Operator: The next question comes from the line of Serge Belanger with Needham & Co. John Gionco: This is John on for Serge today. Just a couple from us. First, I wanted to touch on the shift in bio mix and discounting associated with the latest GPO that came on board in June. Curious if you could provide any color on the level of discounting that you've seen thus far and when you'd expect pricing to stabilize? And then second, on the in-licensing from for AMT-143. Just curious how you view 143's profile in comparison to EXPAREL? And with the potential of [ bohooan ] being on the market down the line, how would you view the future commercial dynamics between the two. Frank Lee: Yes. So thanks for the question, John. Let me answer the AMT-143 a little bit more, and then I'll turn it over to Shawn to talk about [ volume mix ] and GPOs and [ anniversarying ] that last one. What I'd say is that when we take a look at the marketplace, of course, currently available therapies and analgesics are in the range of what we provide for EXPAREL, 3 or 4 days, et cetera. Now we think there is a place in the market for longer durability of effect. And also in those situations where there might not be an ability to bring in other specialists that the surgeon himself can instill this particular product. And so we think it's complementary to what we have. And so that's how we think about it. Certainly, we've got a little ways to go to get this program to market, and we'll be starting our Phase II program as we talk about next year. But there's clearly a market need for something like this. So let me turn it over to Shawn here to talk about [ volume mix ] GPO. Shawn Cross: Great. John, thanks for the call. So just to reiterate from the prepared remarks, we saw the 9% encouraging volume growth for EXPAREL with a 6% growth on the revenue side. And that 3% delta, as mentioned, was roughly 50-50 split between the volume mix towards the 10 ml and then the impact of the GPO discounting. So we can't talk about specific discounts with regard to the GPOs. But as we move forward, we would expect the fourth quarter to be somewhat similar. But then encouragingly, and we'll talk more about this when we put out 2026 guidance. But as we move forward into '26 and beyond, we do expect volume and revenue growth to converge over time. And there's a couple of key things just to remember. Let's just assume we continue to drive volume at the current levels or even a bit higher, if all goes as planned, January price increase. And then once we do lap the third GPO agreement, which is performing quite well in mid next year, that's when we expect the convergence to sort of hit its stride. Operator: I'm showing no further questions at this time. I would now like to turn it back to Susan Mesco for closing remarks. Susan Mesco: Thank you, Jill, and thanks to all on the call for your questions and time today. We're energized by the opportunities ahead and remain focused on executing our 5x30 growth strategy with discipline and purpose. As we close out the year, we are confident in our ability to build on our momentum and position Pacira for long-term success. Thank you again for your continued support and be well. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Ladies and gentlemen, good morning, and welcome to the HELLA Investor Call on the results for the 9 months of fiscal year 2025. This call will be hosted by Bernard Schaferbarthold, the CEO; and Philippe Vienney, the CFO of HELLA. [Operator Instructions] Let me now turn the floor over to your host, Bernard Schaferbarthold. Please go ahead. Ulric Schäferbarthold: Good morning to everybody. Very warm welcome to our 9-month results call. And I'm here together with Philippe Vienney, our CFO; and Kerstin Dodel, our Head of IR. So starting off the presentation on Page 4. So if we look at our sales development, we are at end of September in line with what we expected. So positively, our electronics business is continuing to grow. We had a growth now in the first 9 months of 8.3%, specifically our Radar business, but as well our business in our product center, energy management is continuing to grow. On the Lighting side, we are not growing. So we are down 8.4%. We mentioned also earlier mid of the year that the end of some larger projects, but also the reduction on volumes on some programs in our order book is the reason for that. And I will come back to that and actions we have now taken for Lighting. On Lifecycle Solutions, our business is still down in the 9 months. But positively, we have now seen in the third quarter that we are back to growth. We had quite a decent development in that segment in Q3. So overall, sales is quite stable, FX adjusted. So a slight growth of 0.4%. And considering or looking at reported sales, we are at minus 1.1% considering the strong FX headwind we had. On our operating income margin, we are at 5.8% in the first 9 months. Overall, I can state we continue to have a strong cost discipline. We are implementing the structural programs we have initiated in the last 2 years. So overall, considering the environment, we are in line what we planned also in our budget. Net cash flow has improved on a year-on-year comparison is at EUR 68 million to the end of the year, 1.2%. We have reduced CapEx. And within that number, if we look at factoring, the increase in factoring is at EUR 23 million in comparison to last year, EUR 30 million less. If we move on to the order intake, we are good on track. The third quarter was again a good quarter in terms of order intake. We had a strong momentum, especially in the lighting business, 2 areas where we wanted to grow. More broadly in the U.S. and also in Asia and specifically China, we could win important programs. But as well in Europe, we were quite successful. We are now attacking the market as well in the mass market, so in the volume markets, and we were able to win significant program volumes for the European regions in the third quarter. On the electronics side, we continue to be very successful. So we are highlighting here some of the programs. But what I can state overall that within our Electronics business, we continue on a strong growth path, and this should also support our growth trajectory in the upcoming years. And to finish off, our Lifecycle was also quite successful in the last month. We are highlighting here some of the programs. So bus, agriculture remains important business areas and customer segments for us to continue to grow and as well here also to highlight to get broader in terms of our market reach. So we are happy to win also projects outside of Europe and to gain market shares there as well. So overall, we are on track in terms of our order intake achievements after 9 months. Going to Page 6, some highlights. So on the Lighting side, we continue to see that we are differentiating with our lighting technologies. We are present also in different -- on the different shows and fairs. Here, we are highlighting one, and we are advertising and showing our newest technologies also to the different customers. I think from my perspective, feedbacks are quite good. We are getting. So this should support our growth we are envisaging in the upcoming years. In the electronics, one important milestone now we had is the launch of our iPDM, so of our eFuse technology in one large platform. We are engaging ourselves much stronger now into the whole sonar architecture of the car. And this technology, which manages the power in the car and which is embedded in the sonar architecture and in the new E/E architecture overall of the car is a big milestone for us. And this is one very important technology we envisage will give a strong growth potential in the upcoming years, and this is why we are highlighting it here in a strong way. The other thing I want to mention is on the structural changes. So I mentioned we continue to reduce our cost base. In the last month, we announced the structural change in one of our plants in Germany, which now we are going into execution. Other than that, we are now in execution in terms of our new SIMPLIFY program. So this is a global program where we are reducing in all white-collar functions in the upcoming 3 years, around 15% on headcount. And so we are well on track. We already started on that program. The target is to be at least at 20% of reduction to the end of this year and around 50% on the reduction to the end of next year. And I can say that we are ahead of the target as of today, and we are trying to accelerate on that as well. And you can see that as well in the headcount development. If you only look at the last 9 months, we have already reduced close to 5% on headcount as of today in comparison to the start to the year at a quite comparable sales level, and we will continue on these adaptions. If we move to Page 7, let's say, one of the big challenges we are facing actually is the crisis on the shortage on Nexperia. So it's clear that if we look at our portfolio of products, we have a lot of Nexperia parts in our products. So in general, I can say we are strongly impacted. So we have organized our way -- us in a way also with task forces and are managing the situation in the way that we are building up the alternative suppliers. And in the meantime, for sure, we use -- we still use Nexperia parts. So our relationship today with Nexperia China is still stable, and we also managed to buy broker parts, which in the meantime, supports our supply. So far, I can say that the month of October was in line with our plan. So there was little impact. The start into the month of November showed a little more impact in terms of the full coverage against the plan. And the most difficult weeks now from our side will now be the next ones where in the meantime, where before being able really to ramp up the second sources, we are seeing some of the shortages. So we are working intensively also on the application on export licenses and also taking advantage and the support also on the OEM side, which are going for these applications as well. So this could help to support also on parts we have in China who could be exported to the U.S. and Europe and help there on the shortages. So far, China for us is not impacted. We have enough parts. So this is something difficult to quantify overall. But as I said, so far, the impact was very limited, and we have now to see how next weeks will be and specifically if with -- on the Chinese authorities, the customs and MOFCOM, we are able now to get the necessary applications to the exports to support Europe and the U.S., as I said. But as you can imagine, a lot of intensive work we are doing and managing the situation to keep our delivery promises to the customers. So having said that, we will move on with some more details on the financial results. Philippe will take over. Philippe Vienney: Yes. So good morning to all. So looking at the sales, so we are publishing sales at EUR 5.868 billion, so which is representing a decrease of 1.1% versus prior year. And excluding the exchange rate, this would be at plus 0.4% versus last year and versus the market, which is showing a growth of 3.8%. So here again, as I said, we have a good momentum in all region on electronics, whereas we are suffering on the lighting side with lower sales, which are affected by end of production on some programs and mainly in North America and Asia. And Lifecycle was reducing -- showing reducing sales, but which we are also -- where we are also seeing a good momentum in Q3 with some slight recovery. So looking at the sales per region and versus the market. So Europe, where we still have more or less 56% of our sales, we have a growth of 1% versus the market of -- which is showing a decrease of 1.7%. So we are overperforming versus the market for Europe. For Americas, where we have sales which are above the 20% of our sales, we are seeing a decrease of our sales of 1.1%, slightly impacted as well by the FX impact versus the market, which is reducing by 0.5%. So here also, we have the -- again, the impact of lighting, where we have this impact of some end of production series, which are not fully compensated by new launches. And we have Asia, which is also a bit above 20% of our sales. where we have a decrease on our published sales of 6.4%, also slightly impacted by the FX versus a growth in this region of 7.2%. So here again, we have the same topic on end of production of series project in lighting, but not fully compensated by new sales and new launches with local OEMs in Asia. And we still have, again, growth momentum in China on the electronics with radar and battery management. So now looking at the profitability per segment. So lighting, we are at EUR 2.7 billion of sales, which is representing an organic decrease of 7.3%, excluding the exchange rate. So here, I said again, we have the impact of end of production of some series projects in China and North America. We have some increase on the headlamps and rear combination lamps in Europe and Americas, but which are not enough to compensate the drop that we are seeing in Asia and North America on the rundown programs. So the operating income for Lighting is at EUR 73 million or 2.7%. So here, we are impacted by the volume drop, which is clearly impacting the gross margin and the operating margin, which we are partially compensating by lower material costs, also some reduced R&D cost and SG&A costs, but not enough to compensate the volume drop that we are facing where we still have to reduce and continue to reduce our fixed cost to absorb this and face this volume drop. Electronics. So we are publishing sales of EUR 2.5 billion or EUR 2.6 billion, which is representing plus 9.5%, excluding FX rates on an organic basis. So here again, we have growth in all regions and growth -- thanks to the radar business. We have also growth in the car access system in Europe and Asia. And we have also some growth, thanks to the battery management system as well in Asia. So good momentum on the sales in Electronics. And this is leading us to an operating income of EUR 196 million or 7.6% of operating margin. So here, we have the benefit of the volume, which is helping the gross margin and the operating margin. And we have been able to be stable on the R&D spend and also thanks to reduction of external spend and external provider. And we have also been able to maintain or even reduce the SG&A percentage in this segment. So all in all, leading to the 7.6% of operating margin. The Lifecycle, where we have sales of EUR 739 million, which is representing a decrease of 1.5%, excluding FX rates. So yes, as we said, we have a low demand, especially coming from the H1 and especially on the commercial business vehicles. But we see some recovery, a slight recovery in Q3. So especially also on the commercial business with some stable business on the after market. And this is leading us to an operating income of EUR 74 million or 10%. So here, we are impacted also slightly by the volume. And we have been able to maintain or even decrease the R&D expense and with SG&A, which are slightly increasing mainly due to distribution costs. Profit and loss for HELLA? Yes. So we have a gross profit of EUR 1.3 billion, which is 22.8% versus 23.2% last year. So here, we have the weight of the volume decrease in Lighting and Lifecycle, which is impacting us and not fully compensated by the improvement on the Electronic segment. On the R&D side, we are at 9.4% versus 9.8% last year. So here, we continue to see the benefit of our adjustment and structural adjustment on the R&D side and cut on the external provider, as I mentioned, for Electronic. On the SG&A, we are at 7.7%. So here, we see a decrease on the administration costs, where we have a slight increase on the distribution costs. So I think the good trend is the administration costs which are decreasing and showing some effect of the program which have been launched to reduce this cost. On the earnings before tax, so we are reaching EUR 208 million versus EUR 409 million last year. So here, we have the impact -- negative impact of all the restructuring programs, which are booked and are part of the EUR 129 million. To mention that last year, we also had some restructuring costs, but which were more than compensated by the sales of the BHTC business and the net gain that was booked last year. And this is leading us to a net income of EUR 108 million versus EUR 310 million last year. On the net cash flow, we are at EUR 68 million, so versus minus EUR 8 million for the same period last year. So here, we are increasing our net cash flow. So we have higher cash from operations. We are also having a good momentum on the working capital with some negotiated and good payment terms with suppliers. And we are also reducing our tangible CapEx. You can see that we are at minus 23% versus what was cash out last year and spent last year for the same period. So this is benefiting to our cash flow, leading us to have a EUR 68 million cash flow for the 9 first months of the year. With that, I think we are finishing the financial details, and we can go to the outlook. Ulric Schäferbarthold: Thank you, Philippe. So on the outlook, so on Page 17, if we look at volumes, so the actual outlook on S&P is 91.4 million cars. I would expect that specifically on Europe and Americas, we would see some reductions in the fourth quarter due to the shortages on Nexperia parts. China is quite stable in terms of volumes. This is also what we see actually now in the fourth quarter. On Page 18, so we confirm our outlook in terms of sales in the range of EUR 7.6 billion to EUR 8 billion. On the operating income (sic) [ operating income margin ] 5.3% to 6% and the net cash flow of at least EUR 200 million. We are stating that this assumes a sufficient supply situation on -- especially in Nexperia parts. As I said, in terms of -- today, if I look at the month of October and the start into November, the impact were limited, but I also mentioned that the next weeks will be the crucial ones. So summing it up on the key takeaways. So, so far, looking at the 3 quarters, from our point of view, a robust sales development in line in terms of profit and net cash flow, what we expected, strong focus on the structural changes we have done and still a good momentum on the order intake side. So we -- outlook I mentioned, we see us on track for the guidance we have given. And if it comes to the top priorities, so we continue to work on the structural programs. One important new program we have now initiated is in the lighting area. We have started a transformation program now with -- starting into the second half of the year. Mainly, we focus on 3 big topics. One is on the business growth. So we need to come back to growth again for that. We are broadening our reach and focusing significantly also on the regions where we see a strong potential, especially the U.S., but also beside of China, Japan, Korea, India. And we already see now in the third quarter, the first successes and programs we could book in quite a sizable numbers. So first, let's say, proof points are given, but I think this is a very relevant point to come back to growth. And on top of that, we are -- we have initiated the operational transformation. We see significant potentials in terms of reductions on our footprint or on our costs within the operations, including also the supply side and logistics. We have initiated a structured program on that, which is specifically for Europe and also for our Mexican operations. And the third element is the improvement in D&D productivity and efficiency where as well we initiated a program also with a focus on cost reductions on our technology, where we see also a big potential to reduce on the cost side as well here, too. So this should help to bring our Lighting business into a much better profitable situation in the years to come. Having said that, we are happy to take your questions. Operator: [Operator Instructions] And the first question comes from Christoph Laskawi from Deutsche Bank. Christoph Laskawi: The first one, coming back a bit to what you just said on the Lighting performance. Obviously, Q3 margin around 1% is very low. When you've implemented all the measures that you talked about, what do you think is in the midterm a realistic margin potential? Could it be around 5% plus? Or any thoughts on that would be appreciated. And then in contrast to that, electronics is actually quite strong in Q3 with 9% plus margin. Was there any specific one-timers in there or just really capitalizing on growth and showing the margin potential of that business? And then the third question would be on Nexperia. It sounds like you didn't face production shutdowns on your own yet, and you haven't cost any so far. Still you're expecting production cuts to come. Do you already see that in the schedules? Any volatility you can highlight there? And then just on the cost of going to brokers and others, those have been quite high in the semi shortage. Is this something which could be a meaningful impact on earnings in Q4, just the sourcing alternatives? Ulric Schäferbarthold: Thank you for your questions, Mr. Laskawi. So on the Lighting performance, our target is to come back to 6%. But this will not be possible on the short notice. So this is a target we have set ourselves. It will take until '28, '29. So before we are at this 5% level, you said, probably '28, '29 to come closer to the 6%. So we have now seen that, as I said, so we are struggling a lot because, first of all, we are not growing. Secondly, we have also been impacted now in the second half by a warranty topic, which was quite significant as well. So it is partially in the third quarter and will also hit the fourth quarter. So this is a topic which lasts now from the years '22, '23, where now finally, we got to an agreement with -- and the settlement with the customers. So we are close to, but this was an impact as well. And overall, on the full, let's say, second half, it will have an impact of around EUR 25 million, which is quite significant for the Lighting business. But the overall, let's say, if I look at Lighting, we are -- the business is declining. And this is something which will also continue into the next years and will be a headwind also in the next year before now we see with the momentum we have on the order intake, we will be able to grow again in the -- starting from '27. What I have to say positively is that in lighting, we are very strong in China. So the transformation also we need to do for Europe and specifically also our Mexican operations, we already have done in China and also the adaption to competitiveness. So I see us very strong in Asia today. And now we need to do the work we have -- we need to do in Europe and also South America. So we changed also the responsibility. So I have taken over in combination of tasks now from the 1st of July. And so we are now starting on this transformation program, as I said. On Electronics, I'm very pleased about how our business is developing also in terms of performance. So what we now see is basically that we see now the payoff of the business now where we see now the growth coming with the launches and the new programs, which are going into serial production. So the growth supports the profit development. And what we as well see is that the structural changes we have done in terms of -- on the cost side helps as well. So with that, we see immediately a very strong profit development. There was no really specific one-off in the third quarter. So -- but it was quite a good quarter. So I wouldn't say now every quarter will be the same. So also no negative impact, I have to say. But I have to admit also, it's a good development, and we are building on that and trying to continuously to improve on that. On the Nexperia, so I think that -- I stated so far with the coverage or with the stocks we had, with the coverage we had. We also bought some -- quite early on some broker parts. So this helped really to cover the period of time until now. We see now that some shortages on some products, they are already there. On the call offs, basically, you do not see yet that customers are changing anything. But for sure, on the -- in the systems, but for sure, we are in very intensive discussions with all of our customers. And today, the situation is as follows that the weekly -- the decisions are taken now on a weekly base, what can be produced and how much reduction will we see. And I mentioned the next weeks will show reductions. And the magnitude is still not absolutely clear. So what is in the next, let's say, 3 to 4 weeks. And it certainly will now also depend on how -- are we now able really to get exports on Nexperia parts with these exemptions or with export licenses granted now to the OEMs or to us. And we are already trying out the test shipments and working with MOFCOM and the customs, as I said. So there is some hope that now it should work and that certainly will help a lot immediately. But this is the uncertainty we have. If this is not working, I mentioned it, then the reductions on the volumes in the next weeks will be much higher. And on the cost side, on the broker so far, I would say, for sure, it goes fast. The last broker -- broker offers I saw between factor 600, factor 800, also factor 1000 I already have seen. The difference to the semi is that the original price is much lower. So there, we are only talking cents, but sure, if we are talking factor 500, 600 or higher, then you talk immediately some millions. So far, it has not such a big impact. The market today is still -- there are not so many volumes any longer in the broker market. So I would not expect that this should have such a hit, which is comparable to the semi today or to the semi crisis we had some years ago. But it's -- again, still we are talking some money. It's some millions we are discussing. That's for sure. But not comparable, as I said, to the semi crisis. Operator: And the next question comes from Sanjay Bhagwani from Citi. Sanjay Bhagwani: Maybe to begin with, so on the Nexperia situation, this morning, there seems to be several articles suggesting like -- so yes, I mean, on the Nexperia situation, this morning seems to be like several like constructive articles typically like quoting some of these Dutch ministers that things will be okay in the coming weeks and chip supply should resume. Is that providing some comforting messages to you as well? Maybe let's say, if there is a disruption, there can be just 1 week disruption or something like that? Or it's probably too early to look at these headlines or something like that? Ulric Schäferbarthold: So there are 2 things for me. One is does China now allow that Nexperia China -- the parts which are still produced at Nexperia China that we can export these to Europe. And this -- we are still working -- I mentioned it. We are still working on how process-wise, the application and the export needs to be executed. And this is where I said we are now just running now with custom, the discussions we have with MOFCOM doing these test shipments to try out how we have now to handle and practically do it. And there are some signs now. This I can at least also confirm that -- I hope that it will be possible soon. Let's put it like that. Still today, it has not worked out, but we are getting signals that there is hope that it could be possible. So that is one thing. So I would take that as a positive note, but still to be seen if then really it works out. Because just practically, I can tell you the custom were not aware that they are allowed to do. On the other hand side, MOFCOM is allowing it. So I think we are still, let's say, it's an administrational point, but you never know. So that is one thing. The other thing we are also working on, and this is as well, let's say, a critical path, we are still getting a lot of parts from Nexperia China, and they are dependent still on the wafers they get from Europe. And there apparently, they are not coming along. So that these wafers, which are needed for the further production, if they -- if China do not have any longer wafers from Nexperia Europe, they couldn't continue on their production. And they will run out at a certain point of time if there is no agreement. And this is the second path we are working on to get a solution between the 2, Nexperia Europe and China, to stabilize the situation so that Nexperia China is able to continue to deliver. And this is important because, as I said, we are working on the alternative suppliers. And for most of the suppliers, it can be -- we can find, let's say, good agreements and to ramp up quick. But for some of the parts, it will take a little longer, and this is why it's important to have a stability on Nexperia China as well. Sanjay Bhagwani: That's very helpful. And I think on the broker parts, you mentioned that so far, this has not been a major impact. But in terms of the pricing pass-throughs, I understand in the previous like chip crisis, you had to actively go and negotiate the price increases. In this case, is it easy to like kind of have some sort of indexation for these components now? Or this again, will be subject to negotiation if the, let's say, inflation becomes material? Ulric Schäferbarthold: So in the actual situation, because we need to be quick, we take the decision with the customer, so with our customer, with the OEM together. And the agreement is that in terms of who takes which part, we agreed that this will be then discussed later. But it's clear that we will have a comparison as it was in the semi crisis where we agreed on the, I would call it, pain share, who takes which proportion. So you can assume that what we have seen similar in the semi crisis should -- at least from our perspective, should also be true now for this one. Sanjay Bhagwani: And then my final one is on the Q3 margins. Just a kind of follow-up to Christoph's question, but more at the group level. So Q3 group margins have like sequentially gone down to, I think it's 5.3% versus H1 was 6%. So are you able to provide some color in terms of the Q4? Is it sequentially looking better as of now? And in terms of divisions, how the Q4 versus Q3 margins are looking? Ulric Schäferbarthold: So month of October was okay. It was in plan. So -- and normally, the months, October and November are very strong in the industry. So we have seen quite a good month in October so far, even we had this Nexperia situation. So the month of November will certainly be impacted now. And it's difficult to say on the margin -- so really to say now what does it now mean for the full quarter because it will depend on volumes at the end. And we will lose volumes. The question is how much. So I would not feel so comfortable now to say how it will go. I think in terms of our cost savings, all what we are doing there, we are in plan. At the end, it will depend on sales. Operator: [Operator Instructions] So it looks like there are no further questions at this time. So I would like to turn the conference back over to Bernard Schaferbarthold for any closing remarks. Ulric Schäferbarthold: So thank you to all of you who participated, and thank you to showing the interest on HELLA again. And I wish you a pleasant remaining day and after that, a good weekend. Hope to see you and speak to you soon. Bye-bye.
Operator: Good afternoon. Thank you for attending the FIGS Third Quarter Fiscal 2025 Earnings Conference Call. My name is Matt, and I'll be the moderator for today's call. I'd now like to pass the conference over to our host, Tom Shaw, Senior Vice President of Investor Relations. Tom, please go ahead. Tom Shaw: Good afternoon, and thank you for joining us to discuss FIGS Third Quarter 2025 results, which we released this afternoon and can be found in our earnings press release and in the shareholder presentation posted to our Investor Relations website at ir.wearfigs.com. Presenting on today's call are Trina Spear, our Co-Founder and Chief Executive Officer; and Sarah Oughtred, our Chief Financial Officer. As a reminder, remarks on this call that do not concern past events are forward-looking statements. These may include predictions, expectations or estimates, including about future financial performance, market opportunity or business plans. Forward-looking statements involve risks and uncertainties, and actual results could differ materially. These and other risks are discussed in our SEC filings, including in the 10-Q we filed today. Do not place undue reliance on forward-looking statements, which speak only as of today and which we undertake no obligation to update. Finally, we will discuss certain non-GAAP metrics and key performance indicators, which we believe are useful supplemental measures for understanding our business. Definitions and reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in the shareholder presentation we issued today. Now I'd like to turn the call over to Trina. Catherine Spear: Thanks, Tom, and good afternoon, everyone. Our third quarter results are built on the momentum generated during the first half of the year, delivering our highest quarterly year-over-year revenue growth over the past 2 years, supported by strong performance across the board. Net revenues were up 8% for the quarter, well ahead of our plan. Importantly, this success was pronounced across the core parts of our business, scrubwear, the U.S. and our business as usual selling days. At the same time, we drove the core while executing our plan to pull back on promotions. We believe these positive trends within our foundation are a great sign of our brand health and support the sustainable growth story we see ahead. We also executed well across the P&L in Q3. Gross margin remained healthy, approaching 70% despite the growing impact of tariff headwinds. Substantial SG&A leverage reflected both the lapping of outsized expenses last year, but more importantly, the success of our ongoing efficiency and tariff mitigation efforts. Overall, this execution supported an impressive 900 basis point improvement in our adjusted EBITDA margin to 12.4% for the period. As we look ahead, we are seeing this positive momentum carry over to the start of Q4, and we are meaningfully increasing our outlook as a result. We now expect Q4 to be our strongest net revenue growth of the year, driving our full-year estimate to approximately 7% growth. We also have increased our adjusted EBITDA margin expectation above the high end of our original outlook and back to low double-digit levels. This reflects the great progress we have made during the year despite the onset of tariff headwinds. Overall, we are executing exceptionally well against our expectations and driving better consistency. I'm so proud of our team's collective effort as we look to deliver to all of our stakeholders, most importantly, our healthcare professionals. Reflecting on our year-to-date results, we have seen an outstanding response to our brand and wanted to spend some time on this call walking through some of the dynamics we see contributing to our top line outperformance. At the highest level, it really comes down to our success in delivering a great product assortment and impactful connections. Starting with our product strategy, we are excited about the direction we are headed in and how we are more effectively delivering our portfolio to healthcare professionals. We see 4 interrelated areas of focus that are both paying dividends today and setting us up for success in the future. These include improved function and fit, expanded head-to-toe solutions, strategic inventory investments and stronger calendar alignment. We recognize the importance of function and fit. These are already hallmarks of our brand, but areas to continually improve in to address the evolving needs of healthcare professionals. From a functional standpoint, we are delivering impactful and relevant new silhouettes, which are resonating with new and existing customers. This focus has been key in driving our core while also demonstrating success in elevating our assortment. Function also informs fabric leadership, where our category-defining FIONx fabrication remains the centerpiece of our brand. However, we know that there are opportunities to address the full range of activities that healthcare professionals go through every day. Our FORMx fabrication debuted in Q1 for environments where comfort and stretch are paramount, and we have seen momentum build as we have methodically expanded offerings throughout the year. We also just announced our next fabric solution, FIBERx, which is set to debut in Milan at the 2026 Winter Olympics. Lightweight yet structured, soft yet durable. This fabric is designed to work in environments, like for those supporting our Olympic athletes, where durability is particularly important. Looking at our fit initiative, our efforts are already paying off with lower returns, fewer inbound comments to our customer experience team and improved customer trust. With our obsession with function and fit coming together, we are also excited with how our enhanced product design work will elevate the entire product portfolio in 2026 and beyond. Continuing to build this strength in our core opens the aperture for outdating healthcare professionals from head to toe. For example, our recently introduced ArchTek compression socks demonstrate our latest commitment to category leadership as the first ever patented medical-grade compression socks in the market. Across additional areas such as outerwear, underscrubs and footwear, our team has developed a road map of how we plan to prioritize and build out these opportunities in the years ahead. With confidence in great product, we are investing appropriately. Coming off recent periods of more conservative buying plans, we have made more informed and deeper inventory investments across certain styles and colors. This action has contributed to a better flow of newness to our healthcare professionals while also supporting better overall in-stock levels. Finally, this all ties directly to our enhanced merchandising work around calendar alignment. We have added more rigor to how and when we deliver our product and messaging, efforts that have not only enhanced productivity across launch moments, but also our ability to leverage those moments in driving demand back to the core. This work has added importance as we reset our promotional cadence this year and as we execute against a repeatable, scalable framework for consistently delivering great products. As excited as we are with our product direction, our impact would not be what it is without our unique ability to serve our community and build connections in ways that only FIGS can. We are seeing the payoff of our amazing top-of-funnel moments that started with some of last year's big brand splashes and have continued throughout 2025. Looking at some of our recent successes, let's start with what was a unique opportunity heading into this year's Emmy awards. Last call, we detailed our advocacy work in Washington, D.C. with actor Noah Wyle, work which went viral across our community. When Noah was then nominated for Best Actor for The Pitt, he challenged us to make a tuxedo for the Emmy that was as comfortable as the scrubs he wears onset. We stepped up to the challenge by creating a first-of-its-kind tuxedo. With subtle details and craftsmanship, we are proud to support Noah's desire to bring the healthcare community directly to the red carpet. As the night progressed and momentum built, we strategically aired our Where Do You Wear FIGS spot during the last commercial segment before the awards for Best Actor and Best drama were announced. This was executed perfectly as Noah and The Pitt went on to win both of those awards coming out of the break. On stage, Noah eloquently dedicated his award to anybody who's coming on shift tonight or anyone who's coming off shift tonight. This overall moment became among the most viral in our history with multiple best dress nods for Noah and 175 total placements across traditional media and social, including over 30 top-tier press articles across fashion, entertainment and lifestyle outlets. Most importantly, our actions led healthcare professionals, our awesome humans, to feel seen in a way they rarely do on the world's biggest stage. Our brand work was just getting started as we continued our year-long celebration of ready-to-wear FIGS. Following the Emmys, we debuted our global installment of the campaign filmed across Tokyo, London, Mexico City and Los Angeles, showing how medicine is a universal language. We are excited to be able to amplify our message in key countries with upper funnel support. It is also important to highlight our work supporting breast cancer awareness. It's easy to highlight the commercial success of the campaign with our Epping Pink and Fight Club Pink color launches being one of our top-performing color drops in our history. The more important part, the harder part was showing the inspirational work of healthcare professionals, including Dr. Elisabeth Potter, a breast reconstruction surgeon from Austin, Texas. The success of our campaign underscored how much she resonates and is at the forefront of industry conversations in the medical community. It also reinforced the type of impact that we aspire to with Dr. Potter proclaiming, you guys listen, we feel represented and you care about what we're going through. The success of these campaigns are further proof points of how we strike a deep emotional cord with healthcare professionals through the stories we tell. This has always been part of the secret sauce at FIGS, but since our Olympics campaign in 2024, we've been on a run of our best top-of-funnel campaigns ever, and we're determined not to slow down. Not only are our campaigns resonating in unprecedented ways for the brand, but we are also matching this work with added sophistication in our measurement. Performance marketing tools are giving us added insight into when to lean into brand moments and how to optimize our messaging. Importantly, we still have considerable opportunities ahead as we think about leveraging unique views of healthcare professionals to better personalize their experiences. Finally, it's important to highlight that our great execution is bolstered even further by an industry backdrop that is returning to its pillars of fundamental strength that most other apparel industries can only dream of. This includes the replenishment-driven, largely non-discretionary and seasonless nature of our scrubwear that healthcare professionals return to over and over again. It also involves a massive industry that is among the fastest-growing brand any sector with over 23 million U.S. and over 100 million international healthcare professionals. To put it simply, we are serving a strong industry with professionals that need uniforms to do their jobs. Raising the bar further in these foundational areas also helps fuel our efforts across our 3 emerging growth drivers: international, teams and community hubs. We are making important investments across all 3 of these opportunities in 2025, and each is expected to scale in importance in the years ahead. Starting with international, our expansion is a significant focus and one where we have a number of recent developments. With over 80% of global healthcare professionals located outside of the U.S. and driving less than 20% of our revenues, international remains a massive opportunity. We are rapidly expanding our footprint this year, jumping from 33 countries to nearly 60 planned international markets by the end of this year. We are driving this expansion in a disciplined way through 2 strategies, either go broad or go deep. To go broad, we are focusing on low-touch ways to open markets, leveraging technology and regional commonalities to efficiently expand. Following 12 new Latin American markets we announced last quarter, we are on the cusp of opening 11 new markets across the Middle East and Africa region. We know that healthcare professionals globally have the same awful experience as they used to have domestically, and this strategy is an easy way to begin to reshape expectations in many smaller markets while also informing potential future investments. With our go deep strategy, we're focusing on markets with more clearly defined opportunities and taking additional steps to more directly invest. For some of our more established markets like Canada, U.K. and Mexico, investments extend to infrastructure as we look to localize and scale. This includes adding in-market talent, brand marketing to drive awareness and logistics to drive more efficient operations and support profitable growth. This strategy also informs our approach to several new markets, including the launch of Japan in Q2. This market is trending well to-date and providing great early learnings with how to serve locally. We also took the same level of care as we opened South Korea in October. We are excited to announce today that we plan to debut in China through Tmall later this quarter. While near-term contributions of these 3 new markets are expected to be modest, we see the opportunity for each to be significant drivers of our long-term international growth story. We are also actively investing in our teams and community hub opportunities, solidifying each of their own foundation for meaningful growth going forward. With teams, we want to both capture the legacy demand for institutional-led buying and also influence behavior with great solutions to drive this mix even higher. To power these efforts, we have added talent to both nurture our great existing partnerships and also to better cultivate new ones. We also have a focus on unlocking seamless and customizable solutions for a wider range of institutions and are excited to begin deploying updated technology this quarter. With Community Hubs, we are excited to debut 3 new stores this quarter, starting with New York's Upper East Side planned next week and then followed by planned openings in Houston and Chicago. Each of these locations will apply key learnings from our first 2 stores and apply updated design and merchandising elements to enhance the overall experience. We continue to see the value of having a physical presence for the brand, particularly with nearly 40% of customers coming in new to the brand. We remain confident in our disciplined approach and are well-positioned to accelerate our cadence of openings in 2026. Before turning the call over to Sarah, I would like to reiterate how excited we are with our progress. As we have highlighted, the foundational pieces of our business are strengthening. Our community engagement has never been more impactful, and we see significant opportunities to sustain momentum in 2026 and beyond. Importantly, we will never lose our unyielding focus in support of the healthcare community. This is an intangible thing to measure, but one that defines our brand's leadership, caring, connection and authenticity. This is our non-negotiable. It's how we drive relevance and staying power. At the same time, we're applying more discipline, talent and rigor across all the other factors that drive our business. We are positioned well to continue our momentum and amplify the brand over the long term. With that, I'll pass it over to Sarah. Sarah Oughtred: Thanks, Trina. Our year-to-date performance highlights the growing potential of the FIGS story as we more closely align our product strategy with our unique ability to drive impact for healthcare professionals. We are particularly encouraged to drive this high level of execution in a year where we had both a planned headwind with our promotional repositioning as well as an unplanned headwind with tariffs. As I'll discuss, we are excited to see the progress reflected in our full-year top and bottom line expectations that have moved markedly higher the past few quarters. First, let me start with details of our strong third quarter performance. Net revenues increased 8% year-over-year to $151.7 million, ahead of our outlook of flat to up 2%. As Trina highlighted, our performance was underscored by both scrubwear growth and U.S. growth, each reaching 2-year highs as well as the extremely encouraging strength and momentum across our business as usual selling period. These indicators continue to support our successful ability in resetting our promotional strategy this year, particularly with more aggressive action planned across the back half of the year. From a measurement standpoint, average order value increased 6% to $114, primarily driven by higher average unit retail due to product mix and a higher rate of full price sales. Active customer growth has remained consistent throughout the year at plus 4%, pushing our active customer count to a company record of nearly 2.8 million. This growth comes despite our promotional reset, and we have seen momentum in our acquisition trends and sustained success in bringing lapsed customers back to the brand. We were also pleased to see our trailing 12-month measure for net revenues per active customer inflect positive for the first time in 3 years with 2% growth in the period to $209. By category, scrubwear grew 8%, representing 84% of net revenues for the period. Results were ahead of plan with strength in our core products supported by impactful color stories, strategic positioning in key styles and effective merchandising and marketing. Color launches and cadencing were successful in not only driving excitement to new offerings, but also energized our core colors. Looser-fitting silhouettes are increasingly resonating, particularly in bottoms, and we are leading and investing in these areas. Complementing our great assortment, we continue to drive cohesion with how and when we deliver and message to our customers, which is driving productivity. Non-scrubwear increased 7%, representing 16% of net revenues. We saw strong growth in underscrubs, which included new 3-quarter length versions of our popular Salta and Mercado styles and were inspired by customer feedback. Shoes rebounded from some of the executional challenges in last year's period and were supported by strong coordination with our color stories. We were excited to launch our ArchTek socks at the end of the quarter, which we believe will be a great core offering to address healthcare professional needs going forward. Notably, results also reflect the comping of some Olympics-driven newness in areas like outerwear and bags, but we remain excited with the pipeline of products in these key areas going forward. By geography, U.S. sales increased 8% to $127.3 million. This was our strongest performance over the past 9 quarters and continue to reflect balanced growth across both new and repeat customers. International net revenues increased 12%, led by particular strength in driving new customers. Headline growth was solid, but had some nuances that understated our overall strength. In particular, we had a more significant reduction in promo days relative to the U.S., which had an outsized impact on Canada and Australia, 2 of our larger markets. Nonetheless, we are excited as we look at our overall performance, including active customers up strong double digits, AOV up in all regions and ahead of the consolidated growth and fantastic business as usual growth. Gross margin for Q3 expanded 280 basis points to 69.9%. Key contributors to this year-over-year performance included lower discounts from the reduction in promotional days, improved return rates and processing, lower duties and reduced freight costs. These tailwinds were partially offset by higher tariffs. Results were significantly better than planned, driving our best quarterly performance since early 2023 with broad-based upside, including conservative sell-through assumptions of the mix of non-tariff goods and through our improved returns processing work. Our selling expense for Q3 was $35.8 million, representing 23.6% of net revenues compared to 27.5% last year. As a reminder, last year's third quarter included the majority of transition costs associated with the opening of our Arizona fulfillment center. In addition to lapping these costs, we drove continuous improvement here as we further optimize our business. We also saw improvements in shipping given our successful actions to optimize our carrier mix, improve pricing and drive strong service levels. Marketing expense for Q3 was $23.5 million, representing 15.5% of net revenues, down from 20.3% last year. The reduction in the spending rate primarily reflected lapping last year's strategic investment to outfit the Team USA medical team at the Olympic Games and efficiency in marketing spend. G&A for Q3 was $37.1 million, representing 24.5% of net revenues compared to 25.3% last year. Consistent with prior quarters, the lower G&A expense rate was primarily due to a meaningful reduction in stock-based compensation expense, partially offset by higher people costs. In total, our adjusted EBITDA for Q3 was $18.9 million with an adjusted EBITDA margin of 12.4% compared to 3.4% last year. Net income for the quarter was $8.7 million or diluted EPS of $0.05 compared to net loss of $1.7 million last year or diluted loss per share of $0.01. On our balance sheet, we finished the third quarter with a strong net cash, cash equivalents and short-term investment position of $241.5 million. Inventory increased 23% year-over-year to $151.2 million or up 20% on a unit basis. Several factors are impacting the buildup of inventory. As indicated last quarter, it starts with our action to support both product introductions and deeper investments in key styles, which we believe has helped drive some of the upside opportunity during the back half of the year. We also saw a higher-than-planned level of in-transit inventory, reflecting earlier timing given some of the process improvement we have been working to drive across the supply chain. While the gap between unit growth and dollars growth was modest during the quarter, we expect the growing impact of tariffs will contribute to a wider spread in Q4. On the capital allocation side, we did not repurchase shares this period and have $52 million available for future repurchases under our current share repurchase program. Capital expenditures for the quarter were $2.9 million, primarily related to our 3 new community hubs, and we now expect approximately $7 million for the full-year. Now turning to our updated outlook to close out the year. Full-year 2025 net revenues are now expected to grow approximately 7% year-over-year, ahead of our prior outlook of up low single digits. On top of our strong Q3 results, we see several factors supporting even better implied growth in Q4. To start, we had fantastic momentum coming out of the third quarter, starting with our hugely successful breast cancer awareness campaign and extending into our business as usual selling days. As I also mentioned, we are investing more strategically in our inventory position to ensure better availability of key products and styles. This also drives what we expect to be our best balance of new colors and styles offered year-to-date, which is also proving effective at supporting the core business. We are excited to continue to launch this newness with the same discipline that has supported our strong productivity this year. Finally, we will complete our year-long promotional reset this quarter, though do not expect the corresponding revenue drag to be as meaningful as Q3. Looking at gross margins, our full-year 2025 outlook has improved from our prior call and now expect only a modest year-over-year decline from last year's level of 67.6%. A large part of the sequential improvement comes from the Q3 upside, though we do now expect less overall drag in Q4 as well. As a reminder, we faced 2 sizable headwinds in Q4. First, we expect ramping sequential tariff pressure as more impacted goods average into our product costs. We continue to assume added tariffs of 20% in Vietnam and 15% in Jordan, which combined drive nearly all of our production. Second, we are also lapping a sizable onetime benefit from duty drawback claims in the year ago period. However, similar to Q3, we have several items that are helping offset these pressures, including lower discounts, improvements in our returns processing and freight. Additionally, we are starting to get better scale on certain styles in conjunction with demand. The full-year SG&A story continues to show strong leverage following last year's outsized investment. While Q4 is still expected to show some expense rate deleverage, the magnitude has been reduced primarily by the impact of our improved top line assumptions across each of our expense buckets. More specifically, this quarter, selling expenses should continue to benefit from our scaling efforts and tariff mitigation strategies. The marketing expense rate is planned to meaningfully increase, reflecting both lower spend rate from the prior year as well as our ramping support for the forthcoming 2026 Winter Olympics. The G&A rate will continue to reflect lower year-over-year stock-based comp, partially offset by higher planned people costs. Overall, we are updating our full-year adjusted EBITDA margin to approximately 10.3% compared to the prior range of 8.5% to 9% and ahead of the original outlook of 9% to 9.5%. We also want to provide several high-level comments that pertain to our early 2026 planning. First, on net revenues. We are committed to growing the business in 2026, which should continue to be supported by strong current momentum and ongoing process improvements. Additionally, we expect the investments we have made in our 3 emerging growth drivers, international teams and community hubs will begin to have more material impact. While not all of these factors will have linear contributions, we are excited to further unlock these businesses given our strengthening core. Next on tariff mitigation. As we have discussed, we have a number of levers across both product costs and SG&A that we have already pulled and some that remain in consideration. We have already seen strong execution as we optimize costs across inbound and outbound shipping and at our fulfillment center, benefits that we plan to extend into 2026. Our supplier negotiations have been productive and are expected to yield additional savings next year. While we do not plan to take any pricing action in 2025, it remains a lever for next year. Finally, on margins, the bar for 2025 adjusted EBITDA margins has been raised despite an estimated unmitigated tariff drag of approximately 110 basis points. However, with an estimated annualized unmitigated impact of closer to 440 basis points, we expect that the majority of tariff headwinds is still ahead of us in 2026. As such, we will use our ongoing planning process to continue monitoring the overall environment while also balancing our ongoing discipline, the full range of tariff mitigation as well as strategic investment levels. While it is too early to provide specifics, we do think it is important to note that we see opportunity for 2026 adjusted EBITDA margins to be within range of current 2025 expectations. Overall, we are energized to be in such an incredible industry where serving healthcare professionals is paramount. With improving profitability and ample balance sheet flexibility, we believe we are positioned to remain on offense and drive the sustainable long-term growth story we see ahead. I will now turn the call back over to the operator for Q&A. Operator? Operator: [Operator Instructions] First question is from the line of Bob Drbul with BTIG. Robert Drbul: Nice quarter. A couple of questions for you. Just on the gross margin performance this quarter, I guess when you look at it a little bit longer term into next year, but I would even say when you look at your historical results, given your ability to sort of navigate a lot of the tariffs, can you just talk us through how you envision that segment, that line item of the business over the next several years, I guess, at this point? Catherine Spear: Bob, yes, so we saw a really great gross margin for this quarter, up to 69.9%. Obviously, that's been quite higher than where that rate has been. We did see some components there, some that will continue into the future, but some that are unique to the quarter. We are seeing improved discount rates from the pullback in our promo strategy, and we'll see that continue into Q4 as being a benefit year-over-year. Longer term, that increase year-over-year will moderate as that promo strategy normalizes into next year. We've been working hard with our new returns partner and seen some good improvement in our refurbishment rates. Then there was a bit of nuance in how some returns processing happened with the prior year DC transition. We do expect some of those improvements in refurbishment rates to continue going forward, but not at the same rate that we saw in the quarter. We've been really working hard to optimize our inbound rates, and we saw the benefit of that this quarter, and that should continue into next year until we annualize that. Obviously, tariffs are the biggest piece, and so that will have a 440 bps total impact next year or up 330 bps. There's still some unknowns around how tariffs will remain. We'll continue to monitor that, but feeling good with our measures of how we're able to continue to find efficiencies within margin and carry that into future to continue to work on offsetting those tariffs. Operator: Next question is from the line of Rick Patel with Raymond James. Rakesh Patel: Congrats on the strong execution. Can you expand on the demand that you saw during the business as usual days when you didn't offer promotions. How is Q3 performance on those days relative to where it was in the first half? Second, given tariffs are intensifying and demand is holding up well, what do you need to see to revisit the pricing lever for next year? Catherine Spear: Great. In terms of our business as usual days, we've seen acceleration each quarter in those business as usual days. Really great to see that. It's really from the broad-based performance that we're seeing across both the U.S. and international as well as both scrubwear and non-scrubwear. Really happy with that performance, and it's really that acceleration that has had revenue growth rates overall accelerate each quarter. Really happy with what we're seeing there. Then I think you asked on pricing, and so our pricing remains consistent with what we've shared previously. Several considerations that we've shared before that still remain, which is healthcare professionals need our products to do the critical work that they do. Nearly 2/3 of our customers make under $100,000 a year. We have 16 core styles that generate the majority of our revenue. Our ability to simply flow through higher prices into new seasons or new styles is limited. We want to be prudent, and there is still some open-endedness on where tariffs will land. We've been working really hard on our tariff mitigation and these efforts include optimizing our supplier base, negotiating discounts with our suppliers and driving efficiency in inbound and outbound. The great news is that we've seen strong progress on these measures to-date. We're not going to be taking pricing in 2025. If we were to take any future pricing, that decision would be held to share with our healthcare professionals first so that we can control the narrative and deliver with the care that our healthcare professionals deserve. Operator: Next question is from the line of Brooke Roach with Goldman Sachs. Brooke Roach: Trina, Sarah, I was hoping we could discuss the trends that you're seeing in AOV, understood that some of this is coming from the promo reset, but how are you thinking about the opportunity for AOV to contribute to revenue growth as you look ahead into 2026? Similarly, can you talk a little bit about the customer trends that you're seeing? Are your customers engaging more frequently? Are they staying for longer? Are you seeing better reactivation trends or better new acquisition trends? Are you seeing any trends specifically within any age or income cohorts given the broader macro environment? Catherine Spear: Great. I'll start with the question on AOV. In terms of AOV, we've been seeing that increase each quarter and saw a fairly large increase in the current quarter, up 6%. That is driven from both mix shift in our product as well as the pullback in our promotional efforts. I think as we think about 2026, we still think there is some opportunity for AOV to continue to increase. That's largely with how we're thinking about product mix and continuing to build out that full assortment head to toe of that healthcare professional and continue to drive into a higher wallet share that we know is available to us. Sarah Oughtred: I'll just add in terms of the trends we're seeing in our consumer. Brooke, as you know, we don't -- we serve a different consumer than the average apparel or even e-commerce company. Our customer works in an industry that has a real like level of stability. People need healthcare workers. They're not going anywhere. If anything, our industry is really accelerating. It's the healthcare jobs are the fastest-growing job segment. They're growing 3x faster than the overall job market. The demand for healthcare professionals is expected to remain high. A lot of the trends that we've seen in the quarter, some of it is the fundamentals of the industry and obviously, what we're doing on the product side, on the marketing side to execute at the level that you're seeing. To your question around like the trends we're seeing, we're seeing our customers come back. If you look at repeat frequency and you kind of remove the impact of the promotional pullback, we're seeing repeat frequency up significantly. We're seeing our reactivations up significantly, and we're seeing actually cohorts performing across all income levels. Really great trends across the board. We feel really confident that the post-COVID overhang is easing, and we're operating in a much more normalized environment, and it's great to see. Operator: Next question is from the line of Matt Koranda with ROTH Capital. Matt Koranda: It's probably just a follow-up from some of the earlier questions. Just wanted to hear a little bit about what's driving the acceleration that you're implying into the fourth quarter despite the tougher comparison year-over-year. I just wanted to hear a little bit more about customer strength. It sounded just like Trina, like you just said, even your lower income cohort is still performing well. I just wanted to hear you kind of talk a little bit more about the drivers of the acceleration into the end of the year here. Sarah Oughtred: Matt, yes. I mean, we've been seeing some really broad-based and healthy trends that have continued to progress as the year has gone on and see the opportunity for that to continue into Q4. We feel good with how our product and marketing is set up for the fourth quarter. We think we can get there with continuing the trends that we've seen. We've been seeing that new customer acquisition has turned positive in terms of growth for the last 2 quarters and seeing that momentum also really come from our domestic business, which carries weight in terms of the overall growth. We're seeing some great trends in the business as usual days that has been accelerating. All of those components has been captured in how we're thinking about the fourth quarter upcoming. From a promotional perspective, our stance has still remained with how we had seen before. The improvement in revenue growth expectations from Q4 really comes from our business as usual days. No change in how we've been thinking about promo. For Q4, the focus will be on Black Friday, Cyber Monday, but similar to previous quarters, there will be a pullback in our efforts versus the prior year. Matt Koranda: Can I ask about community hubs? You guys sounded more excited, I guess, than usual about the opportunity to lean in there going into '26. Just wanted to hear a little bit more about the potential drivers of growth with Community Hub and where we are with store formats, how they're set up for growth next year. Catherine Spear: Sure. Thanks, Matt. We're really excited about our community hubs. We're about to more than double the amount that we have. We only have a community hub in Century City in Los Angeles today and in Philadelphia and Rittenhouse Square. We're about to open New York City on the Upper East side at 69th and 3rd. We're right in what's called hospital row, which is incredible. You have Memorial Sloan Kettering, you have the hospital Special Surgery, New York-Presbyterian Weill Cornell, Rockefeller. These are powerhouse healthcare institutions that are literally at the same intersection of where we are. Houston, we're opening right near Texas Medical Center, the world's largest medical complex. It has 120,000 employees, 10 million patient encounters a year, over 180,000 surgeries a year, and so Houston, incredible healthcare professional city, and it's a great place to be, and we're really excited. Finally, Chicago. We're located less than 2 miles west of the loop. We're in Illinois Medical District. It's one of the largest urban medical district clusters in the United States, 4 major hospital systems, 2 medical university campuses, 40-plus healthcare-related facilities. That's just -- those are just opening the rest of 2025, and it's November 6 today. Couldn't be more excited. We're taking our learnings from what we've seen with our first 2 hubs 40% of customers are still coming in new to the brand. 30% of customers that are coming into our community hubs are becoming omnichannel customers coming back into the stores, coming back to us online. Really strong -- and we're seeing really strong incrementality in the markets that we're in, and so took a lot of the learnings from our 2 hubs. We've redone the format, the space, how much inventory we can get on the floor, how we're approaching our color drop stories, our newness, our layering, our fit and how we can showcase that in a new and original way. Finally, customization. Everyone wants their scrubs embroidered with their name and their logo so they can tell the world who they are and what they do. These are just being in person with our community, having them feel and touch and experience our product and our brand is -- it's so amazing and so important, and we're really excited. Operator: Next question is from the line of Brian Nagel with Oppenheimer. Brian Nagel: Nice quarter. Congratulations. I've got a couple of questions. I guess one near term and then one long term. On the near-term side, as we look at the sales acceleration in the business, particularly what's happened here in the third quarter, then as you're telegraphing in the fourth quarter, to what extent is that sales acceleration being driven by new products, the new product introductions? Then my follow-up question, I guess, is longer term, a little bit longer term in nature, but now as we're watching the top line of FIGS start to solidify, you're seeing the sales growth. Is there any updated thinking on how the margin – particularly, the EBITDA margin profile of the business should evolve over time? Should we have the potential to get back to the peak operating margins? Sarah Oughtred: Great. In terms of your question on is the growth coming from new products, I mean, actually, what we're really excited to see is the majority of the growth is coming from our core products and even in our core colors. That's a great foundation for the long-term health of our business. Obviously, we've seen growth in some of our newer styles and in our color, and it's really showing that when we showcase some of that newness and innovation, it actually drives the halo effect to our overall core. Really great for us to see there that we have the ability to continue that momentum longer term from a sales growth perspective. In terms of EBITDA, for next year. For now, we've made the commitment that our adjusted EBITDA margin rate would be within range of our guide for 2025. We do have 330 bps of tariff headwind year-over-year into next year. We would be offsetting that in order to stay within range of this year. Our ability to meaningfully offset that is from improvements that we are making in the business to be more efficient, to drive into savings while still being able to invest for the longer term. We'll have some harder ability to expand margin next year just due to the tariffs. Longer term, we see the path for this foundation to continue to go forward and us for -- to drive growth, both top line and into bottom line. Operator: Next question is from the line of Dana Telsey with Telsey Group. Dana Telsey: Nice to see the progress, Trina. Two things. As you think about the Olympics coming up and the marketing for the Winter Olympics, what will be the same or different than what you did for the Olympics in Paris, knowing that summer, this is winter. What do you see as the difference? One of the interesting things in the quarter is the sequential improvement in the growth rate of the non-scrubs business, up high singles compared to the slight decline last quarter. What are you seeing there? What categories are resonating? Catherine Spear: Thank you so much, Dana. We're really excited about our continued partnership with Team USA. As you know, we're the first company ever to outfit a medical team for any country globally, and we're really proud to be able to do that again for these upcoming winter games in Milano Cortina. There's a few things that we really learned and we're going to be applying from our lessons in Paris. First one is that we're finding more ways to have an impact. We learned a lot on the ground. We've created an even better, if you can imagine, a more dedicated space at the Team USA, welcome Experience. That's really exciting. We have a brand-new fabrication called FIBERx. It's really made for healthcare professionals in more high-impact environments like what you would be doing outside in winter and especially for the medical professionals supporting our athletes during the winter games. I do believe this fabrication is going to go well beyond that to serving healthcare professionals within hospitals and offices and clinics, and it's a really, really great lightweight durable fabric that is awesome. You're going to love it. Then finally, I think we've learned a lot in terms of how to optimize our marketing spend and how to ensure that we're really balanced across the funnel. I think you've seen that throughout this year, really taking these very strong top-of-funnel marketing campaigns that, in some ways, are breaking the Internet and how do we bring that all the way down to our healthcare professionals that are on social or across channels and to meet them where they are with really strong product that serves their needs and really strong messaging that resonates and really shows the best of them back to them. I think that's what this campaign is going to do again. Then your question on non-scrubwear. In Q2, the growth rate was negative, and that was really impacted by comping over the same quarter of the prior year that had some additional non-scrubwear launches. What we've seen with category performance for non-scrubwear is that it can vary based on promotional comparisons, the impact of new styles in different quarters and our work to reinvent a few areas. Happy to see that we inflected positive in non-scrubwear this quarter. Even still, we are comping against the stronger quarter last year from where we had Olympics. We had strong accessories and outerwear growth from Olympics last year that doesn't annualize this year. I would say that our non-scrubwear did perform to our plan and has outperformed the first half. We've been happy to see consistent attachment rates and really excited about the opportunity ahead for many of the categories within non- scrubwear. Operator: Next question is from the line of Ashley Owens with KeyBanc Capital Markets. Ashley Owens: Congrats as well. Maybe just first to touch on international. With this now being 16% of revenue of the quarter, if we kind of parse that out and think of that as just shy of $100 million run rate for the business, could you just walk us through some of the next building blocks as to how you're planning to scale these regions? I know regions like Japan, South Korea are still really new. China is obviously coming on board. Would just be curious on thoughts as to if international could sustainably grow at double digits for the next several quarters and how you're thinking about that long-term mix target there? Catherine Spear: Yes. I mean we have a two-pronged strategy, Ashley, in terms of where we go broad and where we go deep. It's been really exciting to see that we'll be at 60 markets by the end of this year. That's driven by our ability to leverage both technology and our understanding of each region and use the commonalities across regions to open up markets very efficiently. If you think about we just -- in Q3, we opened up 12 new markets, Argentina, Bolivia, Chile, Ecuador, I won't list them all, but you can get that. Then in the fourth quarter, we opened up a number of countries in the Middle East and in Africa. That's really exciting. Then to your point, how do we go deep, right? That's the second part of the strategy, where once certain markets reach scale, think about Canada, Mexico, U.K., Australia, we're able to really invest more in the brand and brand awareness. Really localized deeply, deeper engagement with our ambassadors with events, in-market support and so, and having talent on the ground in these places. It's very exciting to continue to build out in both -- in newer markets, but also really go deep in these larger markets that have hit what I would call critical mass. No matter where you live, prior to FIGS, you had this horrible experience with your uniform. Our goal is to get some more healthcare professionals around the world and help change the game for them. Ashley Owens: Then just quickly to follow-up. Maybe on the return rate improvement, if you could help us contextualize how much of the progress there benefited margin for the quarter or the magnitude of the decline you saw? Then just following up, moving down the P&L, any other quantifiable cost savings from fewer restocks and reverse logistics activity that you'd be willing to share? Sarah Oughtred: Yes. Within returns, we've seen overall improvement in our return rates, and that is largely attached to some of our improvements to fit. We definitely saw an outsized benefit related to returns processing. It is quite meaningful of a bump that we saw in Q2. You can really see how the implied guidance for Q4 does step down. That's both with tariffs and mix shift into non-scrubwear that seasonally happens in Q4, and not recognizing the same degree of benefit on returns that we saw in Q2. Operator: Next question is from the line of John Kernan with TD Cowen. John Kernan: Obviously, a lot of upside to on a few line items in Q3. And I just want to go back to the prior question on the fourth quarter guidance because it does assume quite a bit of the momentum on the margin level doesn't continue. Can you just unpack the gross margin and then maybe the selling and G&A in fourth quarter and the expectations there, given you have a lot of momentum coming out of Q3 on the top line and the margin profile? Just curious what's maybe changing in Q4. Sarah Oughtred: Yes, certainly. We will have quite a step-up quarter-over-quarter from Q3 into Q4 on tariff impact. There will be quite a step-up on the incremental amount of tariffs that Q4 has to carry. That will continue to step up as we go into 2026 as a higher portion of our inventory captures the full amount of tariffs. We also have seasonality to consider, so we have a much higher proportion of our business in the fourth quarter that has non-scrubwear that carries a lower margin rate. You'll kind of see that seasonal mix if you look back at the proportion of non-scrubwear business in Q4. Planning similarly, and that will have some drag on the quarter. Then also just to consider from a year-over-year perspective, as you're looking at Q4 that we did have a sizable duty drawback benefit in the fourth quarter last year that was onetime catch-up, so we won't -- that will have a headwind into year-over-year growth in Q4 as well. Then I think you're asking in terms of the overall P&L profile. I mean, as we think about our selling costs, we've continued to see improvement there each quarter and happy with our efforts there, and that will continue into Q4. A lot of really great work that's been done to negotiate with our vendors, bring on multi-carriers and at the same time, being able to provide even better service. That will continue into Q4. From a marketing perspective, the marketing rate will increase in Q4 from what you've seen each quarter in 2025, and that's a function of us starting our investments to support the Olympics, which happened in Q1 of 2026. Then as we go into G&A, we've been continuing to see the decline in our stock comp expense year-over-year, and that trend will continue into Q4 as well. I think those are the main puts and takes on how we think about the profile for Q4. Operator: Our final question will come from the line of Angus Kelleher with Barclays. Angus Kelleher-Ferguson: This is Angus Kelleher on for Adrian. Congrats on a solid quarter. I wanted to ask how you are balancing -- how you're balancing the elevated inventory growth against the plan to pull back on promotions? What safeguards are in place there to avoid margin pressure or excess stock? I guess just more broadly, how do you feel about the composition of that inventory? Sarah Oughtred: Yes. Thanks. We've been intentionally investing in inventory to support demand and improve our core in-stock levels. We've really seen improvement in those in-stock levels, which has been supporting our sales growth. We did have an impact from higher-than-expected in-transit inventory in the quarter, which we do view as positive as it does result from the work we're doing with our partners to drive consistency and execution, and it's ultimately driving shorter lead times. If you were to adjust for that higher in-transit, our unit growth would be low double digits. So much more in line with our Q3 growth and our Q4 guide, while also giving us the opportunity to potentially capture upside. We're effectively getting product more efficiently, and we do need to adjust. As we look at the go forward, we would expect some moderation in unit growth, and that's really just as this in-transit timing adjusts. Then from a dollar growth perspective, we actually expect that to increase into the fourth quarter, and that's really a function of those tariffs impacting that inventory that's coming in, so our inventory is higher. We do have some pockets of inventory that we are working down. We've got some older fit profiles and areas we intend to reinvest in the future seasons. We have made some good progress here, including with our targeted promotional efforts and selective write-offs we were able to do. We do continue to make progress here and in the quarters ahead. We're working on improving greater discipline and efficiency to our buying process. Over time, we do expect that inventory balance to come down over 2026 despite the higher tariffs. Angus Kelleher-Ferguson: Then if I could just squeeze one last one in about Teams. How is the Teams strategy evolving? How has the target customer shifted over time there? Then just if possible, any margin commentary you could share on the contribution of that business? Catherine Spear: Well, first off, Angus, I just want to thank you for not ending on the inventory question. Thank you for adding something about Teams because I'm so excited to talk about our Teams business. It's really -- we've been really focused on investing in our Teams business as we look to ensure an optimal foundation to set us up for the future. We've talked about our outbound strategy, bringing on new institutions that are looking to standardize and brand their teams, and we've made a lot of progress. The biggest kind of item that we're excited about is the upgraded technology. We mentioned it in the earlier part of this call, and so this is really designed for healthcare teams of all types and sizes. This platform is going to give organizations much more flexibility and functionality to purchase in a way that makes sense for their team. We are on our way to becoming the employee store for all different types of healthcare professionals that's going to go well beyond traditional group ordering. This is going to introduce new capabilities like sipeins, like gifting, different types of discounts based on your employee type. We're really excited about being able to roll out this upgraded Teams experience. It's going to feature our full product assortment. It's also going to be able to support international teams customers, which hasn't been the case. We think we're going to be able to unlock meaningful growth in the future. And so -- and then you asked about the margin. Sarah Oughtred: The margin profile. The teams profitability is accretive bottom line. It has a lower gross margin profile just to the offering of a higher discount. Then operating expense structure is much more favorable with the efficiencies, both within outbound shipping as well as marketing. I'm excited with the overall economics that this business provides. Operator: There are no additional questions waiting at this time. I'll pass the call back to Trina Spear for any closing remarks. Catherine Spear: Thank you all for joining us. Really excited to speak with you all, and we'll talk again soon. Operator: That concludes the conference call. Thank you for your participation. You may now disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by. [Operator Instructions] I would now like to turn the conference over to Tahmin Clarke. Please go ahead, sir. Tahmin Clarke: Thank you, operator. Good afternoon, and welcome to Arlo Technologies Third Quarter 2025 Financial Results Conference Call. Joining us from the company are Mr. Matthew McRae, CEO; and Mr. Kurt Binder, COO and CFO. If you have not received a copy of today's release, please visit Arlo's Investor Relations website at investor.arlo.com. Before we begin the formal remarks, we advise you that today's conference call contains forward-looking statements. Forward-looking statements include statements regarding our potential future business, operating results and financial condition, including descriptions of our revenue, gross margins, operating margins, earnings per share, expenses, cash outlook, free cash flow and free cash flow margin. ARR, Rule of 40 and other KPIs, guidance for the fourth quarter of 2025, the long-range plan targets, the rate and timing of paid subscriber growth, the commercial launch and momentum of new products and services, the timing and impact of tariffs, strategic objectives and initiatives, market expansion and future growth, partnerships with various market leaders and strategic collaborators, continued new product and service differentiation and the impact of general macroeconomic conditions on our business, operating results and financial conditions. Actual results or trends could differ materially from those contemplated by these forward-looking statements. For more information, please refer to the risk factors discussed in Arlo's periodic filings with the SEC, including our annual report on Form 10-K and our most recent quarterly report on Form 10-Q filed earlier today. Any forward-looking statements that we make on this call are based on assumptions as of today, and Arlo undertakes no obligation to update these statements as a result of new information or future events. In addition, several non-GAAP financial measures will be discussed on the call. A reconciliation of the GAAP to non-GAAP measures can be found in today's press release on our Investor Relations website. At this time, I would now like to turn the call over to Matt. Matthew McRae: Thank you, Tahmin, and thank you, everyone, for joining us today on Arlo's Third Quarter 2025 Earnings Call. Q3 was another record-breaking quarter for Arlo across numerous performance and financial metrics. I'll start by highlighting our outstanding SaaS business, which continues to grow and propel Arlo to new heights. We added 281,000 paid accounts during the quarter, well above our target range of 190,000 to 230,000 and which drove our total paid accounts to 5.4 million. This performance was driven by net additions in our retail and direct channel, coupled with stronger performance from our partner, Verisure. I'd like to take a moment to congratulate Verisure on their recent acquisition of ADT Mexico and their successful initial public offering last month. Their success is so well deserved, and we look forward to continuing to be a part of their growth and outstanding execution across their expanding footprint. Arlo Secure 6, our latest AI-based security platform, is also driving our performance with users finding substantial value in the features and capabilities. In our retail and direct channel, average revenue per user was over $15 per month, and the lifetime value of each user grew to over $870, a new record for Arlo. These metrics helped propel Arlo's annual recurring revenue to $323 million, up 34% year-over-year and another record for the company, while service gross margin expanded 770 basis points to more than 85%. In addition to this impressive service performance, Arlo also executed the largest product launch in company history during the quarter, comprised of new platforms and products across our Essential, Pro and Ultra product tiers. These platforms not only bring a 20% to 35% reduction in BOM costs and new form factors such as pan, tilt, zoom, they also contributed to a nearly 30% year-over-year unit sales growth in Q3. These new products are receiving high ratings from both professional and user reviews, which call out the ease of setup, high performance and new capabilities across the lineup. The execution of this product launch and transition was nearly flawless. Arlo launched over 100 SKUs simultaneously across channels on time despite several shipping and weather disruptions, all while managing the [ ex-ramp ] of inventory for a smooth transition. This is extraordinarily difficult to achieve, and a huge congratulations and thank you to the Arlo cross-functional teams on this exceptional outcome. There are very few companies in the world that have successfully developed world-class capabilities in both the Software Service segment and the hardware device segment. This quarter is a great illustration that Arlo is one of those rare companies that can not only excel in both areas, but also bring these segments together to create compelling user experiences and drive real shareholder value. And that could not be more obvious based on our full Q3 results and profitability. Adjusted EBITDA was up 50% year-over-year and reached $17 million. GAAP earnings per share was $0.07 in the quarter, a new record for Arlo. And year-to-date, we reported a massive $0.35 improvement compared to the first 9 months over last year. And looking at our services business in a Rule of 40 context, Arlo achieved a result of 46, which underscores the elite performance against all peers in the SaaS space. Looking ahead to Q4, Arlo is exceptionally well positioned in a competitive market with our new product launch, and we expect to see 20% to 30% unit growth year-over-year, which sets us up well for service revenue growth heading into 2026. And we continue to see great progress across our strategic accounts, including Verisure driving growth via their IPO, Allstate deploying kits to home insurance customers and ADT testing units in the field ahead of next year's market launch. Expect more announcements in this area over the coming quarters. Given this performance, it is clear that Arlo is making excellent progress against our long-range plan targets of 10 million paid accounts, $700 million in ARR and an operating income of over 25%. Now I'll turn it over to Kurt for a more detailed review of our Q3 results and our outlook ahead. Kurt Binder: Thank you, Matt, and thank you, everyone, for joining us today. During the quarter, we again delivered outstanding financial results driven by our commitment to our services-first strategy. Every decision that we make as an organization is centered around delivering an innovative and value-added smart home security experience that drives annual recurring revenue, and these efforts are yielding strong results. As Matt mentioned, the LTV generated by our paid accounts is at an all-time high and ensuring that we continue to fill the acquisition funnel and drive our subscriptions and services revenue is paramount to delivering best-in-class SaaS metrics and achieving our long-term financial goals. Now on to the results for the quarter. Subscriptions and services revenue was $79.9 million, up 29% year-over-year, driven by a significant increase in ARPU and a great pace of paid account adds over that same period. This strong performance is largely due to the introduction of our new AI-driven Arlo Secure 6 rate plan offerings. Additionally, our intense focus on enhancing customer journeys and delivering a differentiated value proposition drove new paid accounts to select our premium rate plans and existing customers to upgrade to higher rate plans. Paid accounts continued their strong growth trajectory as we generated 281,000 paid subscribers in Q3. We exited the quarter with a base of 5.4 million paid accounts, an increase of 27% year-over-year. Improving ARPU trends and the growth in our retail paid account base reflects our ability to guide customers to our higher-value AI-enhanced service levels and in turn, drove our annual recurring revenue to $323 million, up 34% over the same period last year. Total revenue for the third quarter came in at $139.5 million, up slightly from the prior year period, with our subscriptions and services revenue comprising 57% of total revenue, up from 45% in the same period last year. This level of predictable and recurring service revenue is the key driver of our substantial improvement in profitability and our ability to deliver best-in-class SaaS metrics, including ARR growth. Product revenue for the period was $59.6 million, down $16.2 million or 21% when compared to the prior year and as a result of the industry-wide decline in ASPs as well as the frequency and depth of promotional campaigns, especially in Q3 as we promoted our end-of-life or EOL products to make way for the sell-in of our broader next-generation product portfolio. We continue to drive new household formation by optimally pricing our products to increase POS volume and utilize the devices as a subscriber acquisition vehicle. The refresh of our product portfolio offers a considerable reduction in BOM costs, enhancing our competitiveness across various price tiers while also helping to offset some of the tariff impact. And with the upcoming holiday season, we are leveraging this portfolio to help accelerate the growth trajectory of our subscriptions and services revenue. Given the outstanding subscriptions and services gross margin and expanding profitability with each new paid account, our decision to sacrifice product gross margin for durable, highly profitable subscriptions and services revenue is an easy one. We view a modest decline in product gross margin as part of our cost of customer acquisition. And even after considering the incremental investment, we are still delivering a best-in-class LTV to CAC ratio in the range of 3x. Our goal to drive solid POS volume and gain access to additional households in Q3 occurred as planned, and we expect a similar outcome in the fourth quarter. We believe the strategy insulates us from certain external market factors and drive shareholder value, and we will continue to lean into this approach during this Q4 holiday selling season. In Q3, international customers generated $58 million or 42% of our total revenue, down from $66 million or 48% in the prior year period related to the increased level of subscription and services revenue from our U.S. retail business and the successful launch of our new products. Verisure continues to be an important partner for us in Europe, and we thank them for their continued collaboration and expect them to remain a solid growth driver in the future. From this point on, my discussion will focus on non-GAAP numbers. The reconciliation from GAAP to non-GAAP figures is detailed in our earnings release, which was distributed earlier today. Our non-GAAP subscriptions and services gross margin was 85%, again, a new record and up 770 bps year-over-year. The significant growth in services gross margins is attributable to enhanced ARPU, coupled with a reduction in the cost to serve our customers, including lower storage and compute costs. Product gross margins were negative, representing a modest decline when compared to the same period last year. The decline in product gross margin is related to the full quarter impact of tariffs approximating $5 million, coupled with industry-wide ASP declines and planned promotional spend on EOL products to optimize inventory levels ahead of our recent product launch. Even withstanding these items, we reported consolidated non-GAAP gross margin of 41%, up 540 bps year-over-year. Our continued improvement in profitability in a period where the full impact of tariffs was experienced underscores the significant ancillary benefits that the shift to our services enterprise provides us. Total non-GAAP operating expenses for the third quarter were $41.1 million, up 6% from $38.7 million in the same period last year. The year-over-year increase is primarily driven by app store fees and an increase in personnel to support R&D investment as we launch our new innovative product offerings and Arlo Secure 6 this year. Our leveraged go-to-market approach has enabled us to maintain our operating expenses at roughly $40 million per quarter or less since 2022, while growing ARR at a 37% CAGR during that period, which is truly remarkable. For the third quarter, adjusted EBITDA was $17.1 million or an adjusted EBITDA margin of 12.2%. The growth in adjusted EBITDA represents a 50% increase year-over-year and a powerful testament to the operating leverage created by scaling our subscriptions and services business. Further, we generated non-GAAP net income of $18.1 million for the third quarter and $53.3 million for the 9-month period ended September 30, which was up an impressive 68% when compared to the same period last year. Regarding our balance sheet and liquidity position, we ended the quarter with $165.5 million in cash, cash equivalents and short-term investments. This balance is up about $19 million since September of 2024, even withstanding certain strategic investments and our ongoing share repurchase program. We generated record free cash flow of $49 million during the first 9 months of the year, representing a free cash flow margin of almost 13%. Our Q3 accounts receivable balance was $76.7 million at quarter end, with DSOs at 50 days, up from 45 days in the same period last year. Our Q3 inventory balance was $44.4 million, down from the $52 million level in September of last year and a testament to the amazing job that our supply chain team has done with optimizing inventory levels ahead of our portfolio refresh. Inventory turns were 6.4x, up from 5.8x last year as we sold in inventory for one of our largest product launches in history. Now turning to our outlook. Even with the full impact of tariffs during the period, our business generated outstanding financial results driven by the resilience of our subscriptions and services business. The recent launch of our innovative product portfolio gives us dry powder to remain competitive given the solid reduction in BOM cost. We will leverage our new products and competitive ASPs to drive strong POS volume and accelerate paid subscription growth. As a result, we expect our Q4 consolidated revenue outlook to be in the range of $131 million to $141 million. Additionally, we expect non-GAAP net income per diluted share for Q4 to be in the range of $0.13 to $0.19. And now I'll open it up for questions. Operator: [Operator Instructions] The first question comes from Adam Tindle with Raymond James. Adam Tindle: I just wanted to start maybe on margins, obviously, acknowledging that gross and operating margin overall is quite healthy here. But when we look at the components, you had your largest launch with a 20% to 30% BOM cost reduction that you talked about, but product gross margin is still pressured. I understand there's a number of moving parts driving that. Maybe the question would be, if you could just remind us the accounting method for inventory and wondering if that BOM cost reduction is maybe not fully reflected in the Q3 results that we're seeing. And secondly, there's an inventory clear out that you mentioned. I wonder if you could, Kurt, just help us quantify that. Is that something that was -- what did it do to impact in the quarter? And does it carry into future quarters from here? Kurt Binder: Yes. Adam, let me just start by saying, as we've discussed in the past, we are very much focused on our consolidated gross margins, and we were extremely pleased by the fact that if you look at the third quarter consolidated gross margins relative to last year, we were up about 540 bps. If you look at that margin on a year-to-date basis, we're up about 640 bps. So as we've mentioned before, we hold ourselves accountable to continue to grow consolidated gross margin, and we'll continue to do that here in the upcoming future. As it relates to the product gross margin you're referencing, Adam, we were at -- on a non-GAAP basis at about 17% -- negative 17.3%. What's embedded within that number is a number of things. So first and foremost, obviously, we had the first full quarter of tariffs. If you actually look at it closely and you strip out tariffs, that margin actually would decline to about a negative 8%. So small -- or I would say, a pretty significant shift from the 17% and in that range of, say, high single digits. Additionally, we did have a fair amount of EOL investment that was necessary to make sure that all of the inventory in the channel was at the right levels, which would enable us to load in the right amount of inventory on the next-generation platform of products that we just rolled out. So there was a fair amount of upfront spending to encourage promotional activity to move that inventory through. That inventory has now been moved through, and we feel really good about where we stand right now as we go into the fourth quarter. So I have to say that we're extremely pleased with the fact that if you look across all of our operating metrics, especially our profitability targets, whether it's adjusted EBITDA, non-GAAP operating income, gross margins, they are all moving up and to the right, and we're extremely pleased with the overall performance of the team in this area. That's helpful. Adam Tindle: Yes. And it provides obviously a platform for future growth in margin when some of these temporary items rebound as well. So it makes sense. Maybe a follow-up, Matt. There's a number of growth drivers in the future as well for the business. I know you addressed some of the partnership in particular in your prepared remarks. So I want to ask a question on 2 of those. First is on Verisure. You mentioned the ADT Mexico piece of this. I wonder if that's maybe a broader opportunity for Arlo to expand more in Latin America in general. Would that need to be sort of a separate RFP process for you to win? Or do you have sort of visibility into that as an opportunity? How big could that be? And then secondly, on ADT itself, you mentioned they're testing units ahead of the market launch. Just wonder -- I understand you're probably going to be a little bit limited on what you can say here, but any framework that you can get as you get closer to this in setting investor expectations on the magnitude of that partnership? Matthew McRae: Yes. Great question. And when you talk about growth drivers, Adam, you're 100% right when we're focused on a couple of areas. One is, as Kurt was just mentioning, the growth in our normal channels like retail channels, and that's going really well. We mentioned on the call that units were up year-over-year by nearly 30% from a POS perspective, and we expect somewhere between 20% and 30% growth there. One of the other areas is exactly what you're talking about, what we call strategic accounts or our more B2B plays. There's a couple, and you mentioned some of them. So the ADT Mexico acquisition by Verisure, I believe, actually closed yesterday. in European time. And we've been actually working with them, as you probably could guess, behind the scenes for months, if not actually quarters, preparing and actually certifying all of our products for Mexico. So there's no incremental business to win. As you know, we are, at this time, the exclusive provider of some of the back-end service for them. We do a lot of camera development for them, both on Arlo product for those certain regions, but also some custom products that we've developed for them. So our expectation is that ADT Mexico acquisition by Verisure is kind of the first area they're focused on with potentially a more bigger expansion across Latin America. So it is a new region, I think, for the partnership to expand into over time and drive a lot of growth for both companies. So we're excited -- really excited about that. Then you look at EDT, I can't say a lot about EDT beyond what I said on the call, except that from an Arlo execution perspective in conjunction with that partner that we hit all the timelines we needed to hit, and there's actually product in the field. And from a user experience perspective, it's stellar. So we're really excited about talking more about that in the future, and we'll leave that to the date that, that actually goes live. And then I mentioned on the call that this is an area that we're excited about, and you should expect some more information over time. There are several other partnerships that we're in discussion with. And I expect between now and probably the end of Q1 or maybe going slightly into Q2, we'll have a couple of more sizable name brand accounts in the partnership space that we'll be talking about that could have a material impact on us going forward. So if you -- if I pull back and talk about how we get to our long-range targets that we talked about on the call, the 10 million subscribers, the $700 million in ARR and increasing that operating income over 25%. Kurt and I on previous calls, have said we think about 60% of that incremental growth over where we are today is going to come from strategic accounts. And I would tell you, based on recent activities and some of the things we can talk about and some of the things that are coming soon, I absolutely believe that's the case that we'll see 60% of that incremental growth come from strategic. And that's saying a lot because we think the traditional channels, retail and direct are growing really nicely, and we think there's a lot of growth there. So hopefully, that gives you a little bit more color on those specific accounts and where we think this part of our business is headed over the next couple of quarters. Operator: [Operator Instructions] The following comes from Jacob Stephan with Lake Street Capital Markets. Jacob Stephan: Nice quarter. Just wanted to ask, you guys made some comments last call, gross shipments in Q3 will be higher than you had originally expected. And you also kind of mentioned 20% to 30% unit growth as we look at the second half of the year here in Q4 specifically. But maybe you could help us kind of think through -- we saw higher negative margin in the products segment, but products actually -- product revenue was actually higher than we kind of had anticipated. And I understand that tariffs are part of the impact there. But maybe help us kind of contrast that with where you expect -- because it seems like you guys are a little bit above plan in Q3. And maybe I'm wondering if there's any kind of pull forward into Q3 versus what's going to be in Q4? Kurt Binder: Yes. There's no pull-in. I mean it was a very strong quarter. And to kind of break that down a little bit, the growth ship number is obviously strong because of the ex-ramp and the load-in of all of our new products. We always have a little conservativeness built in when we do the forecast for the quarter because there's a lot of things you can just run into from a supply chain logistics perspective. And I kind of mentioned on the call, we had a -- there was a container ship that caught fire in Korea. There was containers dropping in the ocean in Long Beach, none of ours, by the way. There were 2 typhoons. I mean, so there's always some things going on. And again, the team here executed exceptionally well around all of that, and we landed all the product where we needed to on time. And so I would say is that little bit of buffer we leave in for supply chain issues maybe during the quarter, we didn't need. And so you saw a pretty strong quarter on gross ship. The 20% to 30% or the inside the quarter, the 29% growth on year-over-year units, that's actually our forecast and results on POS. So how many units actually sold through the channel. And we like to talk about the growth that we're seeing there, 29% in Q3 and the 20% to 30% we're anticipating in Q4 because, as you know, shipments out really then become household formation, which then becomes service revenue, which is what's obviously driving the outstanding performance of the company and the expansion of profitability over time. So that's -- the gross ship number, Q3 is always strong because of seasonality. I think it was exceptionally strong because of the execution of the team and the load-in of so many new products. But the 29% in Q3 and the 20% to 30%, that's actually commentary on POS, which actually leads to future service revenue. Jacob Stephan: Yes. Understood. I know you guys run a tight ship on the logistics team. But maybe kind of help me think through some of the more important partners then as we enter kind of the back half of the year here. Obviously, you guys have bigger shelf share at Best Buy. You're kind of growing into a longer-term partner -- a bigger partnership with Walmart. Help me think through some of these strategic kind of retail partners? Kurt Binder: Yes, absolutely. I mean I think just commenting on Q4 in general, we know it was going to be a very competitive quarter. We're seeing great demand in the channel. So that's a good sign as we roll forward on Q4, but we knew it was going to be a competitive quarter, and you can see us preparing the entire company to actually be really successful inside of a competitive environment. So the product launch with 20% to 35% COGS declines as an example of that. A lot of the promotional activity we've got lined up with our biggest partners. Some of those are obviously Amazon, which is a big part of the market. We're actually gaining some share there week by week, and so we're happy about that. You mentioned Walmart. I mean, Walmart is part of our thesis around this product segment going more mass market. And we're seeing a wider population actually enter the space as the awareness over the product category and people feeling less safe in general is starting to drive. And we've been proven right over the last couple of holiday seasons. So we're expecting a strong holiday season with Walmart as well. And that's the channel as we've launched in our new product line, we've gone from 4 SKUs or 5 SKUs to closer to 9 SKUs at Walmart, so almost a doubling of shelf share there. And that's partially what's driving some of the unit velocity year-over-year from a quarter basis and why we feel like we're going to be exceptionally positioned with this product line going throughout 2026. So from a partnership perspective or where we think some of the growth is coming, it's across the board. I think we'll see strength in our strategic accounts. And then a lot of our big retail partners were set up, I think, very well for what will be a competitive quarter, but something we completely anticipated with our product launch and our promotional activity. And for us, as you know, it's really about driving that household formation to see that service revenue grow through the end of the year and actually tip over into a strong service quarter in Q1. Jacob Stephan: Got it. And maybe just kind of continuing on the service revenue growth question and comments. When we look at paid sub adds of 281,000, maybe you could kind of help us piece out the timing of those subs in the quarter, obviously, keeping in mind your $310 million service revenue guidance for the full year. Matthew McRae: Yes. I think it was pretty much through the quarter. There are some that kind of came a little bit later as we promoted the older product through the channel that Kurt was talking about, some of the EOL product towards the end of the quarter as the new product came in. So it might be a little bit more backloaded than you would expect over maybe a traditional just very linear trajectory through the quarter. But that 281,000 was really driven by 2 things. One, Verisure performed very well, and I think that was part and parcel of their IPO and going to market there and just really leaning into sales and executing extraordinarily well in Europe. But we're seeing strength in our retail and direct channel. as well, which is great. And so you see a more balanced revenue line when Kurt was talking about the split between Europe and the United States. So you're seeing some strength across our traditional channels. Another indicator of that is what I was saying before around seeing nearly 30% unit growth in the quarter. Now if you remember, when we guided the year on service revenue, we guided close to $300 million in service revenue. And on our last call, already seeing what was happening in Q3, we took that up to closer to $310 million. And so that's the confidence we're seeing. We are already seeing some of that sell-through happen in Q3 on the previous call and why we were willing to kind of bring up that guidance to demonstrate how strong not only the lift and the growth in the market of unit sales going through to the end user, but that it is resulting in higher than originally expected service revenue, which obviously leads to greater profitability. Operator: Thank you. This concludes today's conference call. You may now disconnect.
Operator: Good morning, all, and thank you for joining us on today's European Residential REIT Third Quarter 2025 Results Conference Call. My name is Drew, and I'll be the operator on the call today. [Operator Instructions] With that, it's my pleasure to hand over to Nicole Dolan, Investor Relations, to begin. Please go ahead when you're ready. Nicole Dolan: Thank you, operator, and good morning, everyone. Before we begin, let me remind everyone that during our conference call this morning, we may include forward-looking statements about expected future events and the financial and operating results of ERES, which are subject to certain risks and uncertainties. We direct your attention to Slide 2 and our other regulatory filings for important information about these statements. I will now turn the call over to Mark Kenney, Chief Executive Officer. Mark Kenney: Thanks, Nicole, and good morning, everyone. Joining me this morning is Jenny Chau, our Chief Financial Officer. Let's get started on Slide 4 with a high-level update. During Q3, ERES continued to execute on its strategic disposition program, focusing on maximizing unitholder value. We successfully completed several key transactions, including the sale of our commercial properties in Belgium and Germany, the closing of previously announced disposition of a portfolio containing 1,446 residential suites in the Netherlands and the sale of an additional 110-suite property in Rotterdam. Collectively, these transactions generated EUR 397 million in gross consideration, bringing our 2025 disposition total to EUR 489 million, with part of that capital used to repay EUR 238 million in debt. With remaining proceeds, ERES declared and paid a special cash distribution of EUR 0.90 per unit, in line with our commitment to return capital to unitholders. Operationally, rent growth remained robust with same-property occupied AMR increasing by 4.7% to EUR 1,349 at current period end. However, you will see on Slide 5, our residential occupancy was down to 90.8% as of September 30, 2025, on the total and same-property portfolio. This reflects elevated vacancies associated with our disposition strategy as we are intentionally keeping additional suites offline each month in order to maximize sale value. With that introduction, I will now turn the call over to Jenny to highlight our financial results. Jenny Chou: Thanks, Mark. Slide 7 provides some key performance metrics for the third quarter of 2025. Due to lost rent on vacant units combined with an increase in repair and maintenance costs, the REIT's NOI margin was down to 67.8% for the current quarter on a same-property basis from 76.2% realized for the 3 months ended September 30, 2024. Our diluted FFO per unit was EUR 0.13 for Q3, which is down from EUR 0.04 in the comparative period, primarily due to the significant amount of property sales that have been completed since. On Slide 8, we've highlighted our resilient financial position and liquidity. As we've used part of our disposition proceeds to repay debt, our ratio of adjusted debt to market value has decreased to 34% as of September 30, 2025, down from 53% as at comparative period end. We're also actively managing our access to liquidity and ensuring ongoing compliance with all covenants. Turning to Slide 9. You'll see that we have no mortgages maturing over the remainder of 2025 and '26, which provides us with financial flexibility to continue executing on value-maximizing transactions. As we advance on our disposition program, prudent financial stewardship will remain central in our decision-making. With that, I will hand the call back to Mark. Mark Kenney: Thanks, Jenny. By period end, ERES's portfolio consisted of 1,033 residential suites and ancillary retail space in the Netherlands as listed out on Slide 11. We're continuing to work with our financial and real estate advisers on the sale process for this remaining portfolio. Buyer interest is still active, and the REIT is exploring several potential alternatives, including individual asset transactions that present compelling value opportunities in the near term and/or a larger portfolio disposition. These efforts are being advanced alongside certain structural and outstanding tax matters, including the previously disclosed reassessments by the Dutch tax authority. Ultimately, our primary focus is on realizing the full value of the REIT's remaining portfolio and maximizing distribution of capital proceeds to unitholders. While the wind-down process involves complexity and uncertainty, we remain committed to acting in the best interest of all unitholders and providing timely updates as developments unfold. With that, we would now be pleased to take any questions that you may have. Operator: [Operator Instructions] Our first question today comes from Sairam Srinivas from Cormark Securities. Sairam Srinivas: Mark, just going back to the time line of transactions, are you basically comfortable with the idea that this will probably wrap up in Q4? Or are we looking for something beyond that? Mark Kenney: No, we've not provided clear guidance on a final wrap-up of the REIT. There are issues here as we discussed with tax and other issues to work out, but we will be providing definitive feedback when we have more certainty. Operator: With that, we have no further questions in the queue at this time. I'll now hand back over for some closing comments to Mark Kenney. Mark Kenney: Thank you, operator, and thank you, everyone, for joining us this morning. If you have any further questions, please do not hesitate to contact us at any time. Thank you again. Have a great day. Operator: Thank you all. That concludes today's call, and you may now disconnect your lines.
Shrinal Inamdar: Thank you, operator. Good afternoon, everyone. Thank you for joining our third quarter 2025 results conference call. As usual, before we begin, I would like to remind you that we'll be making a number of forward-looking statements during this call, including, without limitation, those forward-looking statements identified in our slides and the accompanying oral commentary. Forward-looking statements are based upon our current expectations and various assumptions and are subject to the usual risks and uncertainties associated with companies in our industry and at our stage of development. For a discussion of these risks and uncertainties, we refer you to our latest SEC filings as found on our website and as filed with the SEC. In a moment, I will hand over to Leon Patterson, our Executive Vice President and Chief Business and Financial Officer, who will provide an overview of our recent business and partnership updates, along with financial results for our third quarter 2025. Following this, Dr. Sabine Mikan, our Senior Vice President of Clinical Development, will provide progress updates on our Phase I programs ZW191 and ZW251. We will then pass the call over to Dr. Paul Moore, our Chief Scientific Officer, who will provide a brief overview of recent R&D developments. At the end of the call, Leoni, Sabeen, Paul and Ken Galbraith, our Chair and CEO, will be available for Q&A. As a reminder, the audio and slides from this call will also be available on the Zymeworks website later today. I will now turn the call over to Leon. Leone Patterson: Thank you, Shrinal, and good afternoon, everyone. I'd like to start the call by walking you through recent progress on both clinical and preclinical programs within our wholly owned product pipeline. As you know, our team was pleased to present initial clinical data from the Phase I trial of ZW191, an antibody drug conjugate targeting folate receptor alpha at the ENA conference in October. Sabeen will provide a recap of the data we presented during our poster presentation later on today's call. We are encouraged by the preliminary Phase I data for ZW191, which provides early clinical validation of our ADC approach. And we are pleased to announce that we have dosed the first patient in the Phase I clinical trial of ZW251, a DAR4 ADC targeting GPC3 in hepatocellular carcinoma. Again, Sabeen will talk more about the trial design later on today's call. We also continue to present preclinical data of ZW1528, a bispecific inhibitor of IL-4 and IL-31 to address respiratory inflammation at the European Respiratory Society Annual Congress. Additional information can be found on the ERS Congress website, and a copy of the poster is available on the Publications page of Zymeworks website. Meanwhile, our partnered programs also continue to provide encouraging data at ESMO. Our partner, Jazz, presented a trial in progress poster on the DiscovHER PAN-206 Phase II study of zanidatamab in HER2 overexpressing solid tumors as well as a 2-year follow-up in first-line metastatic colorectal cancer showing durable responses and a favorable safety profile. In addition, yesterday, Jazz announced that the ITT population for the primary PFS and interim OS analysis of the HERIZON-GEA-01 trial will include the full patient population enrolled in the study of 920 patients. Also at ESMO, J&J presented translational findings from the first-in-human study of pasritamig in metastatic prostate cancer, linking T-cell phenotypes with clinical activity. These updates highlight the strong momentum in our partnered portfolio and the long-term value these collaborations continue to build. With this in mind, I'm pleased to announce that this quarter, we recognized a $25 million development milestone as revenue from our collaboration partner, J&J, in association with clinical progress of pasritamig, a first-in-class bispecific T-cell engager targeting KLK2 in Phase III studies in metastatic castration-resistant prostate cancer, which was an engineering -- engineered using Zymeworks Azymetric platform. As a reminder, we remain eligible to receive up to a further $434 million in development and commercial milestones from the J&J collaboration in addition to potential mid-single-digit royalties on global product sales. In addition, this quarter, we earned royalties of $1 million based on Ziihera net product sales by Jazz and BeOne Medicines. And we look forward to pivotal data from the HERIZON-GEA-01 study expected in the fourth quarter. I'd also like to highlight that as of November 4, 2025, we have completed share repurchases of $22.7 million of the remaining $30 million under our previously authorized share repurchase program. which reflects the leadership team's confidence in the company's outlook, the strength of our pipeline and our long-term commitment to shareholder value. This program was primarily funded from Ziihera development milestones and cumulative royalties received from Jazz and BeOne related to initial regulatory approvals in biliary tract cancer in both the U.S. and China, allowing us to efficiently deploy excess capital while maintaining full flexibility to fund operations and growth initiatives. This action reinforces our view that the stock remains undervalued, and it aligns with our disciplined, balanced approach to capital allocation designed to drive sustainable long-term returns. Turning now to our financial results. Total revenue was $27.6 million in the third quarter of 2025 compared to $16 million for the third quarter of 2024. The increase was primarily due to a $25 million nonrefundable milestone recognized from J&J in relation to clinical progress on pasritamig in Phase III studies in metastatic castration-resistant prostate cancer and $1 million of royalty revenues from Jazz and BeOne medicines. These increases were partially offset by a reduction in development support and drug supply revenue from Jazz and due to a nonrecurring milestone from GSK that was achieved in the third quarter of 2024. Overall, operating expenses were $49.7 million for the 3 months ended September 30, 2025, compared to $50.2 million for the same period in 2024, representing a decrease of 1%. The decrease was primarily due to a reduction in expenses from ZW220 and ZW251, zanidatamab and zanidatamab zovodotin and a decrease in personnel expenses. This was partially offset by an increase in preclinical and research expenses for our ZW209 and ZW1528 programs, progression of clinical studies for ZW171 and 191 and an increase in noncash stock-based compensation expense. Net loss was $19.6 million for the 3 months ended September 30, 2025, compared to a net loss of $29.9 million for the same period in 2024. This was primarily due to an increase in revenue, partially offset by a decrease in interest income and an increase in income tax expense. As of September 30, 2025, we had $299.4 million of cash, cash equivalents and marketable securities, which is a decrease in cash resources compared to $324.2 million as of December 31, 2024. Our cash resources as of September 30, 2025, did not include the $25 million milestone from J&J recognized in the third quarter and expected to be received in the fourth quarter. We remain well capitalized. And based on our current operating plans, we expect our existing cash resources as of September 30, 2025, when combined with the assumed receipt of certain anticipated regulatory milestones will enable us to fund planned operations in the second half of 2027, which is anticipated to take us through multiple catalyst events on our pipeline. These achievements underscore the strength of our foundational partnerships and the relevance of our platform across multiple products moving into clinical development by our partners. For additional details on our quarterly results, I encourage you to review our earnings release and other SEC filings as available on our website at www.zymeworks.com. With that, I'd like to hand over to our Senior Vice President of Clinical Development, Dr. Sabeen Mekan, to run through progress on our clinical development programs. Sabeen Mekan: Thank you, Leone, and good afternoon, everyone. I'd like to start off by providing a recap of the initial Phase I data for ZW191 as presented at the AACR-NCI-EORTC conference last month. As it pertains to the safety, we are encouraged by the tolerability profile that we've seen. The safety profile for ZW191 allowed us to escalate dose up to 11.2 milligram per kilogram, which is quite high for topoisomerase payload of this potency similar to deruxtecan. Across all treated patients, there was a low incidence of grade 3 or higher treatment-related adverse events and adverse events leading to dose interruptions or reductions were infrequent. The most commonly reported events were nausea, fatigue and anemia, which are generally consistent with our expectations for an ADC. Importantly, there were no serious treatment-related adverse events, no discontinuations due to adverse events and no deaths observed in this study. These findings support a favorable safety profile, particularly in a population that has been heavily pretreated. Overall, these data gave us confidence that this drug is well tolerated at clinically active doses, providing a solid foundation for ongoing and future studies. Moving now to the efficacy results. This slide shows the waterfall plot summarizing the best change in tumor size across dose levels. What we see here is also very encouraging. There are meaningful reductions in tumor size across multiple dose levels with objective responses observed at doses as low as 3.2 milligram per kilogram and the majority of patients continuing on treatment at data cutoff. Importantly, these responses were seen across the spectrum of folate receptor alpha expression, an important observation as we think about future development and patient selection. In participants with gynecological cancers dosed between clinically relevant doses of 6.4 and 9.6 milligram per kilogram, we observed an objective response rate of 64%. Taken together, these early data show promising antitumor activity across multiple dose levels and tumor types. reinforcing the potential of this program to be a best-in-class folate receptor alpha directed ADC. Based on the integrated assessment of safety, efficacy and pharmacokinetic data, we have selected 2 doses of 6.4 milligram per kilogram and 9.6 milligram per kilogram for optimization with approximately 30 patients planned in each cohort. Enrollment is expected to begin in this quarter, and this will allow us to further refine the balance between efficacy and safety and inform optimal dose registrational studies. We expect to share additional data at a future medical conference with a larger and more mature data set. Overall, early results support ZW191 as a potential best-in-class asset with promising early activity and a manageable safety profile. We continue to be data-driven in planning further development for registration and expanding into earlier lines of therapy and in combination. As we move forward, we -- our focus remains on disciplined clinical execution while exploring strategic partnerships that could accelerate development and expand global reach. Based on the encouraging clinical findings for ZW191, we are moving forward with the clinical development of our second ADC candidate, ZW251 and are pleased to confirm the dosing of the first patient in our Phase I open-label multicenter study of ZW251. The study is actively recruiting and aims to enroll approximately 100 participants across North America, Europe and the Asia Pacific region. The patient population includes advanced or metastatic hepatocellular carcinoma that has progressed after standard of care treatments where regardless of gpiin-3 expression levels and with measurable disease as per RECIST. Part 1 of the study will evaluate escalating doses of ZW251 to determine safety and maximum tolerated dose. Part 2 of the study includes randomized dose optimization at 2 selected doses of ZW251 in order to further evaluate safety and explore efficacy according to the RECIST evaluation criteria. I will now hand over to our Chief Scientific Officer, Dr. Paul Moore, to provide an overview of R&D developments. Paul Moore: Thank you, Sabeen. I'd like to just add a few final thoughts on the developments disclosed this quarter for both ZW191 and ZW171. Firstly, the initial data presented on ZW191 provides important translational insights that could help accelerate and reduce risk in the future development of ZW251 and other pipeline ADCs using our ZB06519 payload. As you can see on this slide, behind 191 and 251, we also have preclinical stage candidates targeting more novel antigens such as Ly6E and PTK7. Also, our NaPi2b program remains IND ready, and we continue to explore next-generation ADCs. Importantly, each of our ADCs has been tailored to factor in target biology by toggling drug-to-antibody ratio and the Fc modifications. Furthermore, we also ensure to utilize the most optimal antibody to deliver an internalized payload, whether this be a superior monoclonal antibody to benchmark as ZW191 or LE or a biparatopic antibody such as in the case of PTK7. Our approach of tailoring these parameters to target biology, patient population needs and preclinical safety efficacy data aims to ensure optimal therapeutic windows while minimizing off-target toxicities. Secondly, I wanted to touch briefly on our decision to discontinue the development of ZW171 and importantly, the valuable insights, both scientifically and operationally that we took from this experience. Internally, we hold ourselves to very high standards when it comes to our target product profiles. That discipline is important because we have a broad and productive pipeline, and we want to ensure our capital and our focus go to programs with the clearest path to meaningful patient benefit. Based on the totality of the dose escalation data, we concluded that as a monotherapy, this program did not fully meet our internal threshold to advance further within our portfolio as it was unlikely to support a benefit risk profile consistent with the desired monotherapy target product profile. It was not an easy decision as we continue to believe there is potential for mesothelin-directed therapies, including ZW171, perhaps in specific subpopulations in combination settings or through the right external partnership. So we felt it was the right choice to prioritize programs that more closely align with our long-term strategic and clinical goals. Our experience of taking 171 through dose escalation significantly strengthened our understanding of the T-cell engager design and provided clinical experience, which will aid us in executing future clinical trials for our next-generation T-cell engagers. For example, we were able to advance 171 safely and efficiently through dose escalation in under a year, which is a real testament to our team and technology. We also deepened our understanding of dosing strategies, routes of administration and investigator engagement, all of which we can apply to our next generation of trispecific T-cell engagers. The study also reinforced our hypothesis around the importance of co-stimulation for T-cell engagers, the use of our novel CD3 epitope and tailoring our candidates for patient characteristics and target biology. Our ongoing portfolio management is a reflection of our discipline, our high scientific standards and the strength of our portfolio. We will continue to hold ourselves and our target product profiles to high standards of success and remain focused on advancing the programs we believe can have the most impact for patients, partners and shareholders. With that in mind, we look forward to presenting 3 poster presentations at the SITC Annual Meeting this weekend with one showcasing the versatility and application of our innovative TriTCE Co-Stem T-cell engager platform to enable diverse targeting strategies across different target tumor types, one featuring a next-generation tumor targeted Mast IL-12 enabled by Iometric and the third covering new research co-authored with NeoGenomics on ADC resistant mechanisms using spperum models. Together, we believe these presentations showcase our continued leadership in advancing innovative and target oncology research. With that, I'll hand over to our Chair and CEO, Ken Galbraith, to conclude today's call and open up the call for Q&A. Kenneth Galbraith: Thanks, Paul. Over the last 2 years, we've redefined what this company can achieve by combining R&D innovation, smart partnerships and disciplined capital allocation to help deliver potential best-in-class therapies while helping to grow shareholder value. Our partnership-based model continues to generate value today while also providing opportunities for growing potential cash flows. We plan to continue leveraging partnerships across our wholly owned pipeline to bring in external capital and accelerate development. We believe this approach allows us to main control of our R&D innovation while helping to derisk clinical development and to help ensure that every investment we make has the potential to contribute meaningfully to durable value creation. As we look beyond important near-term events for our pipeline and partner programs, our long-term focus is on compounding returns from Ziihera and protecting and enhancing future cash flows that can be reinvested to drive the next wave of innovation. With this in mind, this quarter, we announced some changes to our Board of Directors to align governance and leadership with the next phase of our strategy. We welcomed 2 new directors in August and 3 members transition off the Board effective today. We'd like to thank those 3 directors for their service to Zymeworks. In October, we appointed Dr. Adam Schayowitz as acting Chief Development Officer to help advance our portfolio and strengthen our partnership-driven strategy. With this refreshed leadership, we believe we're well positioned to transit our scientific innovation into a scalable model that builds durable royalty streams and deliver sustainable long-term value for our shareholders. To close, I want to emphasize that our capital allocation decisions, whether investing in R&D, advancing partnerships or returning capital through share repurchases, all serve one purpose to help build sustainable long-term value. Our R&D priorities remain focused on programs with clear differentiation and strong scientific rationale, and we'll continue to fund those using partnerships to extend our reach and offset development risk. Those collaborations also aim to provide a meaningful revenue floor through milestones and royalties, giving us the flexibility to invest with conviction and discipline. This is how we plan to sustain momentum through focus, partnership and the power of compounding. I want to thank you for your continued support. I'd like to turn the call back over to the operator for the question-and-answer session. Operator?[ id="-1" name="Operator" /> The first question comes from the line of [Technical Difficulty]. Unknown Analyst: Can you hear me? Shrinal Inamdar: Yes, we can hear you. Yue-Wen Zhu: Perfect. Congrats on the progress. Two from me, if you don't mind. First one, we heard it from Jazz yesterday and I think earlier today as well. But wanted to get your thoughts perhaps on the update in the PFS analysis for HERIZON-GEA to include the ITT rather than the PITT population, your thoughts here and perhaps what drove that change? Kenneth Galbraith: Yes. Thanks, Charles. I think Jazz provided some guidance on that yesterday in their earnings call in the prepared remarks, I think in question-and-answer session. We don't have anything to add beyond what Jazz has shared other than that we're aligned with the regulatory strategy that they laid out for the readout of HERZON-01 and how to analyze that data. So I really can't add anything beyond that. Yue-Wen Zhu: Got it. Fully understood. And perhaps for my second question, I want to say congrats on the folate receptor alpha data at Triple meeting. That was quite impressive. Kind of also wanted to get your thoughts on what does this mean for GPC3, especially when we're thinking about a DAR4 construct in the liver cancer population. And similarly, if we see anything that comes close or is similar or even exceeds what we saw with 191, what would your thoughts be on potential development in-house versus partnership versus out-licensing of this asset in liver cancer? Kenneth Galbraith: Yes. No, good question, Charles. Yes, we're intrigued as your question suggests as well and looking forward to continued recruitment of ZW191 in dose escalation, moving to dose optimization, which provide a larger, more mature data set. At the same time, as we announced, we're recruiting patients now in the ZW251 study. So far, our clinical execution is as good as it has been to date with our prior programs. We're looking forward to that. I think in terms of what we think about that, I think maybe I'll give Sabeen and then Paul both a chance to add their flavor to that because it's a really, really interesting intriguing question for us as well. So I don't know, Sabeen, if you want to go first and I'll ask Paul to follow up. Sabeen Mekan: Yes. I can go first. So as you know, hepatocellular carcinoma is a population with very high unmet medical need, particularly post first-line setting. There are not many treatment options for those patients. And that's why we think we should be able to create a difference given the construct of our ADC and what we've observed in ZW191 based upon the clinical data that we've observed. One of the key concerns with the hepatocellular population is concern for safety because this patient population often is very fragile and they have underlying liver disease. So the concern for safety is very important. And it is for this reason that we have selected DAR4 for this ADC molecule. And given the safety profile that we've observed with ZW191, we're fairly confident that we should be able to have a good safety profiles and to be able to have a therapeutic window in terms of treatment for hepatocellular carcinoma patients. I'll pass over to Paul. Paul Moore: Yes. No, I think Sabeen really captured the key points. I think the tolerability -- I mean, from the 191 study, it was both the tolerability was really what we were hoping for, but we also got the efficacy. And we've gone with the DAR4, we know from preclinical studies that we can maintain the same -- we can get to the same activity level with that. So we were really being careful on just making sure we had the most tolerable molecule to develop in such a challenging cancer indication. And I think the data from the Phase I sort of supports that we're in the right direction with the way that we selected the payload. We were very careful in how we pick that payload in the sort of the space of the topisomerase inhibitors that it would support a tolerable profile while maintaining our ability to get good dose into patients, and you could see that from our data. I think ultimately, we want the molecules to be combinable with other modalities as well so that we can go up in line. But obviously, first, we want to establish the profile as a monotherapy, and this really energizes us now after seeing the 191 data to really chase after the 251. [ id="-1" name="Operator" /> The next question comes from the line of Yaron Werber of TD Cowen. Yaron Werber: Congrats as well on the folate receptor alpha. I got maybe a couple of questions actually on the pipeline. Maybe the first one, while we're staying on GPC3, B1 today on their call said that with their bispecific GPC3 4-1BB, they actually established proof of concept. So they're moving forward. That's definitely very encouraging. In terms of the payload that you're using is irinotecan and typically -- I'm sorry, a TOPO1 kind of based payload. That's not -- are TOPO1 typically used in liver cancer? And kind of maybe give us a little bit of a sense from the preclinical data, what are you expecting in terms of showing efficacy? And then secondly, for the next IND in the first half of next year, the DLL3 CD3, CD28 trispecific, we know DLL3 is a great target, and we've seen a lot of activity with both the bispecific on the market and the ADC. CD28 has not worked out so far in most other cases. So maybe what makes you more optimistic this time around? Kenneth Galbraith: Yes. I'll let Paul talk about the DLL3 and then maybe let Sabine and Paul both comment about CDC3, that's okay. Paul Moore: Yes. So yes, maybe I'll -- yes, I'll take the second question first. And then -- so great question, Yaron, on why do we think we can make CD28 work where others have had challenges, right? And so I think we do take precedents from the CAR-T space where adding in co-stimulation has shown benefits. So something like CD28 or 4-1BB that you refer to in the context of the B1 molecule. But -- and a lot of people have chased after that because of the attraction of getting that CD28 costimulatory signal to the T-cell to maintain or enable activity that you don't achieve just by having signal 1 through CD3. And I think what the challenge has been is actually getting that timing, that simultaneous engagement of CD3 and CD28 in the kinetics and the timing that you need to get that benefit. So that is what we took the challenge on when we developed a trispecific so that we knew that when we engage CD3, that T-cell could be then engaged with CD28. And no one's really developed a solution until what we think we have the solution for that. And so that's where we feel we can make an impact based on our preclinical data that gives us encouragement that we'll see that impact in the clinical setting. So it's a little bit to do with just the way we design it. Others have tried doing CD3 bispecific plus the CD28 bispecific. And in some cases, that may work. But we feel a more precise way is to hit the same T-cell with the primary and the secondary signal in a concert in a manner that can be done with a single molecule. So that's the DLL3. And certainly, we've presented data, we'll show a little bit more actually at SITC this week and that really shows the benefit that we can achieve with that above like a bispecific molecule, but doing it safely in the preclinical setting. For the TPC341BB, and I think also your question was about why do we think a chemo can work there in the liver setting. And certainly, it isn't a standard of care chemotherapy for liver cancer, but there is precedent for chemo working in liver cancer. It's just that it's not -- it just can't be tolerated. It's not just well -- given as a systemic treatment. So we think there is precedent there, and we think the way that we can deliver payload or chemo such as a topo inhibitor with our ADC gives us the opportunity to do it in such a way that we can thread the needle and get the right level of payload to the patient that can enable then the sustained exposure that will give you the benefit, but still with doing it within a tolerable profile. So that's kind of the preclinical hypothesis or the hypothesis and the preclinical data that we have has shown that when we've looked at like a scan of different HCCPDX models, we see 8 out of 10 or that sort of range of responses of models responding, but we can go up to like 100 mg per kg with this molecule in cynomolgus monkeys. So we have the safety tolerability profile with the evidence of efficacy with some glimpses that in patient population they can under certain conditions respond to chemo, we think we can open that window up with the ADC. Kenneth Galbraith: Sabeen, anything you want to add from a medical perspective with this patient population and the idea of chemo versus a payload delivery with an ADC construct? Sabeen Mekan: Yes. So I would like to say that chemotherapy has been tried in hepatocellular carcinoma with limited success, but there has been some incidence of success there, especially trying to localize chemotherapy that's been effective. And that actually makes us believe that giving cytotoxic in an ADC format, particularly with our higher internalizing antibodies and the fact that hepatocellular carcinoma has very high expression of GPC3 gives us confidence that we should have the therapeutic window that is needed in this patient population to be successful. [ id="-1" name="Operator" /> The next question comes from the line of Andrew Berens from Leerink Partners. Andrew Berens: Congrats on the progress. Just a question. I know Jazz is controlling the trial, but I was wondering, would the increase in the -- to the intent-to-treat analysis today also increase the number of PFS events that are necessary to trigger the analysis? Just try to put this announcement in context. Kenneth Galbraith: Yes. No, thanks for the question, Andy. I think I going to answer the same way before. I think Jazz provided all the guidance appropriate around that decision of the patient population that will be utilized for the ITT patient population, both from a PFS perspective and OS. And I don't want to go further than the guidance they've provided. Obviously, we've been working on the study for 4 years from a Zymeworks perspective and proximity data is very close. And so I'll just let Jazz provide that guidance, and we'll just have to wait for a future announcement and presentation to understand anything further beyond that. [ id="-1" name="Operator" /> The next question comes from the line of Stefan Wiley of Stifel. Stephen Willey: Just curious how we should be thinking about the starting dose levels of 251 relative to 191. I know obviously, different DARs, different target organs. But is there anything you can say qualitatively or maybe even quantitatively about how you're thinking about pushing dose here? And I guess, did that dose escalation schema for 251 change at all as some of the 191 data started to come in? And I just have a follow-up. Kenneth Galbraith: Yes. Good question, Steve. Sabeen, do you want to -- obviously, we haven't disclosed the starting dose yet. We'll obviously look to do that probably a similar way we did with 191. But Sabeen, is there anything you want to add about the dose schema for dose escalation for 251 as it relates to the 191 schema that now people have seen? Sabeen Mekan: So I would say that the schema for 251 is very similar to 191, although as you rightfully pointed out, this is a DAR4 as opposed to 191, which was a DAR8. So there are differences. And also with 191 was our first ADC into the clinic. So we were very conservative with our initial starting dose. And now that we've gained some clinical experience, particularly with regards to safety, I can say that we have more confidence in our starting dose, but we are not disclosing that yet. We will be disclosing that later similar to what we did with 191. Stephen Willey: Okay. That's helpful. And then -- maybe just a question for Paul. Just curious how big the universe of target antigens you think is for a trispecific format beyond DLL3. I know that target has a pretty exquisite expression profile between tumor and healthy tissue that obviously mitigates some of the concerns about amplifying off-tumor tox with a signal 2. But just curious where and how you might be able to leverage this format to other targets of interest. Paul Moore: Yes. No, thanks, Steve. That's definitely very much in our mind. And actually, I sort of alluded to we have actually a presentation this weekend at SITC and what we're going to show there is application of the technology to different targets and the way that we designed the molecule for the target. So the base molecule on the context of the CD3/CD28, we know sort of the positions of those molecules. We're not telling people really the secret sauce there and how they're in the geometry of the molecule. But what we also can think about is how do you then target the antigen and design the targeting of the tumor antigen in such a way to get that maximum window. So we are looking at that. We're looking at targets both in solid tumor and in hematological cancers. We can deploy against sort of the 2 plus 1 strategies. We can think about logic gated strategies as well. So there are ways with the Azymetric so versatile and flexible that we can put in multi binding sites to help us get more selectivity and targeting. We can share more of that. But that we're very much thinking about how do we tailor that so that we can have that therapeutic window. We don't rule out the use of masking. We do have masking technology. We're actually applying that to the IL-12 molecule, and that can also be adapted to our T-cell engagers. So we have that toggle if we feel we need it as well. But we just run it through, we test all the different permutations of the molecules, let the data drive and then we have the preclinical models that then allow us to understand the toxicity profile and the therapeutic window. So we're very excited about the application of that. And again, looking forward to pushing forward with the DLL3 program, but we do have other molecules coming behind as well. [ id="-1" name="Operator" /> The next question comes from the line of Brian Cheng of JP Morgan. Brian Cheng: Just 2 quick ones from us. So in a trial design for GPC3, we noticed that you're recruiting patients actively through the patients who have been through standard of care. So just one is, Paul, I'm curious what you saw in the preclinical setting that gives you confidence that GPC3 will be active in the post-IL setting, given that NIVO IPI got approved in the first-line HCC not too long ago. And then just on the biomarker side, I'm curious if you perceive a potential need for -- to develop a biomarker assay near term, is there a need for it today? Just curious what you think about that front, too. Kenneth Galbraith: I'll let Paul start on that. I think Sabine may have something to add also on those, but I'll go ahead, Paul. Paul Moore: Yes. No, thanks. So I think from the preclinical setting, your question was how do we -- what's our confidence that we can go behind other standard of care, right? So I think the expression level of GPC3, we've looked at that. And that doesn't -- we don't anticipate or any -- there's no proof that, that would be modulated by IL treatment. So I think the complementary mechanisms and how they work wouldn't really preclude us going with a targeted medicine that's going after GPC3. And we've got preclinical data in different PDX models. Some of those will be collected potentially after treatment, right? But I think just mechanically, we don't see that as a barrier. And I think one of the Yaron mentioned there's encouraging data with other GPC3 modalities that are also going behind -- they would be tested behind standard of care from those clinical trials. So we take encouragement from what others have seen with GPC3 targeted therapies using different modalities. We just feel the ADC modality could just give us an additional mechanism that -- and the power of that approach can just give us an opportunity for more meaningful differences in benefit there. So that was the thinking there. And then on the biomarker side, there, just like we did with folate receptor, we will look at GPC3 levels and make a decision on whether that would be something that we would need as we move forward in clinical development, and we'll collect that data as we go on that. And Sabeen can reiterate that or elaborate on that. Sabeen Mekan: So I'm answering a question regarding NIVO IPI being approved not too long ago. I don't think that changes our development plan. If you look at the treatment landscape for first-line hepatocellular carcinoma, the treatment is currently includes checkpoint inhibitors and VEGF and also checkpoint inhibitors plus CTLA. So prior to approval of NIVO IPI durvatremi has been approved as well. So it's the same mechanism of action, and it really doesn't have an impact on how we think an ADC, particularly a topoisomerase ADC would perform in this setting. So I think we remain confident with regards to that. And I think Paul answered all your questions regarding the biomarker. We are enrolling similar strategy to our 191 enrolling patients regardless of expression and be able to ultimately do a correlation of how the expression level relates to clinical activity. [ id="-1" name="Operator" /> The next question comes from the line of Mayank Mamtani of B. Riley Securities. Mayank Mamtani: Congrats on a productive quarter. Can you talk a little bit more about your expectations on durability for 191, just given what you've seen at the dose levels you're at? And at what point you'd also be able to explore combination, obviously, important in PROC, but also in other solid tumor types that you may want to explore there? And just kind of put it together, when you think you have a sort of partnership enabling package here, just your latest thoughts on that. And then I have a follow-up. Kenneth Galbraith: No. I'll just answer the partnership question quickly, and then I'll turn it over to Sabine, I think can answer part 1 A, B and C of your first question. But obviously, we found the data from 191, although early in initial clinical data, very interesting. I think there are others who are interested in other ADCs that are differentiated. We think ours clearly are. And so we'll continue to talk to parties who might have an interest in joining us and moving that forward that might allow us to accelerate development, might allow us to find a better ability to compete even on a time basis and explore the full potential of ZW191. So we'll continue to have those discussions. And as I think you've seen that data was very intriguing to KOLs and obviously, people on this call and especially to us. And I think there are potential partners where that data was also very intriguing. And so we'll continue to let the data mature, continue to collect more data and have ongoing discussions at the same time. And I'll let Sabeen answer the subparts of your first part of your question, if that's okay. Sabeen Mekan: So with regards to durability of responses, I think some of the key things when you look at efficacy is the number of patients who responded. So our overall response rate looks pretty encouraging, particularly in the doses we would like to take forward that is 6.4 to 9.6 milligram per kilogram. Key things that we noted were we have a pretty wide therapeutic index with responses starting at 3.2 milligrams per kilogram, that actually gives us a lot of confidence. And if you look at our swimmers plot that we shared in our poster, a few things that give us encouragement is that most of the responses, particularly at higher doses occurred early. And looking at the waterfall plot, the depth of responses, we had a pretty good depth of responses in terms of reduction in tumor size for the target lesions, even though our follow-up is relatively short. And vast majority of patients are staying on treatment. So combined with our safety profile, which would hopefully allow patients to stay on treatment for a long period of time, I think that would help us give the durability that we're going to need to achieve the PFS and OS that we -- that would be important in these indications. Mayank Mamtani: And then on the learnings from 171 to 209, were there any step-up dosing learnings you're looking to apply here as the DLL3 program gets into the clinic? I know you're not saying what dose levels you may start at, but I was just curious, the therapeutic window should be very different consideration given the target differences in mesothelin and DLL3 from an off-target toxicity standpoint. Any thoughts there would be great. Kenneth Galbraith: Yes. I'll let Paul talk about just learnings from our 171 program and how they're going to apply to our thoughts around 209. Paul Moore: Yes. And I think one of your questions was just thinking about the dosing and how we go about thinking about the step-up. And what we did for 171 was we used QSP modeling and we sort of leaned on prior clinical precedents to allow us to really nail what we thought was a good starting dose and then how we could accelerate through the dose escalation. And that approach we will use a similar approach for projecting the starting dose and the step-ups for 209. And what I would say is that those projections when we looked at the exposure levels in the PK, they seem to really fit nicely with what we had projected. So we're anticipating that we can use that again. Obviously, the target toxicity profile, the safety profile is a little bit different for DLL3 than it is for mesothelin. But we still think there's relevant learnings from the design of them -- from the clinical design. But then also there was also some design features in 171 that we're also carrying over into 209. I think that also gives us confidence then that we have that human experience with that approach that it sets us up well for 29. [ id="-1" name="Operator" /> The next question comes from the line of Robert Burns of H.C. Wainwright. Robert Burns: Just one, if I may. So one of the things that I noticed in the presentation for ZW191 was that you used an score categorization, low negative 0 to 74 intermediate 75 to 199 and high 200 to 300 versus the majority of the competitors are using a PS2+ method to define high versus low. So I was just curious about the correlation between those 2 different scoring methodologies so we could sort of assess them in a more apples-to-apples comparison. Kenneth Galbraith: Yes. Thanks for the question, Robert. I think I'll let Sabeen start addressing that question and then see if Paul has something to add to that response as well. But excellent question. Sabeen Mekan: So I would say that H-score is pretty well-known and very well-validated research method in evaluating expression levels of different targets, and it combines both intensity, which is usually measured in IC treatments for 1, 2 plus intensity as well as the number of patients with positive -- number of cells with positive scores. So it's a pretty well integrated method for evaluating the number of pay cells that express the target. And it has had a pretty good correlation with both TPS score, which is often used in certain assays that are ultimately commercialized as well as IHC scores. So that is why we use the H score. It's a composite, and it's got a pretty wide range from 0 to 300, and that gives us a pretty good evaluation across the range for the expression level. So one of the things that we did also do in our poster is categorize the H-score into 3 different categories, high, intermediate and low. And within those categories, the high category that we defined is correlates with high expression that of folate receptor that is used for treatment with ELAHERE. And that is a measure where we can evaluate how many of our patients responded who would have been candidates for ELAHERE versus patients who were low or negative and were not candidates for that treatment. Paul, if you want to add something. Please go ahead. Yes. Paul Moore: Yes. No, I think that's good. Yes. No, great, Sabine, you covered it. I think with the H-score, it just gives us a little bit more granularity across that than using the PS2+ score. But by having the H-score, the score the way that, that specimen sample is scored with the test, we can -- as Sabeen alluded to, we can also calculate the PS2+. That's doable. So you can -- we can take that data and analyze it whichever way we want. But we felt for this analysis, this was the appropriate way to show the H-score because it just gives people more breadth and understanding of the profile of the patients that we're seeing. Robert Burns: Yes. No, I completely understand that, and I appreciate the granularity. So just if you don't mind, like would it be an accurate assumption to say the patients that you defined as high expression per the H-score of 200 to 300 would fit the category of PS2 plus greater than or equal to 75? Or would there be some discrepancy between them? Sabeen Mekan: It should be a very high correlation. Robert Burns: I guess last question for me. Given the data that we've seen from RENA-S as well as the Eli Lilly compound, obviously, they're using a PS2+ scoring system. In those non-high patients, how do you think that ZW191 stacks up against those 2 compounds in the lower expressing or intermediate expressing folate receptor alpha patients? Sabeen Mekan: So as you saw from our data, we showed pretty transparently across a spectrum of H scores across low and negative that we observed clinical activity across folate receptor expression levels. We're looking at data from -- which we are pretty confident about, and we're showing pretty good activity. Given in our sample size, we had roughly around 2/3 of patients who were low negative roughly. which correlates very well to the number of patients who are not candidates for ELAHERE. And comparing our data to the competitors you talked about GES and Lilly, I think we feel pretty confident about our activity in the low negative patient population from what we've observed so far. Obviously, we're going to continue to follow our patients. We are enrolling very actively in our study with more patients in dose escalation and longer follow-up, and we are initiating our Part 2 dose optimization, which will provide us more data at the doses that we would like to move on. I think that would give us a lot of confidence in our activity across the spectrum for expression levels, including low and negative. Robert Burns: I can't wait to see the additional data for ZW191. [ id="-1" name="Operator" /> The next question comes from the line of Akash Tewari of Jefferies. Phoebe Tan: This is Phoebe on for Akash. On ZW191, it looks like a key differentiator between this and other next-gen folate receptor alpha ADCs is safety, specifically on Grade 3 cytopenia. Can you talk about the importance of this difference in terms of potential combinations maybe in earlier treatment lines? Kenneth Galbraith: Good question. I think we see a number of potential differences, differentiating factors between ZW191 and data we've seen from others. But I'll let maybe Sabeen talk specifically about the tolerability profile we've seen so far in our data set. Sabeen Mekan: The tolerability profile, we're very pleased, particularly with our safety event rate. Most of the safety events that we saw were pretty expected, as we mentioned, which were mostly not vomiting cytopenias. Our cytopenia rate is -- actually, we're very pleased with that rate because this is something that you would expect very typically from a topoisomerase ADC. And the rates that we observed for anemia, neutropenia and thrombocytopenia are well within expected for an ADC, particularly with the fact that we're going at relatively high doses compared to other ADCs with similar payload. So with that, we are confident that, that would help us drive efficacy. And at the same time, the safety profile with cytopenias helps us combine with treatments in earlier lines of therapy. As you know, in ovarian cancer, earlier lines of treatment consists of a combination of platinum, taxanes and bevacizumab. So that gives us a lot of confidence to combine with all of these treatments going in earlier lines of treatment, particularly some of the pitfalls that we've seen with other ADCs, cytofolate with combinations in earlier lines is neutropenia, and that often leads to reduction in doses to the point that it affects efficacy. And we're hoping with our safety profile and particularly the lower rates of neutropenia that we're observing, ZW191 should be able to be combinable with the platinum agents at a much more efficacious dose. So that's one of the key areas. The other thing that we're thinking about in earlier lines of therapy from a tolerability perspective, obviously, is the ability to treat patients for much longer, particularly in the maintenance setting. And I think these are all areas where we can differentiate. [ id="-1" name="Operator" /> The next question comes from the line of Jon Miller of Evercore. Jonathan Miller: I'll follow on a question on the DLL3. I guess we've seen some really great data from other T-cell engagers there even pretty recently. So I'd love what do you think are the key places where you'd hope to differentiate? What would make your molecule a best-in-class molecule in your opinion? And where do you think you can target that? And then I've got a follow-up. Kenneth Galbraith: Okay. Paul, do you want to... Paul Moore: Yes. No, I think absolutely. I mean, DLL3, a lot of excitement. It's a attractable target in solid tumors. We're getting encouraging response rates. For sure, we think there may be patients that could still -- that could benefit from -- that don't respond that don't have the T-cells that can really mount a response or a prolonged response. And that's really what we're trying to do here with our molecule. So really change the game and really get the next level of response and durability of response is really what we're hoping for. And we think by having the CD28 co-stimulation, it gives us opportunity to do that. So there may also be some benefits in the mechanism that can lead to thinking about the duration of response and the way that we dose the molecule. They could also be intrinsic in the design and the fact that we have that extra T-cell response, but that will away further analysis. But it's really more patients responding and longer responses. Again, that's the goal, Jonathan, and our data suggests that we can from a preclinical, we have a chance to achieve that. Jonathan Miller: Fair enough. I guess since you were talking earlier about being almost finished with your repo, I am curious, given the expected upcoming milestones from Jazz would be one on the GEA readouts, what is your expected use for future milestones? Should we be expecting that repo will make a return when you have cash inflows in that response? Or is that money spoken for, for your internal programs? Kenneth Galbraith: Really good question. I think as we started this last year, we do want to have the ability to always have an authorized stock repurchase program that then gives us the ability to allocate capital to reducing share count at what we think is attractive prices to boost TSR. So we always want to have that optionality. So I think you should expect that we will always have an authorized stock purchase plan in place. We get to decide when and how we use that for shareholder benefit. So I think you should just expect as we're getting to the end that we should always have one in place to be able to do that. It's not the only place we've been allocating capital over the past period of time. We have been allocating capital to R&D programs that make sense for us and when the data justifies it, continuing to move forward with additional investment as we are with ZW191. We've obviously talked a little bit about our strategy of maybe creating another area to allocate capital as capital comes in from milestones and royalties from Ziihera and hopefully eventually pasritamig. Having the ability to then decide to allocate that capital back into a royalty portfolio, given that those royalty portfolio we have right now, it earns very attractive annualized rates of return, we think, from holding it from development through commercialization and having the ability as some of those gains are realized through payments from our partners to put that back into an attractive royalty portfolio that could generate really interesting rates of return is something another piece of the puzzle and strategy that we've talked about putting in place, and we'll talk more about this in the weeks and months ahead. So I think you should see us in in the future, be disciplined on capital allocation. I think we'll obviously have a stock repurchase plan authorized, and we've obviously shown that we like to use it to generate TSRs. We'll allocate capital into R&D when we think is differentiated and productive and data justifies it. And I think we'll develop the capability, infrastructure and strategy and the interest to consider putting some of the cash flows that come out of our licensed products back into a royalty portfolio with potentially other licensed products, and we'll talk more in the future about the strategy and differentiation of how we think we can accomplish that. And I think all 3 of those together, having the optionality to allocate capital to those resources is important for us. I think getting the mix right is important for us. I think if we can do all 3 of those in the right way at the right time and the right mix, we can generate some very interesting long-term TSRs in Zymeworks. And that's what we've been working on and we'll continue to work on as our licensed products move from development to commercialization. [ id="-1" name="Operator" /> The last question comes from the line of Yigal Nochomovitz from Citi. Unknown Analyst: This is [ Shuan ] on for Yigal. Congrats on the progress. Maybe just a quick one from us. You spoke on it a bit already, but just wondering if you could provide additional color on potential time lines of third-party milestones beyond what might be expected from Jazz. Kenneth Galbraith: Yes. We haven't, as a practice, provided much guidance in that regard. Obviously, we've tended to wait until we've earned or receive milestone payments as we did this quarter with the $25 million that we earned from Johnson & Johnson with respect to pasritamig moving into Phase III studies. So for right now, I think we'll keep that guidance. I think as we move forward, especially with Ziihera into commercialization, we might provide some additional guidance around milestones from both Jazz and B1 as they become closer, more approximate and more probable just so people understand a little bit more about cash flows that might be realized in those licensed products and then obviously, then where that capital might be allocated to. So until then, you just have to wait and see, but not too long, I think. [ id="-1" name="Operator" /> This does conclude the question-and-answer section. I would now like to hand the call back over to Chair and CEO, Ken Gabre. Ken, please go ahead. Kenneth Galbraith: That's great. So thanks, everyone, for your time and attention and questions on today's call. Obviously, back in 2021, we designed and initiated a really important clinical study with zanidatamab, the HERIZON-G01 study. And we're really pleased that Jazz continues to be optimistic and confident of reporting out the top line data in this quarter. And we're as interested as anyone in understanding that data set and what the potential is for zanidatamab to be practice-changing in this patient population. And we're very pleased that we won't have to wait that long to understand that. And so please stay tuned and look forward to talking about that further with our partners, Jazz and B1 as appropriate. So thank you very much for your time, and we'll talk to you all very soon. [ id="-1" name="Operator" /> This concludes today's presentation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Cars Third Quarter 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on Thursday, November 6, 2025. I would now like to turn the conference over to Katherine Chen. Please go ahead. Katherine Chen: Good morning, everyone, and thank you for joining us for the Cars.com Inc. Third Quarter 2025 Conference Call. With me this morning are Alex Vetter, CEO; and Sonia Jain, CFO. Alex will start by discussing the business highlights from our third quarter. Then Sonia will discuss our financial results in greater detail, along with our outlook. We'll finish the call with Q&A. Before I turn the call over to Alex, I'd like to draw your attention to our forward-looking statements and the description and the definition of non-GAAP financial measures, which can be found in our presentation. We'll be discussing certain non-GAAP financial measures today, including adjusted EBITDA, adjusted EBITDA margin, adjusted operating expenses, adjusted net income and free cash flow. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures can be found in the financial tables included with our earnings press release and in the appendix of our presentation. Any forward-looking statements are subject to risks and uncertainties. For more information, please refer to the risk factors included in our SEC filings, including those in our most recently filed 10-K, which is available on the IR section of our website. We assume no obligation to update any forward-looking statements. Now I'll turn the call over to Alex. Alex Vetter: Thank you, Katherine. We were pleased to achieve record revenue and drive strong customer and product momentum in the third quarter on our path to reaccelerating growth. Revenue of $182 million reflected continued contribution from websites, trade and appraisal solutions and marketplace. Dealer count increased for the third consecutive quarter as we reached a new 3-year high with marketplace, in particular, outperforming expectations. Top line strength, combined with our strong operating model, enabled investments for innovation, while also producing adjusted EBITDA margin of 30%, up over 160 basis points year-over-year. And resulting cash generation supported another $19 million of share buybacks in Q3 for a total of $64 million year-to-date. It's clear that our consistent execution is delivering compounding benefits, and we feel confident there is more improvement to come. Our strong focus on 2025 growth initiatives continue to deliver measurable progress for the business in the third quarter. First, sales velocity and driving unit volume has lifted marketplace and solutions performance. Under new sales leadership and enhanced go-to-market strategy, we added 270-plus dealers year-over-year with subscriptions up across all our leading products. In total, we powered 19,526 dealers in Q3, our largest customer base since late 2022 and only a few hundred dealers away from an all-time record. New franchise dealer sign-ups also increased appreciably quarter-over-quarter in Q3, complementing the share gain amongst independent dealers that we achieved in the first half of the year. Dealers consistently cite our unique consumer audience, data insights and differentiated product suite as key factors that are motivating them to join our platform. Second, our phased marketplace repackaging exercise intended to align pricing with product value and enhance platform benefits for dealers launched in early summer. By bundling media products and features in new Premium and Premium Plus packages, we are helping dealers drive up to 14% more leads per listing versus base packages. And we anticipate adoption of Premium Plus to accelerate with growing dealer awareness of these benefits. Finally, our product team remains at the forefront of helping consumers, OEMs and dealers navigate the changing auto retail landscape. We are putting AI-powered search and recommendations in the hands of marketplace shoppers and simultaneously enhancing lead conversion for dealers through advanced analytics. Through our appraisal and wholesale capabilities, we are also directly helping dealers address used car scarcity and specifically how to profitably source attractive late model inventory. And we continue to be the only platform with integrated B2B wholesale and B2C retail capabilities, a key value proposition as dealers look for innovation and operating leverage. Our multifaceted AI-first platform makes us essential for both consumer and dealer customers. We are seeing clear signals of traction in our platform strategy. Starting with marketplace, we fired on all cylinders in Q3 with momentum carrying into October. We drew 25.4 million average monthly visitors, up 4% year-over-year, leveraging better optimization of our visitor acquisition strategy to attract strong consumer demand. Traffic year-to-date was 488 million visits through the end of Q3, setting a new record. Our leading editorial and brand expertise is evident from third-party data that shows that we were most cited public automotive marketplace across AI tools like Google AI overviews and ChatGPT with double the citations of our closest peer. And we continue to leverage our strong brand and steady stream of in-demand content as an integral part of our product and marketing strategy in this evolving landscape. AI is central to our product innovation road map as we enhance the quality of our marketplace to deliver a best-in-class personalized shopping experience for car buyers. Carson, our newly launched natural language search assistant gives users an interactive experience more akin to a conversation you have with an AI agent to complement traditional search results. Carson currently assists 15% of searches and search refinement on web and mobile today. Compared to the average shopper, AI users also save 3x more vehicles to revisit later, a sure sign that we're fueling deeper consumer engagement. Just like we were a pioneer with AI integration on the Cars.com website, our next milestone will be integrating Carson into our #1 most downloaded automotive marketplace app. Mobile apps are our highest converting channels, and we believe AI-powered targeted search results may lift conversion even further as we drive search efficacy and our marketplace flywheel. For dealers who subscribe to our marketplace, we continue to deliver high-performing tools for their sales and marketing teams, embedding into their tech stack to drive engagement, conversion and ultimately, sales. Shopper alerts, which we launched in the third quarter to fast follow our new lead intelligence reports, proactively flag shopper engagement and buying indicators to dealers. Over 50% of marketplace customers have already used this feature at least once in its first 2 months of launch. And as you can see from customer feedback, shopper alerts are quickly becoming a key part of dealership workflow, helping salespeople identify the best prospects to close more sales. With such an enthusiastic response, we're quickly iterating to provide richer data and AI-driven insights directly into dealer CRMs, both with incumbent players and through new investments in disruptive technologies as we unlock the full potential of our platform with more AI and SaaS-based solutions. Turning to our trading and sourcing solutions. AccuTrade and DealerClub continue to scale in Q3 as dealers increasingly gravitate to tech-first products that advance the industry's long-term goal of improving profitability. The recent success of digital dealers who rely heavily on acquiring vehicles directly from consumers has put an even finer point on the importance of a diversified vehicle acquisition strategy for driving up GPUs. AccuTrade and DealerClub address this gap by allowing dealers to acquire from either Service Lane or other trusted dealers backed by the most accurate vehicle values in the industry. Accu Trade grew to 1,150 subscribers in Q3 and DealerClub increased its active users by nearly 40% quarter-over-quarter. We're also pleased to share that AccuTrade surpassed 1 million quarterly appraisals, a milestone that points to enthusiastic and growing customer engagement. Importantly, over 50% of vehicles acquired via AccuTrade are between 1 and 5 years old, highlighting the attractive pool of in-demand late-mile inventory that dealers access when they expand beyond traditional and physical auctions. New this quarter, dealers can now easily analyze their AccuTrade activity via profit funnel and trade capture reports, seeing how much profit is made on AccuTrade versus non-AccuTrade cars and conversion rates on appraisals. We're excited to see these products and features further scale as we continue to innovate. Lastly, total subscribers for Dealer Inspire and D2C media websites reached nearly 7,900 in Q3. We have grown website subscriptions for 5 straight years, an impressive feat that speaks to our differentiated technical capabilities and support model. Similar to marketplace, website customers are also benefiting from our AI leadership. Our dealer websites also support discovery and data processing by popular AI search tools, and we are now proactively enabling customers to improve their own site visibility. By building more consultative relationships and innovating on behalf of customers, we're confident we can further expand our market share. Across marketplace, websites and appraisal and wholesale, we delivered triple-digit dealer count growth for the second straight quarter. We also achieved ARPD growth on a sequential basis, consistent with our expectations that repackaging and cross-selling would lift performance beginning in Q3. We're on pace to surpass all-time records for both direct dealer customers and ARPD before the end of 2026 on our way towards greater targets as we expand and enhance our product offering. While dealer revenue was at its healthiest level in several quarters, we did see some variability in OEM and national revenue, which was down 5% year-over-year in Q3. Specifically, 2 OEM partners significantly adjusted their media investments during the fall due to factors like internal agency changes that are unrelated to our performance or value. I'll also note that both of these customers remain advertisers on our platform, and we're in active talks to win a greater share of their forward spending. As we discussed in prior calls, our OEM revenue pipeline is strong. Planning discussions for 2026 have been positive and our unique ability to drive better Tier 1 to Tier 3 outcomes via our marketplace is a winning asset for automakers as they compete for consumer demand. We're confident that this segment can resume its growth trajectory in the coming quarters and continue to be a strong contributor to revenue and margin expansion. Looking at this quarter as a whole, I'm pleased that our steady execution is showing up in the P&L and in positive trends that point to more gains ahead. We're driving our business forward, growing revenue and gaining customer market share, all while continuously innovating. Q3 is the right step in the right direction, and we're focused on finishing the year with a healthy exit rate so that we can deliver even better results as we continue scaling our leading platform. And now I'll turn the call over to Sonia to discuss our third quarter financial results. Sonia? Sonia Jain: Thank you, Alex. We delivered a strong third quarter across multiple key financial metrics, producing record revenue, adjusted EBITDA expansion and robust cash generation. Consistent execution of 2025 growth initiatives has been our top priority, and our new revenue trajectory reflects the positive changes we've implemented year-to-date. We're also confident that as these improvements compound in our subscription business, both revenue and margins will accelerate in the coming quarters. Starting with our revenue discussion. Third quarter revenue was $181.6 million, up 1% year-over-year and in line with our expectation for low single-digit growth in the second half of the year. Dealer revenue was up 2% year-over-year, driven by favorability from repackaging activities and better customer count. Our ongoing repackaging work resulted in successful renegotiation of additional OEM website agreements and the phased launch of new marketplace packages in Q3. As Alex mentioned, our top 2 marketplace peers now bundle more media features for better vehicle merchandising and promotion, helping dealers attract and convert in-market shoppers. Migration of legacy preferred customers into new Premium and Premium Plus packages was 100% complete as of the end of October. I'll also note that we've seen very few cancellations attributable to this exercise, another encouraging signal of the value dealers see in our marketplace. Marketplace, our most scaled solution, is also the tip of the spear for customer acquisition and cross-selling and key to winning dealer market share over time. It's therefore encouraging to see that marketplace continues to be the biggest quarter-over-quarter contributor to dealer count growth and is the linchpin for our net gain of over 300 dealer customers since the start of the year. We have multiple levers to inflect ARPD, driving new customer growth as well as upgrading package tiers and cross-selling against our installed base. And this is amplified by our improved pricing. We saw early signs of these levers in action in Q3 with ARPD up 1% quarter-over-quarter, and we are optimistic that trends will improve as these positive changes gain further traction and annualize. Overall, dealer revenue growth more than offset near-term noise in OEM and national revenue, which was down just under $1 million or 5% year-over-year. As previously mentioned, lower spending by 2 customers accounted for almost the entirety of the OEM revenue decline in the quarter, and we're already at work rebuilding the revenue pipeline with those partners. More broadly speaking, media investments did taper in September as the industry digested large-scale changes like strong pull-forward demand from expiration of EV credits and continuing shifts in production as well as downward revisions in SAAR. Given last September was our best month of OEM revenue for 2024, we also had a challenging comp that accentuated this late quarter trend. We're observing that OEMs continue to prefer more flexibility in the current operating environment. And as such, we expect their ad spending may fluctuate through the end of this year. However, we remain confident in our audience and value delivery and in our ability to power growth in this segment. Turning to our cost discussion. Third quarter operating expenses were $165 million, down 2% year-over-year. Compared to the prior year period, cost efficiencies in headcount and lease-related expenses as well as lower depreciation and amortization fully offset new dealer club costs and slightly higher marketing and G&A spend. Adjusted operating expenses were $150 million, down 4% year-over-year for substantially similar reasons. For the following line item detail, all comparisons are on a year-over-year basis, unless otherwise noted. Product and technology expenditures decreased $1.6 million on a reported basis and $1 million on an adjusted basis, fully offsetting dealer club costs through lower compensation and third-party fees. Marketing and sales increased $1 million on both a reported and adjusted basis, reflecting marketing investments. And general and administrative expense was up $2.8 million year-over-year on a reported basis, but was roughly flat on an adjusted basis. The reported increase was primarily due to increased third-party costs that were partially offset by savings from the lease amendment completed in Q4 2024. Net income for the third quarter was $7.7 million or $0.12 per diluted share compared to net income of $18.7 million or $0.28 per diluted share a year ago. The difference in net income is primarily due to changes in the fair value of contingent consideration for prior acquisitions that were included in the prior year period. Adjusted net income for the third quarter was $30.4 million or $0.48 per diluted share compared to $27.7 million or $0.41 per diluted share a year ago. Adjusted EBITDA of $55 million in the third quarter grew 7% year-over-year, benefiting from both higher revenue and cost controls. Third quarter adjusted EBITDA margin of 30.1% demonstrated strong revenue flow-through, benefit from the cost management initiatives described earlier and timing of certain costs. Now on to key metrics. Dealer count was up in the third quarter based on strength across all of our major product brands. Websites grew sequentially by 67 subscribers with most of the growth coming in the U.S. AccuTrade grew by 82 subscribers sequentially, about half of whom came from the enterprise deal announced last quarter. Third quarter ARPD was $2,460, up 1% quarter-over-quarter and down slightly year-over-year. Recent customer and product mix shifts like faster independent dealer growth and lower media attach rates continue to have a near-term leveling effect on this metric. However, as previously discussed, we have multiple ways to inflect ARPD over time. First, new customer acquisition and continued up-tier migration will both benefit from new marketplace and website rates. A good example is Marketplace Premium Plus adoption, which grew 50% month-over-month from September to October as dealer awareness increased. Second, moving website customers up-tier remains a substantial opportunity. Recall, roughly 70% of marketplace customers are in a premium or better subscription relative to just 50% for websites. Third, cross-selling additional products like AccuTrade or media add-ons to marketplace customers can be as much as a 60% jump relative to current ARPD. The multiplier effect is especially evident when looking at customers who utilize all 4 of our brands and have an ARPD that is 3x higher than our reported average. With these levers at our disposal, we are confident in future ARPD improvement as we expand our platform's reach. Now over to cash flow and the balance sheet. Net cash provided by operating activities totaled $115 million for the first 9 months of the year compared to $123 million for the comparable period last year. Recall that the earn-out for the D2C acquisition has a contractual step-up from year 1 to year 2 and accounts for the majority of the variance in operating cash flow. Free cash flow was $94.5 million year-to-date, down slightly year-over-year from the acquisition items mentioned above. Year-to-date, share buybacks totaled 5.2 million shares for $64 million as we utilized more than 2/3 of free cash flow for our repurchase program. Last quarter, we raised our full year repurchase target to $70 million to $90 million, and we're pleased to be on pace to finish the year towards the high end of that range. We also paid down $5 million of our revolver in Q3, bringing debt outstanding to $455 million as of September 30, 2025, equivalent to a total net leverage ratio of 1.9x. Notably, this is also the first time that we have sat below the low end of our target net leverage range of 2 to 2.5x. Total liquidity was $350 million as of September 30, 2025, which provides us ample capacity for capital allocation priorities and other avenues of value creation. And now we'll conclude with outlook. We are reaffirming our expectation for low single-digit revenue growth year-over-year in the second half of 2025. We expect to achieve this target through continued execution of our growth initiatives, namely improved dealer count and product adoption and repackaging for marketplace and websites. As in the prior quarter, this outlook assumes today's macroeconomic conditions as a stable baseline for the remainder of the year. Considering third quarter trends and historical fourth quarter performance, we believe that some degree of discretionary media investment is subject to greater variability, both to the upside and the downside from factors like pull-forward consumer demand, inventory levels, new model launches and manufacturer incentives. We are also reaffirming adjusted EBITDA margin outlook for fiscal 2025 between 29% to 31%, reflecting disciplined cost management, high contribution margin from pricing initiatives and revenue growth. Looking ahead, we remain focused on execution and are confident we will deliver improved operating and financial results. And with that, I'd like to open the call for Q&A. Operator? Operator: [Operator Instructions] Your first question is from Tom White from D.A. Davidson. Thomas White: Two, if I could. I guess, first off, just on the drivers of revenue in the third quarter. It was impressive to see that you delivered a bit of kind of upside versus kind of expectations on revenues despite national kind of declining sequentially when I think we all have our fingers crossed that it might be up a little bit. So just can you help us -- I guess what I'm trying to understand is on dealer revenue, kind of the -- obviously, you guys are doing stuff on repackaging and product. But maybe first off, just like on the industry backdrop and you added dealers again for the third straight quarter. It sounds like you're going to add dealers again, and it sounds like marketplace is kind of maybe one of the main areas where you're adding dealers. I don't know, how would you kind of characterize how dealers are sort of navigating the current just kind of industry backdrop? Like are they leaning into you guys on marketplace because they're -- they need to find new sources of demand? Is it because of maybe the word is getting out that some of the new media stuff that you're adding to the higher tiers is really attractive. Sorry, it's a long-winded question, but just maybe just trying to unpack that a little bit. And then I have a quick follow-up. Alex Vetter: Tom, thanks for your question. I'll start, maybe then Sonia can give some color on the revenue mix. But I'll start. Obviously, manufacturers have got some near-term headwinds that certainly are impacting their business. We feel good about the business because overall enthusiasm for our audience, particularly the concentration of new car shoppers that we have in our marketplace, remains scaled, healthy and strong. And so the vast majority of our OEM partners are leaning in, not only this year, but also next year. We did have some pullback in the quarter from 2 OEMs that were temporary in sentiment, not performative, meaning that they had their own internal issues that delayed their investments with us in the period. That's why we feel fundamentally bullish about the business overall and our ability to continue to grow OEM revenue heading into next year and beyond. I think on the dealer side, it is a little bit of a mixed bag right now. I think dealerships are struggling with softening demand. And the vast majority of dealer investments are chasing impressions and clicks across the Internet. And I think the smart dealers are realizing tapping into in-market car shoppers who are actively in market is a much surer path to sales. And so we're pleased with dealer adoption not only in the quarter. And as you noted, that growth continued into October. And so we're feeling good about dealers realizing the strength of our scaled audience. Certainly, some of the product innovation that we're doing on the AI front has garnered some dealer interest as well. But ultimately, we feel like the market is realizing our strength and our value. Sonia, do you want to comment on the revenue buildup? Sonia Jain: Yes. Thanks for the question, Tom. Just to add a little bit more incremental color. I mean, I think we're pretty pleased to see growth across all of our dealer product lines. Repackaging was probably the most immediate benefit to the quarter as you think about revenue. We had repackaging in marketplace with upgrades into premium and then the launch of our new Premium Plus package. And also, we continue to work on optimizing our website packages. I think the new dealer customer adds we've had in kind of really since the beginning of the year with the exception of January, we've grown dealer count month-over-month is really just adding additional fuel to how we think about the opportunity to continue growth on a go-forward basis as we upgrade and cross-sell those incremental new dealers coming into the mix. Thomas White: Okay. That's really helpful. Maybe just a quick follow-up on that. I think I heard you say that in marketplace, maybe 70% of the dealers were on something other than just sort of the base tier, but it was lower in websites. So I guess as you think about -- how should we think about like what products you might maybe add to higher tiers in website to kind of get -- to get folks to upgrade? Is it more like kind of media add-ons? Or just any color you can share there and maybe a time line for how you expect that to roll out? Alex Vetter: Yes. Look, I think one of the strengths of our platform strategy, Tom, is that our innovation can take place on our marketplace, and then we can deploy that technology to our dealer partners on their website. So one of the big benefits that our website customers enjoy over the last year is the fortification of our cloud infrastructure to make sure dealer websites are meeting and beating core web vital standards because we're able to leverage our larger infrastructure to optimize speed and performance. That's sort of an underlying benefit of our platform model. I think if you look at what we've done on Cars.com with launching Carson and OpenText, generative AI search, we can now deploy that technology on dealer websites. So that's one of the utilities that we're looking ahead towards next year. But then obviously, just even indexing dealer websites into the LLM. We use Cloudfare technology to help index Cars.com listings into the AI models. And now that we have our dealer websites fortified with Cloudfare as well, we can do more for dealer websites and get their content indexed in the LLMs as well. So I think there's multiple benefits for dealers running on our backbone platform, but the product innovation is accelerating in the company, and we're excited to keep that going. Operator: Your next question is from Gary Prestopino from Barrington. Gary Prestopino: Sonia, really interesting when you're talking about the amount of entities that -- on dealers that have moved to repackaging and website that have moved to repackaging. You also gave some statistics on what the lift is in ARPD for some of these repackaging efforts, and I didn't quite get that. Sonia Jain: The lift to ARPD, I mean, I think overall, we're pretty happy to see the sequential momentum that we started to achieve in ARPD. So we saw quarter-over-quarter growth. And I think that puts us on strong footing as we look from Q3 into Q4 to continue to accelerate that. We didn't -- I don't think we gave specific color on the portion of ARPD that was driven by packages. But what may be helpful is to understand like the spread difference between a Premium and Premium Plus package. One of the key differentiators -- and those are marketplace packages, one of the key differentiators between those 2 packages is we bundled VIN Performance Media into the Premium Plus package. That's something that retails for around $1,500 a month, but obviously, for our Premium Plus customers since it's bundled, they're going to be getting a slightly better rate than that. But it will give you a sense for how we're trying to create differentiation, not just in price, but also in terms of the overall value delivery we're offering to dealers across our packages. Gary Prestopino: Okay. I thought I heard you say something about a 3x lift. So that's why I asked the question. And maybe I just typed... Sonia Jain: Yes. I did talk about that as like an example of platform value and how as we increase product penetration, we're able to really meaningfully lift ARPD. And I think the stat that I shared was that dealers who use our major product pillars will have a 3x higher ARPD than our reported average. Gary Prestopino: Okay. That's great. That's what I wanted to get to. And then Alex, in terms of both AccuTrade and DealerClub, it's good to see that these things are starting to get more traction. But in terms of appraisals versus actual sell-through to the dealer from the appraisal, can you kind of slap some metrics on that? And then in terms of DealerClub, I know it's real early, but if you could give us some indication of what kind of volume is going through DealerClub, that would be real helpful. Alex Vetter: Sure, Gary. Well, first of all, we were really pleased with the growing dealer participation in AccuTrade as well as the improving appraisal volume. It's showing what we believe is a very durable trend of dealers realizing that sourcing cars directly from customers is a far more profitable strategy than traditional or legacy auctions. And so that realization is helping every dealer recreate the advantage of creating more inventory in their own service lane, which increases our supply. And then also, it creates demand within their own dealership because now their customers need new cars. And so we think this is a very durable strategy that dealers are adopting. You're seeing dealers talk more at 20 groups about how they can source more cars directly. And we've got the tooling to enable them to do that at scale and on a very low-cost basis. When you think about the cost of an AccuTrade subscription, it dwarfs what buying cars at auctions is costing the industry. So again, very healthy trends on dealer adoption and appraisal volume. I think DealerClub obviously complements this strategy, which is enabling dealerships to trade cars amongst themselves as a collective as opposed to paying the mighty toll booth operator, the physical auction. And so dealer adoption on DealerClub, we're pleased with it. As you know, it's very early stage. We're barely getting started here with DealerClub, but we're pleased with the initial momentum that the platform is generating on a very low cost basis because it's part of our platform strategy, meaning that we're leveraging the infrastructure that we have today in-house. Dealers are pleased that now we're showing them their aged inventory from our marketplace in the club, and they can immediately launch those cars to a wholesale auction with limited to no additional data entry. And so stay tuned. We're going to continue to invest in the product platform and give dealers more tooling that makes their workflow even easier, but very pleased with the initial momentum, both with AccuTrade and DealerClub. Operator: Your next question is from Rajat Gupta from JPMorgan Chase. Rajat Gupta: I had one broader question on just the competitive landscape. One of your peers recently announced their intention to go private. We've had some tough results from some of our other public peers on the marketplace side, on the auction side, on the used car side. I'm just curious that if you're observing any changes in the competitive landscape, be it pricing, be it more adjacent players maybe participating in the market. And I'm curious if anything has taken a step change in recent months that you're seeing? And if anything, like how are you planning to navigate that? And I have a quick follow-up. Alex Vetter: Yes. Look, Rajat, thanks for the question. I think on the competitive landscape, while there could be changes in terms of public versus private, we look at the competitive landscape a little bit differently in that dealerships are trying to drive traffic to themselves directly, and they're spending inordinate amounts of capital trying to interrupt consumers, while they perform other tasks to drive them into their stores. The benefit of our platform strategy is we're the largest concentration of organic car shoppers that are spending their shopping time researching and deciding what and where to buy on our platform. And we think savvy dealers are realizing that interruptive advertising is less efficient than native marketplace traffic that we can source and drive consumers directly to their stores, particularly as average dealers are trying to compete with Carvana and larger platforms using Cars.com as a demand engine for their business, we think, is a no-brainer. And so I look at the competitive landscape more about how do we get dealers to spend less on Google or less in traditional media and do more digitally first and foremost. I've got tons of respect for my digital peer set. I know auto is a very competitive category, but we feel very confident because, again, we source the majority of our traffic organically or directly. And so we're a complement to dealers and their advertising mix. I also will say our platform strategy is differentiated. We're now powering north of 9,000 dealer websites, helping them optimize their retail presence online. We're giving them tools to operate their business more -- with more self-sufficiency, which we think we can help overall bring their profitability to new levels. And so we're excited about our innovation road map on AI and what that can do and help dealers add capabilities to their business. And again, like marketplaces are competitive, but we've got a much more differentiated and ambitious strategy. Rajat Gupta: Understood. Understood. That's helpful. And then within your dealer demographic, I mean, is it possible to provide a split across if it's a meaningful difference across like luxury, domestic or import on the franchise dealer side? I ask only because we're starting to see some of the European brands feel the brunt of tariffs. It looks like October started off a little weak for those brands. I'm just wondering if that can have any meaningful impact on churn rates, on RPD for your business. And just curious if you're hearing anything as well on that front. Alex Vetter: Well, listen, I know it's a very dynamic marketplace right now. As you know about our business that we tend to skew upmarket. The bulk of our dealers are franchise dealerships. The bulk of our audience tends to be late model, even new car shoppers. That's why we have a large OEM business, unlike our peers because manufacturers know that new car shoppers are also considering late model used. And so we tend to skew upmarket and therefore, don't feel some of the same pressures that perhaps some of the credit challenged or lower end of the market may experience. And so we feel very fortified heading into next year in that the bulk of our audience tends to be more affluent, higher household income. And then our dealer base also remains the stronger side of the market as well with franchise dealers making up the majority of our revenue mix. Rajat Gupta: Understood. Maybe just final one on capital allocation. You're starting to see like a return back to top line growth. You're seeing some good progress with like dealer additions. I'm curious if we can expect -- I'm just trying to see like how you rank order capital allocation today. Is buyback still the #1 priority? Are there other avenues that you're looking at? Sonia Jain: Yes. No, thanks for the question. I think we are still committed to share repurchases as an important portion of our overall capital allocation strategy. Pleased to see how kind of the growth in adjusted EBITDA, in particular, is helping to bring that leverage down. Our net leverage ratio continues to kind of improve. But we're tracking towards the high end of our share repurchase range based on how we've been buying back on a year-to-date basis, and we still see the upside there. Operator: Your next question is from Marvin Fong from BTIG. Marvin Fong: Very nice quarter here. I would like to start on AccuTrade a little bit deeper on that. So kind of consistent in the 70 to 80 dealer addition range in the last 3 quarters. Just like to kind of get a little more color on the pipeline there? And should we kind of think of this as a good pace of adds? Or do you think you can accelerate that? And is it going to be sort of lumpy with sort of the larger enterprise or larger dealers in there or you kind of expect [indiscernible]. And then can you just remind us on that large dealer group that added about half the adds this quarter, how many more stores are in their system that you haven't penetrated yet? Alex Vetter: Yes. Well, first of all, look, we're pleased to close an enterprise deal last quarter for AccuTrade. And that, I think, was about -- just about half the dealer count growth in the Q because we still have steady dealer adoption and growth. We're also basically continuing to see dealer group interest in standardizing their vehicle sourcing strategy, which we think is a big tailwind for AccuTrade because we can provide dealer groups consistent tooling that puts a process in place that they can manage their vehicle sourcing strategy with tools that give them enterprise leverage and consistency in how they run their operation. So we're seeing strong interest and continued dealer demonstrations and a healthy pipeline there. We're also hearing dealers asking us for more inventory syndication capabilities with AccuTrade. So that's on our innovation road map, which could be another tailwind. But we're overall pleased with the organic momentum we have in our dealer count. We think enterprise deals with larger dealer groups can continue to be a strong addition to our platform if we are able to secure more of these enterprise deals in Q4 and beyond. But this is a slow roll strategy that will scale over time, and it certainly adds meaningful ARPD and a high reoccurrence of revenue because the dealers that standardize with AccuTrade, not only does that revenue stay sticky in our platform, but it has a halo effect for our other subscription offerings as well, including DealerClub as well. So we're feeling good about the business. Marvin Fong: Got it. And second question is on AI, everyone's favorite topic. And I guess I'd ask it a couple of different ways. So first, are you seeing any meaningful traffic today that's coming from like a ChatGPT type service? And how -- if so, how is the behavior of those customers? Does it convert to leads any better than other traffic? Alex Vetter: Yes. Well, first of all, thanks for the question. On the AI front, we're very pleased. As we mentioned during the call, when you look at all the leading AI consumer engines, we are, in many cases, 2x our nearest closest publicly traded peer. And so that is a testament to the strength of the Cars.com brand and our decade-long commitment to independent expertise and editorial depth and breadth and quality. And so our strength there is being played back to us by these LLMs that recognize our authority. As you know, auto is a multi-touch omnichannel experience, meaning consumers are seeking out multiple destinations prior to purchase. Our brand strength and our authority in these engines, while it may not generate a ton of traffic today, it is amplifying our brand strength, which is why we had record traffic in Q3 and feel very strong about continued momentum of our marketplace. Consumers are going to seek out trusted independent expertise in auto and these new AI models are firming our brand strength. And so we feel very good about the advent of AI and what it can do for our business over time as well. Sonia Jain: I would just maybe add in addition to what Alex was talking about in terms of how we're showing up in the various like AI search tools, we're also really pleased with how leveraging AI and natural language search on our own marketplace is helping to drive increased consumer engagement. We see on the order of 3x more vehicles saved for consumers who use Carson. They're looking at 2x more listings. They return more frequently. So we're actually playing this as like it's a multipronged strategy, I really believe, to leverage AI to the benefit of the business, and we're seeing it translate into real engagement numbers. Marvin Fong: Right. And that was sort of my second part of the question, I guess, to Carson, are you able to see how many people who are using Carson or your other AI-related search tools, are they purchasing or more attribution can be given the Cars if they are using Carson compared to someone that's not using the AI tools? Or is it too early to say? Alex Vetter: Yes. Obviously, this is still a category where the majority of time is spent online and the purchase is offline. And we know that dealer CRMs grossly under recognize our value delivery. I mean there's only 5 million cars retailed every month in this country, and we know we're saturating the majority of car buyers on our platform. What I like about what we're seeing with Carson is that users are saving more vehicles in their search history. So they're coming back at 2x the rate of other shoppers. They're generating more leads compared to people that are using directed search as opposed to more exploratory. We also know that 70% of our users are undecided on make and model selection. So we're going back to OEMs who previously maybe haven't realized the power of our search engine that they can influence undecided shoppers on our platform. And we're seeing higher conversion rate of these users in terms of tangible leads to dealers. And so consumer engagement is critical to thrive in any marketplace, and Carson is showing us a lot more potential what we can do on the user experience front to connect brands and dealers to our audience using AI as an advantage. So I expect to see a steady quarterly stream of innovations here that both improve user experience and also drive down our operating costs. Operator: Your next question is from Khan Naved from B. Riley Securities. Naved Khan: Maybe just on the marketplace repackaging initiative, I know you've been using opt-ins for dealers to kind of migrate up to the higher tier. Are there -- is there any plan to kind of accelerate that maybe so that more of the dealers can migrate to the higher tiers? Or do you continue to see it as an opt-in move? That's my first question. And the second question I have is just around the traffic growth kind of -- can you just maybe talk about organic versus paid mix and AI overviews, if it had any impact at all, at least from the headline numbers, it looks like not, but just talk about how you're thinking about the traffic. Alex Vetter: Sure. Well, first of all, our sales -- I'll start, Sonia, and then you can maybe comment on the repackaging. I think our sales go-to-market motion is constantly showing dealers the strength of upgrading to our premium tiers. And we've got demonstrable data that shows the more dealers spend, the more value and market share they can get on our marketplace. And so that will be a rolling benefit for us to educate dealers on the strength of higher tiers. And as Sonia pointed out earlier, like we've got a lot of headroom to go there on the repackaging front. And I think we can also continue to introduce new tools and features that help dealers gravitate towards higher spending levels on our marketplace and even cross-selling other solutions. I think also on the AI front, this is early innings. We're really pleased with the initial response that we're seeing with consumers using AI in our marketplace. We also are pleased with how we're showing up, organically, in all the leading LLMs and the AEO optimization strategy, I'd say, is in the early stages here, but our brand strength and our unique content certainly give us distinct advantages to our peers. I don't know, Sonia, what else you'd add to that? Sonia Jain: No, I think, Alex, you covered it really well. I was just going to add on repackaging. We continue to be focused in on the opt-in model. It buys us better outcomes overall with the dealers when they're bought into the rationale and the expectation of why they're moving up-tier. And we've seen good traction with it, right? Like I think we cited a stat in earlier around Premium Plus and we saw a 50% increase in Premium Plus from September to October. So we'll continue to focus on the benefits of moving up-tier in terms of the value delivery creation. Operator: Your next question is from Joe Spak from UBS. Joseph Spak: Sonia, first question just on the guidance. The way you guide obviously give some decently wide ranges based on your disclosures. But if I look at sort of the past few years seasonality, it looks like 4Q EBITDA is about 10% higher quarter-over-quarter, which would mean something around $60 million, which obviously clearly falls within that implied range. I just want to make sure we're all level set. Is that sort of like a good level to calibrate upon? And what do you really think sort of drives the higher end versus the lower end here with basically 2 months left in the year? Sonia Jain: Yes. No, this is a great question. Thank you. I think in terms of adjusted EBITDA, what the benefit that we really saw in Q3, some of it came from revenue, some of the high flow-through on revenue. Some of it came from continued cost management. And then a portion of it was a little bit more timing oriented. So we feel pretty comfortable with our overall adjusted EBITDA range. But I would say getting towards the higher end of that range probably requires some -- a little bit more of that episodic revenue to come in. That tends to be a little bit higher margin. So it would require a heavier lift on, let's say, the OEM and national side of the business to get closer to the high end of the range. Joseph Spak: Okay. And the update there was there's still some pause, and I know they committed to that spend, but it could bleed into next year. Is that still a metric? Sonia Jain: Yes. We're seeing a little bit more like kind of like we talked about in September, some of that pressure has been continuing into October. Now as I mentioned, periodically, we will see as we get towards the end of the year, some of them will lean into those budgets a little bit more. And also, I think some of the overhang production numbers, where SAAR is sitting right now are probably a little bit of a drag on expectations as well. Joseph Spak: Okay. And then on Carson, and I apologize, this might be a very ignorant question, but I'm just trying to sort of understand all the AI stuff. Is it just trained on like the data you have access to, like your dealership customers? Or is it broader? And then out of curiosity, is there anything that prevents other AI agents from accessing the data you have on your site. It sounds like you actually want to feed that. But if you do, is there a way to guarantee that those other solutions almost like don't cut you out and go through your site and not around Cars.com. I don't know if that makes sense or I'm misinterpreting the technology, but if you could sort of... Alex Vetter: No. Joe, it's a great question. So thank you. So Carson, we're leveraging our data infrastructure to power and train Carson. We've got millions and millions of data signals flowing through our systems every day. And so Carson's intelligence continues to be self-thought and self-fed on all these automotive intentions and searches and behaviors. By the way, we put out a press release on Carson today, so you can read more about how consumers are interacting with Carson. Certainly, we let -- the large consumer-facing LLMs are able to train off our data as well. And so while there is risk that consumers can render answers on these other environments, what they do, do is attribute their knowledge to Cars.com. And we think that is incredible brand exposure and leverages our deep authority to make consumers aware that Cars.com has knowledge. And automotive is uniquely a multi-touch category, unlike a lot of consumer goods or low price point purchases, consumers may only seek out 1 to 2 destinations, but buying a car is the second largest transaction in people's lives. They're going to seek out multiple sources of information prior to purchase. And we certainly think the LLMs constantly referencing Cars.com as an authority is going to continue to generate traffic directly to us as consumers go to get additional information, research on which dealerships have the best reputations, what they could expect to pay, any OEM incentives that are available. There's just a lot of information consumption in this category that makes me certain that no one destination can disrupt the 20-year strength of our brand and our content expertise. Operator: [Operator Instructions] There are no further questions at this time. Please proceed with closing remarks. Katherine Chen: Thanks, everyone, for joining the call. We'll see some of you on the road very soon, and I appreciate the support, and have a good day. Thank you. Operator: Ladies and gentleman, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Tejon Ranch Company's Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I will now hand you over to Nick Ortiz. Please go ahead, sir. Nicholas Ortiz: Good afternoon, and welcome to Tejon Ranch Company's Third Quarter 2025 Earnings Call. My name is Nick Ortiz. Joining me today are Matthew Walker, President and CEO; and Robert Velasquez, Senior Vice President and Chief Financial Officer. Today's press release, 10-Q and this webcast are available on our Investor Relations website. A replay will be posted after we conclude. That site is ir.tejonranch.com. Today's remarks may include forward-looking statements. These statements are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially. Key factors are detailed in our SEC filings, including our most recent Forms 10-Q and 10-K. We assume no obligation to update any forward-looking statements. We may reference non-GAAP measures. These measures should be considered in addition to, not as a substitute for GAAP results. Reconciliations to the most directly comparable GAAP measure and reasons why we use non-GAAP are included in today's filings and are posted on our IR website. Again, it is ir.tejonranch.com. After prepared remarks, we'll address questions. Shareholders were invited to submit questions by e-mail in advance. With that, I'll turn the call over to Matt. Matthew Walker: Good afternoon. I'm Matt Walker, President and CEO of Tejon Ranch Company. I'd like to thank you for joining us on our earnings call for the third quarter of 2025. Before we get started, I want to mark this milestone and explain today's format. This is the first quarterly earnings call that Tejon Ranch has ever hosted. With it, we joined the 97% of companies listed on the New York Stock Exchange that communicate with investors in this way. Over the past 9 months, we've made it a priority to be more transparent, more consistent and more direct. With today's earnings call and next week's Investor Engagement Day in New York, we're building better ways to connect with our shareholders and talk about the business. Our call today follows the format used by many public companies, but with a few variations. About 3/4 of companies limit live questions to sell-side analysts and only a very small percentage open questions to all investors. We're providing every shareholder with the opportunity to submit questions via e-mail, and we'll be answering those live during the Q&A session. Please know that this is a work in process, and we will continue to refine and improve our format from here. Now let's talk about the quarter. We were encouraged by our farming operations, which delivered strong year-over-year improvement last quarter. Revenues increased by more than 50% and our farming segment bottom line in GAAP terms improved by $2 million as we held expenses flat and capitalized on higher production. Our farming business remains a foundational part of Tejon Ranch. It's a cash generator whose adjusted EBITDA has been positive in 11 out of the last 12 years. Farming also provides several strategic advantages. It helps us manage our water rights. It supports access to low-cost debt through our AgWest credit facility, and it produces solid returns with reasonable capital investment. We'll be talking more about our farming economic story next week. At the Tejon Ranch Commerce Center, we continue to see the power of the TRCC platform, even in a challenging market for industrial and commercial real estate. Our industrial portfolio remains 100% leased. Our commercial portfolio is 95% leased, while the outlets at Tejon maintain a 90% occupancy. Our joint ventures play a major role in driving organic growth at TRCC with our 5 industrial JVs with Majestic Realty contributing stable cash flow. TRCC as a whole remains fully leased, and our weighted average rent levels continue to climb. We're also maintaining about a 40% cost advantage to the Inland Empire West, which makes TRCC an attractive logistics solution for tenants. The TA/Petro joint venture continues to be our highest performing profit center. While reduced car and truck traffic impacted our sales last quarter, the opening of the new $600 million Hard Rock Tejon Casino in just a few days will be a real game changer. The casino should increase traffic to TRCC, benefiting all of our retail assets, including the TA Travel Centers, our retail and the outlets at Tejon. We're also expanding the TRCC platform, adding new projects that deepen its ecosystem. Terra Vista at Tejon, our first multifamily community, is heading on track towards stabilization and is now more than halfway leased. It's a milestone for the company and a key part of our long-term strategy to build a residential community around our commercial center. This starts with Terra Vista and will continue in the future with our fully entitled Grapevine master planned community, which is currently advancing through design. With that, our CFO, Robert Velasquez, will walk you through the quarter financials in more detail, and then I'll provide some additional remarks before we open it up for questions. Robert Velasquez: Thank you, Matt, and good afternoon, everyone. I'll start with a summary of the quarter's results, then walk through performance by segment and finish with a brief update on liquidity and the balance sheet. For the third quarter ended September 30, Tejon Ranch reported net income of $1.7 million or $0.06 per basic and diluted shares compared with a net loss of $1.8 million or $0.07 per share in the same period last year. Total revenues were $12 million, up 10% year-over-year, while total costs and expenses declined by nearly 5%. As Matt mentioned, the improvement in quarterly profitability was driven primarily by strong farming results, stable commercial and industrial leasing and steady performance from our mineral resources and joint venture operations. I'll turn to the performance of our individual segments, starting with real estate, commercial and industrial. In this sector, revenues increased 4% to $3.1 million, reflecting income from the continued leasing up of Terra Vista as well as additional revenues from communication leases. Those increases were partially offset by slightly lower revenue from 1967083865 due to milder summer temperatures. Operating income for this segment rose 7% to $976,000. Within our unconsolidated joint ventures, equity in earnings totaled $2.6 million. The TA/Petro partnership remains our largest single earnings contributor, generating $1.9 million in the quarter. Our 5 industrial joint ventures with Majestic Realty contributed $945,000 of earnings in the quarter, reflecting a 24% margin across the MRC buildings. Turning to mineral resources. This segment produced operating income of $1.1 million on revenues of $3.2 million, which was stable year-over-year. The business continues to require minimal capital expenditures outside of water operations. After adjusting for costs, water sales contributed $322,000 to the minerals segment's operating profit for the quarter. In farming, revenues improved by more than 50% compared to last year, while GAAP operating losses, which includes water holding costs, were reduced by 40%. The segment's rebound reflects both improved production and the advantages of how we manage our cultural costs and water resources. Last year's results were hurt by weather challenges. And with the pistachios, lack of chill hours, coupled with it being a down-bearing year, yielded no pistachios crop, but this season yields normalized across all major crops. Our integrated approach to water gives us significant flexibility. When allocations from the state water projects are high, we benefit from lower farming costs. When they're low, we're positioned to monetize our stored and contracted supplies. Moving on to ranch operations. That segment delivered consistent results with total revenues of $1.3 million and positive operating income, supported by stable [ grazing ] and gain management activities. At the corporate level, general and administrative costs declined slightly from the prior year to $2.9 million in the quarter. Consolidated operating income improved by 37% year-over-year to $3.4 million across our operating segments. Depreciation and amortization totaled $3.8 million and adjusted EBITDA for the year-to-date period was $13.9 million, up 7.3% from the same period last year. As of September 30, total assets were $630 million, up from $608 million at year-end. We ended the quarter with $21 million in cash and marketable securities and $68 million of availability under our AgWest revolving credit facility. Our total debt stood at $91.9 million, resulting in a debt to total capitalization ratio of roughly 16%. Year-to-date capital investment was $49.9 million, primarily tied to construction of Terra Vista, infrastructure at TRCC east and legal and permitting work across our master planned communities. Reimbursement proceeds from the Community Facilities District amounted to $5.6 million, offsetting the capital investments made during the year. We continue to manage capital allocation carefully, focusing on projects that enhance cash generation. In summary, the quarter reflected solid improvement in profitability, steady contributions from our recurring revenue businesses and disciplined cost control. We believe that the combination of resilient operating assets, growing rental income and the strength of our joint venture partnerships positions Tejon Ranch well as we move into 2026. I'll stop there and turn it back to Matt. Matthew Walker: Thanks, Robert. While the quarter was positive, I'd like to make something clear, Tejon Ranch is not yet where it needs to be, and we have a lot more to do to get it there. Accordingly, we've been focused intently on cost discipline to improve our operating margins. We've been scrutinizing every contract, looking for efficiencies and lower cost solutions. We've identified savings today, which will result in a far more efficient operation in the future. Additionally, our largest overhead cost is staffing. As part of our G&A review, we recently completed a workforce reduction that will save more than $2 million per year. This reduction impacted employees at all levels of the organization and lowered our headcount by 20%. It wasn't an easy decision, but it was a necessary one. These expense reductions represent a down payment on change. They demonstrate our intent to operate with discipline, accountability and a clear eye on the bottom line. In closing, we had a good quarter, but we still have a long ways to go, and we're not done yet. We look forward to sharing more of how we are positioning the company for success in the quarters and years to come. That concludes our prepared remarks. We would now like to respond to the questions that were submitted by shareholders. Please give us a minute while we pull those up. Nicholas Ortiz: Thanks, Matt. We received 20 questions via e-mail. We'll read and respond to the questions in the order that they were received. Our first question today is from [ Larry Zicklin ]. His question is, after all these years of failure, don't you think you should just sell as much land as you can and buy back stock so as to realize the maximum amounts for shareholders? Matthew Walker: Thanks for the question, Larry. Let me first emphasize that my one and only goal for our master planned communities is to create long-term shareholder value, however we get there. I do believe that a successfully implemented master planned community can generate decades of significant cash flow. You can see this with other public companies that are in our space. With that said, I understand your concern and that of other shareholders. I want to reiterate that everything is on the table. So if there is a compelling opportunity to monetize a portion of our land holdings, as you've suggested, we will evaluate it. However, for right now, I believe that with Grapevine, pursuing an implementation plan, which builds on the significant growth that we're having at TRCC makes a lot of sense. On Mountain Village, I'd like to embark on a capital raising effort to identify a joint venture partner who would contribute equity and avoid dilution to our shareholders. And on Centennial, completing a re-entitlement is the most prudent approach at this point to preserve our investment in that asset. Let me add that I will be discussing all of this in greater detail at our Investor Engagement Event next week. I know there are strong opinions about what we should do, and I would like to more fully explain our rationale to you all then. Nick? Nicholas Ortiz: Thanks, Matt. We received a series of questions from [ George Apostelkis ]. The first question is, what is the company's policy regarding the disclosure of more detailed cost information on items such as the TRCC cost to complete and the estimated costs of the first phases of planned community development. Matthew Walker: Thanks for your question, George. Let me see if I can answer it. We provide information for all of our material cash requirements. That includes capital expenditures, and we do that at the end of the latest fiscal period as we're required to do by the SEC. We also disclose our material cash requirements from our known contractual obligations. It's also worth noting that every year, we do disclose in our Annual Report our estimated cost to complete of the horizontal infrastructure for TRCC. Nicholas Ortiz: George's next question is, has the company estimated the overall capital cost of the first phases of planned community development? And will it disclose the scope, cost and related capital funding sources as well as whether or not this development might require third-party investment or purchase commitments? Matthew Walker: Okay. I've covered some of that, but let me expand on other portions of your question. So similar to my previous answer, we do provide information in our most recent SEC filings on our material cash requirements, and that includes our CapEx, as I mentioned before. We haven't yet disclosed specific capital cost estimates or project budgets for the initial development phases of any of our MPCs. Those depend on several ongoing factors, including the final design or market conditions at the time that we intend to launch them and the final infrastructure scope and cost. As it relates to the funding sources that you mentioned, the plan for all of our master planned communities, as I mentioned in the previous question, we intend to capitalize those with a third-party joint venture partner who would contribute the new equity, and we would contribute the land to that venture. And this strategy would avoid dilution to our shareholders' projects. They'd also include a capitalization with construction financing at the venture level. Nicholas Ortiz: Okay. Next question. Will the company disclose its detailed accounting policies regarding allocation of basis on the first phase of community development? Matthew Walker: Okay. So accounting for construction cost in our community development is completed in accordance with GAAP. This means that project costs like land acquisition costs or development costs, construction costs, interest, real estate taxes, certain direct overhead, things like that, those are all capitalized while those activities are in progress. Those costs are then accumulated by phase, again, in accordance with GAAP. In our Annual Report, we do have a section called the allocation of cost that provides some additional detail on that. Nicholas Ortiz: All right. Next question. Have you estimated the level of end-user absorption necessary to commence the first phases of development for the planned communities? And if so, will you disclose that estimate? Matthew Walker: So we definitely consider absorption when we're talking about proceeding with development. But more generally, we look at the entire investment holistically. So typically, absorption is slower at the beginning of a project and then it ramps up to a stabilized level over time. Each project is expected to have a joint venture partner. So that JV partner is going to be looking for an expected market rate return that they would need in order to proceed with the project. So we would expect that the equity would end up driving that return decision to proceed. We also have an internal hurdle rate to return so that we're generating a sufficient return for our shareholders. So that's how we approach the investment criteria that's necessary in order to move ahead with the project. Nicholas Ortiz: Final question from George. Based on your most up-to-date estimates and the status of negotiations with builders, will the sale of land in Phase 1 result in a book profit or book loss? Matthew Walker: Let's see, not knowing which project you're speaking about, let me speak to this more generally. I think I can cover the question. For any given master planned community, there is expected to be a material book profit for the entire project, and that would be consistent with achieving the hurdle rates that I just mentioned in your previous question. So I think you'd have a book profit for the entire project. For the first phase of development for any of our master planned communities, that phase is likely going to have a significant amount of upfront infrastructure. So the initial phase is not likely to include a book profit. I can't speak to other companies and their master planned communities, but what I just said isn't unique to Tejon Ranch. That's typical of many master planned communities where you have a multi-phase MPC. The return of capital typically occurs beyond that initial phase. Nicholas Ortiz: All right. Thanks, Matt. From [ David Spier with Nitor Capital ], we received the following questions. First question, the $2 million expense reduction is welcomed and appreciated. However, based on management's stated value of TRCC, the book value of our MPC assets and the estimated value of our cash flowing land leases and royalties, Tejon arguably has a net asset value that is north of $40 per share. Following the expense reduction and the implementation of your plan, what will our annual per share cash earnings power be? Public markets do not value non-cash flow producing assets nor assets that are not being actively monetized. So if your plan will not lead to near-term earnings power north of $2 per share, and we are not going to monetize our MPC assets in the near term, how will we make money as public shareholders? Matthew Walker: David, thanks for your question. Appreciate it. First off, we agree with you that the company is undervalued. A critical part of that value is the expectation of future returns. That future earnings potential comes in a couple of different areas. It will come from the build-out of the 11 million square feet of TRCC over time and as the market permits. We're also working to identify new revenue sources that take advantage of the unique attributes of the ranch. So there will be value, we hope that's created there. We expect that value will come from the ongoing cash flow from our existing portfolio of income-producing assets. And then -- and we're looking to find ways to increase that over time. And it will come from the development of master planned communities. Those master planned communities have the potential to generate earnings, which are in order of magnitude greater than what the company is producing today and to do that over a sustained period of time. So I believe that the combination of all of those assets will result in a material earnings per share growth. Nicholas Ortiz: Okay. One final question from David Spier. How much additional capital and how much time will it take before Mountain Village or Centennial are generating profits, returns for shareholders? Matthew Walker: Okay. I'm going to cover this in more detail next week, but let me answer it for you today in this way. On Mountain Village, as I mentioned in previous answers, I'm going to be focused on a capital raising effort in the near term over the next year or so. So the capital allocation for that will be rather modest, and it will be sized just to complete that capital raising effort. I've previously mentioned also that we're going to go out and look for a joint venture equity partner who will provide the additional equity so that we don't dilute our shareholders. That JV between Tejon and the equity partner would then complete the construction documents that would probably take 18 to 24 months. And then we break ground on the initial phase of horizontal infrastructure, and that would take 24 months or so. And then at that point, you would be initiating home site sales to builders and to custom lot buyers. At that point, there would be ongoing revenue generation. So that's a quick breakdown of -- in rough terms of the timetable for Mountain Village. You also mentioned Centennial. So on Centennial, our first step is to re-entitle the project through Los Angeles County. That would include us updating our environmental documentation. This would take, we would think, until sometime near the end of next year, plus or minus. That process of going through the county would take a couple of months after that as well. At that point, I think a lot depends on our ability to move more immediately into a mapping process and that mapping process would take a couple of years. And then with our construction documents in hand after we completed the mapping, we'd be able to commence construction, and similar to what I just described on Mountain Village, then start with the installation of the horizontal infrastructure. Given that we do have a re-entitlement effort, it's harder to estimate the outer time frames given some uncertainty to complete the entitlement process. And then that implementation phase, once we completed the entitlement, would also be done under a joint venture similar to the ones that I've described before. Hope that helps. And again, I'll be able to talk more about that next week with a little more time. Nicholas Ortiz: Thanks, Matt. From [ Justin Libos ], we received the following question. Mountain Village and Centennial have a combined book value of more than $290 million, but produce no income and consume capital. Are they worth book value or more? If so, why not sell them to unlock more than 60% of market cap, leaving Grapevine and TRCC, already valued by management above our market cap. No other lever matches this shareholder value. Why not put them up for sale? Matthew Walker: Justin, thanks for the question. So we agree with you that Mountain Village and Centennial are worth more than their book value. One comment I'd make on your net asset value. So when we were looking at that range of net asset values for TRCC and you noted that it's in excess of our current market cap. I just want you to know that, that -- when we did that exercise, that didn't include the Grapevine master planned community. It was just for the commercial assets that are part of TRCC. As I mentioned in my answer to some of the previous questions, we believe that Mountain Village and Centennial both provide significant long-term cash flow generating potential. I'll be talking, like I said before, more about that next week. And I again, just want to say that the company is always keeping its options open and evaluating all approaches to maximizing asset value. And that goes for our master planned communities or any other asset on the ranch. Nicholas Ortiz: All right. We have 6 questions from [ David Roth ]. The first one is the release says Terra Vista will increase to 228 units. Are you committed to that? Matthew Walker: Yes. Thanks for the question, David. We worked on that wording a little bit. Let me try to explain that a little bit to you. At the end of the third quarter, we had completed and delivered 180 units. Since the end of the quarter, we've now completed and delivered all 228 units, and we've now signed leases on more than half of the 228. So it was really just a timing difference on how we reported the third quarter. But to be clear, we have completed construction on the first phase of Terra Vista, which is a good accomplishment, and we're pleased. Nicholas Ortiz: The next question is, the release says you are committed to the MPCs, but you have half of TRCC available that is 100% unencumbered today. Why not focus on that TRCC, which you can control? Matthew Walker: I couldn't agree with you more. So TRCC remains our focus. I think if you've looked at how we've deployed capital over the last 5 years, the majority of it has gone to TRCC. We continue to see the value of the future there. The flywheel effect that I've talked about between our industrial and our outlets and our retail and our travel and the hotel and all the residential uses feeding off each other, that's real. The casino is only going to add to that. And the advantage of the casino is we're leveraging the $600 million that the tribe is spending to -- and that's going to help bring traffic into TRCC, which should just continue that flywheel. So I agree, I call TRCC the nucleus of our activity from which all of our growth should emanate. Nicholas Ortiz: Next question. Farming and ranch operations do not provide consistent returns. Why not lease out these assets for an annuity to the owners? Matthew Walker: It's a good, fair question. We tried to cover it in the press release. I covered it in my earlier remarks. I'll talk about it again some more next week, but let me just again answer it for you here. Taking a step back, I've heard from a lot of shareholders, many of you who have submitted questions that the focus that we should have is on generating cash flow. We agree with that. So what that means with respect to farming, we should be looking at farming through a cash flow lens, not necessarily an earnings lens. And the measure that in my effort to try to better tell the story of the company, we've mentioned in the press release our concept of an adjusted EBITDA figure. And we think that's the right way to look at the farming business. So adjusted EBITDA, as we're measuring it, it backs out non-cash expenses like depreciation, and it also accounts for the water holding costs that we're going to have to spend whether we farm the property or not. And if you do all of that and you look at farming on an adjusted EBITDA basis, as I mentioned in my earlier remarks and Robert did as well, we've generated positive cash flow from farming, and it's something like 23 out of the last 24 years. Again, I'll go through this more next week. But I do believe there is a more favorable story to tell about farming and we would be happy to have the dialogue. Nicholas Ortiz: Next question. The share price is at a 52-year low. There has never been a return of capital to owners of the company. We have assets with a lot of value and $50 million per year in cash flow. When do the owners get paid? Matthew Walker: David, I understand your frustration. The lack of share price appreciation over 52 years, it's unacceptable. I mean, what can I say? I've been here for 8 months, and I intend to change that. It's not going to happen overnight, but I want to see the share price move. And I intend to implement a plan that will achieve that. So you know we have in the past, paid a dividend, but it has been a while. So my intention is to implement a plan. It will leverage our existing balance sheet. It will utilize capital from third parties to help start growing our cash flow producing asset base. The goal of all of this is to create share price appreciation, and it's also to create cash flow so that we can ultimately allow for things like the payment of dividends again or share repurchases. So that is the end goal, and we need to find a way to get there, and I intend to do that. Nicholas Ortiz: Why do you need such a big Board of Directors? What evidence can you point to that suggests the Board has created value for shareholders? How do you calculate the returns on the MPCs after 20 years? Matthew Walker: So on the Board, I'm going to be addressing a number of governance issues next week. So if you could wait until next week, you should expect that I'll cover that topic then. I'd prefer to cover all of the governance topics at once. On the MPCs, so we look at value a couple of different ways. We do believe that given the fact that we're bringing in a third-party investor, we look at the value relative to our book value and the appreciation on that land, and we need to produce an acceptable hurdle on our cost to date. So I'll again be talking more about that next week. Nicholas Ortiz: How do you define fiduciary responsibility? And have the leadership been good stewards of our capital? Example, spending $3.5 million on a wasted proxy fight, we did not benefit. Matthew Walker: Let's see. So I define fiduciary responsibility as putting shareholders first. I'm here to create shareholder value. The management team, all of us, we're here to create value for the shareholders. And that's how I and we would like to be judged. There are many areas that I think we have been good stewards of the company's capital. I believe the significant investment that the company made in our Terra Vista apartments. I believe that, that will prove to be a very important catalyst for creating value all throughout TRCC, particularly when we look back at that in 5, 10, 15 years from now. I'd also like to be clear, I'm not afraid to admit my mistakes. There are definitely things that I would do differently. I put the contested election last spring in that category. Certainly, when you look at the results, it's hard to conclude anything else. You're right that capital could have been deployed into things which create economic value. I'll leave it at that. Nicholas Ortiz: We'll move on to questions from Richard Rudgley and Grover Wickersham from Glenbrook Capital. The first question is, given the 49.84% that voted in favor of the PFS Trust proposal to allow shareholders to call a special meeting, will this be approved by the Board of Directors as was recommended by ISS? We would appreciate a response to this question. We have previously asked it in a public letter to the Board, which letter was ignored. Matthew Walker: Thank you, Richard, and Grover for that question. So like some of the other governance topics, I don't want to be evasive, but I would like to cover governance all together. And I'd like to talk about the subject of a special meeting next week. And I'll make sure that I communicate more broadly in the event that you are able to join us so that all shareholders understand where we are headed on issues of governance. So you'll be receiving an answer to that question next week. Nicholas Ortiz: Next question is, can you please give more color on this part of the press release? Equity and earnings of unconsolidated joint ventures decreased by $1.3 million compared with the prior year period, mainly attributed to the reduction in equity and earnings recorded for the TA/Petro joint venture. Matthew Walker: Yes. That's a -- I can see the confusion with that. As Robert and I mentioned in our remarks, the earnings from our joint venture with TA/Petro, and we're a 60% partner of that. So those are driven by 3 different things. First, our fuel sales, that's both diesel, gas -- diesel and gasoline. Second, our convenience store and travel store sales. Third would be the related commercial real estate, that's mostly fast food restaurants. So there was less traffic on Interstate 5 last quarter. There's really been less traffic on the 5 for the entire year. There are any number of reasons for that and reduced port shipments has something to do with it. There's less local travel from traffic counts that we get. So all of that, when you have fewer cars getting off the freeway, whether they're cars or trucks that come into TRCC, that's going to have a cascading effect on the equity in earnings for the assets that are part of our joint venture with TA/Petro. So hopefully, that explains the nature of the reduction of our joint venture there. Unlike our Majestic industrial joint ventures where you've got a lease that from quarter-to-quarter should be constant, the TA/Petro varies according to demand. Nicholas Ortiz: Please describe the economics of the joint venture relationships in the Grapevine location and discuss what management intentions are for taking greater TRC control of the development and reducing or eliminating the joint venture split of economics. Matthew Walker: Okay. I've talked a couple of times about joint ventures. Let me summarize all of them all at once. So again, we've got 5 joint ventures with Majestic Realty on 5 different industrial buildings. Each of those is a 50-50 joint venture. The outlets at Tejon, that's also a 50-50 joint venture, and we have that with Rockefeller. And then I just mentioned the 60-40 joint venture that we've got with TA/Petro. We've got good joint venture partners. Going forward, as we look at the remaining 11.1 million square feet left to develop, I would expect us to develop more real estate at TRCC on our own balance sheet. But given that, I do want to be clear, we look at each opportunity individually. So it's based on a whole bunch of different factors. But I do understand the question, capturing 100% of the revenue as part of our asset base is helpful for the long-term growth of our cash flow in the future. Nicholas Ortiz: Great. Final question for this portion. Given the apparent success of the apartment development near Grapevine and the potential demand from Hard Rock Casino employees, is management contemplating either additional apartments or townhouses? Matthew Walker: So that's a good question. The short answer is yes. I mean we definitely have plans to build more residential at TRCC, and that includes multifamily housing. It also includes the single-family homes in the Grapevine master planned community. So we've now -- as I mentioned before, we've completed 228 units in our first phase at Terra Vista. The second phase is entitled for an additional -- it's like 170 units. So as you mentioned in your question, we have, in fact, seen demand for our apartments for the casino employees. We've been working pretty closely with Hard Rock to encourage their employees to consider us. It's been a good partnership, and they haven't yet even opened their doors. So those are capital allocation decisions and return hurdle decisions that we are exploring every single day on where to deploy our capital. But the short answer is, yes, we expect to develop more residential around TRCC. Nicholas Ortiz: And then we have 2 questions from [ John Christensen ]. The first question is, if a buyer would put in a formal written bid to buy Mountain Village at the current book value, would the company sell it? Matthew Walker: Good question, John. Thanks for asking. A couple of things. As I previously noted, I'll say all options are on the table. So if a reputable party made a substantive offer, I would be obligated to bring that offer to the Board to consider. With that said, as I noted before, we believe that the property is worth more than book. So I'll just leave it at that. But we're flexible, and we're looking at alternatives, but we have a plan in place. Nicholas Ortiz: The company cut $2 million from overhead. Was $1 million of that, the consulting cost being paid to the previous CEO? Matthew Walker: No. So the $2 million of savings came entirely from the reduction of staffing costs from our existing staff that's been on hand from the time that I took over as CEO, not from other -- any other savings would be in addition or separate from that. Nicholas Ortiz: And with that, Matt, that is the last question. Matthew Walker: Great. Well, thank you all very much. Nicholas Ortiz: All right. That concludes Tejon Ranch Company's third quarter 2025 earnings call. On behalf of the management team here, thank you for joining us. For a recording of today's call or more information, please visit ir.tejonranch.com. Goodbye. Operator: Thank you. Ladies and gentlemen, that concludes today's event. Thank you for attending, and you may now disconnect your lines.
Operator: Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Azimut Group 9 Months 2025 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Giorgio Medda, CEO of Azimut. Please go ahead, sir. Medda Giorgio: Thank you, and good afternoon, everyone, and thank you for joining us today for the Azimut's 9 Months 2025 Results Presentation. I'm Giorgio Medda, CEO of the Group, and I'm very pleased to be here with Alessandro Zambotti, our CEO and Group CFO; and Alex Soppera, Head of Investor Relations. This period marks another important step in our growth journey, reflecting both the strength of our business model and the consistency of our strategies across markets. This year, in 2025, we continue seeing a great execution and delivery in terms of objectives, translating into tangible results and exciting corporate development that we will certainly elaborate in detail later. So moving on to Slide 3, please. So let me start with the key highlights for the period. So the first 9 months of 2025 represent the best on record for Azimut in terms of managed net inflows, reaching EUR 13 billion, together with a strong 17% growth in recurring net profit. These results confirm the strength of our diversified business model and certainly the quality of our recurring revenue base. We also made very significant progress on the TNB transaction, which continues to advance and represent a transformational step for the group. Alessandro will discuss about this in more detail later. But now we certainly -- I can say we operate with greater clarity and visibility over the next regulatory steps related to the TNB project whose authorization is expected by the second quarter of 2026. Building on the strong commercial momentum to date, we are raising our core group net profit guidance for 2025. And today, we are projecting the core group net profit to exceed EUR 500 million in 2025, while we see 2026 net profit, including the expected contribution from the TNB transaction to surpass EUR 1 billion. As a result of the updated time line regarding the TNB authorization, we have decided to anticipate selected key guidelines from our Elevate 2030 strategic plan, in particular relating to our global business. The new strategic plan will outline an even more ambitious growth trajectory, further cementing Azimut's leadership position among global independent players. And -- but certainly, I mean, I will be able to elaborate on that in greater detail later in the presentation. So moving to Slide 4 and turning to the highlights for the first 9 months of the year. Let me mention that total assets have reached EUR 123 billion, marking a new record for the group. Net inflows were equally strong at EUR 15 billion, of which 43% came from our global operations. This demonstrates and shows the continued diversification of our growth and the relevance of our global platform, which once again outperformed other players in the Italian asset management industry. Revenues in the 9 months exceeded EUR 1 billion, supported by a 9% increase in recurring revenues, confirming the quality and resilience of our business mix. EBIT stood at EUR 471 million with recurring EBIT up 12% year-on-year, and group net profit reached EUR 386 million, representing a 17% growth compared to the same period last year. That is essentially driven by the steady expansion of our recurring profit base. And finally, let me stress what is the contribution from our global operations, reaching EUR 60 million, corresponding to EUR 43 million in the same period of 2024. So this is almost 50% growth versus the 9 months last year. This consistent growth across regions confirms the effectiveness of our international strategy and the scalability of our global business model. And let me say as a general comment that these figures put us in a strong position to continue executing our long-term growth agenda while we continue creating value for our shareholders. So looking at the bridge between 9 months 2024 and 9 months 2025, I'm looking actually at Slide #5. Our group net profit reached EUR 386 million compared with EUR 439 million in the same period last year. And the difference here mainly reflects lower performance fees and capital gains below the operating profit line, while recurring profitability continues to grow very strongly. So recurring EBIT increased by 12% after costs, confirming the solid momentum of our core operations, while performance fees were lower by about EUR 19 million, mainly due to insurance-related products. However, I would like to highlight our strong 3Q results and a solid start into Q4. Strategic affiliates in GP stakes have contributed slightly less than last year, with dividends from our GP stake in activities offset by lower net results from Sanctuary Wealth and AZ NGA. Under other items below EBIT, the comparison is significantly affected by nonrecurring items, most notably the capital gain from the sale of our stake in Kennedy Lewis. And as such, it's important that throughout this call and for the broader analysis in general, I would rather focus solely on recurring growth, which posted a 17% growth year-on-year as a result of our continued expansion across the globe. So on Page 6, you will see how our total assets have evolved since the start of the year under the new reporting method. I won't go too much into the detail of this analysis as these are figures that have been already published and commented on press releases. But the thing I would like to mention here that what is remarkable is the fact that growth was essentially coming from organic flows, which have totaled almost EUR 12 billion during the period and represents the best results on record in Azimut's history. And while we don't have all the final numbers as of yet, let me anticipate that October is poised to be another month with very strong inflows across the board. Turning to Page 7. Again, here, I wouldn't go too much into the details of this, which will be also commented by Alessandro more in detail. But let me certainly mention in Slide 7, the breakdown based on our 4 distribution lines. Integrated Solutions is our core line of engagements with clients, including Italy, Brazil, Egypt, Mexico, Taiwan and Turkey. This continues to be a powerhouse and command superior margins that are driven by the vertically integrated business model and market-leading positions that we have in these geographies. We have then the Global Wealth division, which brings together the group's hubs in Monaco, Dubai, Singapore, Switzerland and the United States that is becoming an increasingly important growth driver, serving high net worth and ultra net worth clients worldwide. And then we have the institutional and wholesale effort that is gaining traction and saw a very strong increase in profitability. Let me remind you that this segment brings together our global institutional initiatives across LatAm, Asia and EMEA and certainly Italy. The strategic importance of this business is rising and will continue to do so. It's a source of innovation, distribution diversity and partnerships such as the contribution for Nova. And also, let me mention that strategic affiliates remain in a phase of growth and consolidation, and we still have investments ramping up to expand the respective aggregating platforms of financial advisers in the U.S. and Australia. And very important also to mention that as we keep growing, the group is able to maintain a very healthy recurring net profit margin at 43 basis points. So moving to Slide #8 and zooming in on the performance by region. The results confirm the strength and the diversification of our global platform. Again, here, I won't go into details too much as numbers and the notes speak for themselves. But let me tell you that something that is very, very important to highlight here, Azimut has evolved from a successful Italian player into a global platform with very strong local routes and international breadth that spans 20 countries. Every region is contributing to growth, guided by unified culture, consistent governance and the shared vision for the long-term value creation. We're going to talk about Elevate 2030 later, but these results set a very solid foundation for the ambitious growth targets that we are setting for ourselves in the years to come. So let me now hand over to Alessandro for a more detailed commentary on the figures. Alessandro Zambotti: Thank you, Giorgio, and good afternoon to everybody. So we can now move to Slide 9. Total revenue in the first 9 months 2025 go up to EUR 1 billion, so marking an overall increase of 6%, EUR 61 million year-on-year. This is the result of an increase in recurring fees, plus EUR 58 million, thanks to the strong growth recorded in terms of total assets. And in particular, EUR 31 million came from the Italian perimeter with a strong contribution from all business lines from mutual funds, alternative funds and pension funds and also to Nova. Some numbers, at the level of the alternative funds, we have a positive contribution of EUR 12.5 million to the growth. Mutual funds around EUR 7 million and discretionary advisory services and pension funds contributed for EUR 9 million. With regards to our global operation, we have a contribution of about EUR 27 million, thanks in this case as well to the asset growth, mainly driven by U.S., Brazil, Singapore and Monaco. We should also factor in the change in perimeter due to the consolidation of Kennedy Capital and HighPost, which occurred for EUR 17 million. So moving to the performance fees were EUR 4 million lower year-on-year, mainly reflecting softer results in the first half of the year, but partially offset by strong third quarter performance, thanks to Brazil, Turkey and Monaco. Then at the level of the insurance revenue, we have a decrease by EUR 80 million compared to the first 9 months of last year. But however, in this case as well, despite market volatility, we have a positive contribution from performance fees of about EUR 27 million in these 9 months and in particular, strong contribution in the third quarter. We also grew our recurring revenue by about EUR 8 million compared to last year. And these 2 components largely compensated for the lower performance contribution resulting in an overall variance of EUR 16 million compared with last year. And to conclude this first part of the revenues at the level of the other revenue were up to about EUR 15 million compared to last year. And I mean, in general, we continue to see good consistency across all the areas that contribute to this line. But I would like particularly to highlight the contribution from a structuring fee related to our Brazilian private infrastructure business. These fees are not recurring on a quarterly basis since they depend on deployment activity. But however, given the size and the ongoing growth of our infrastructure platform, we do expect them to recur on an hourly basis, although with varying amount depending on timing and at the level of the single transaction. So then now moving to Slide 10. We are going to focus on cost trend. Compared to revenue growth of about EUR 61 million, cost increased by a total of about EUR 33 million. Distribution costs increased by EUR 24 million. This change is explained by the general increase in distribution costs, mainly within the Italian perimeter directly correlated to the growth of our assets and revenues and EUR 8 million as well from the growth of the variable and dispensing component, so an increase in marketing costs is also directly connected to the TNB project operation. And finally, EUR 4 million stemming from the increase in costs directly linked to the growth of our foreign business. The administrative costs were up by about EUR 11 million, and this is largely explained by the change in perimeter, meaning the line-by-line consolidation of Kennedy Capital and HighPost that contributed about EUR 4 million with offsetting effect from the FX. And we also would like to highlight anyway the cost discipline, especially concerning the Italian perimeter. And then D&A on the other hand, we see that it is substantially in line with the previous year. Moving to Slide 11. As you can see, considering the revenues and cost, the dynamic just explained, we're recording a strong EBIT growth of 12% or EUR 47 million year-on-year. Equally important, we recorded a growth in the recurring net profit of about 17%, EUR 44 million versus the first 9 months of last year. Before moving to the next slide, let's highlight also the significant contribution from the finance income item, which shows an increase of about EUR 62 million, driven by EUR 37 million from assets and portfolio performance, EUR 19 million from the fair value option and equity participation, EUR 9 million from interest and EUR 8 million from GP stakes & affiliates. And then also, we had a negative, in this case, negative impact of the IFRS for EUR 11 million. Now moving to Slide 12. We have the classic picture of our net financial position, which is a positive balance at the end of September of EUR 765 million, substantially the same value of last year compared to June, we have an increase of around EUR 120 million. That can be reconciled considering the pretax results of EUR 198 million less the tax advance of EUR 7 million, EUR 8 million, its M&A for EUR 8.5 million, the proceeds from the sale of RoundShield that contributed to the cash for EUR 38 million and then a technical adjustment of EUR 27 million from UCI units moved out from the net financial position. Moving to Slide 13. Let me share a key update on the TNB project. During the past month, we secured the antitrust approval to acquire the banking license. And I am delighted to announce today that we have signed yesterday a binding agreement with the Banca di Sconto. Our negotiation with FSI continued following the press release published to date. We have updated the project finalization time line to Q2 '26. This timetable establishes a clear and orderly process, providing Azimut and its shareholders with greater visibility on the final stages of the transaction. The schedule is fully aligned with the operational work already underway for the launch of TNB. And then I remind you, once again, the extraordinary long-term value of this transaction. So again, the EUR 1.2 billion potential total consideration plus the EUR 2.4 billion revenue guarantee plus the 20% stake that we will maintain in TNB. Turning to Slide 14. We have here shared the '25 targets. We confirm our net inflow target for the full year of EUR 28 billion to EUR 31 billion. We have already achieved more than EUR 15 billion of net inflows at the end of September. We saw preliminary figures for October and an expected contribution of about EUR 14 billion from the NSI integration could lead us to reach up the guidance. And then moving to Slide 15. Given the strong results achieved in the first 9 months, we are pleased to announce an upgrade to our '25 core group net profit target. We now expect to exceed EUR 500 million in '25 compared to our previous lower end guidance of EUR 400 million. Looking ahead to 2026, including the expected contribution from TNB in this year, as a result of the updated time line, we estimate group net profit to amount above EUR 1 billion. Finally, reflecting both the strength of our results and our solid capital position, the Board of Directors intend to propose announced the dividend policy for the 2025 financial year. This will be above last year EUR 1.75 per share, which represented a 61% payout on recurring net profit, further demonstrating our commitment to rewarding shareholders through sustainable and growing returns. We will share the final details with our full year '25 results presentation that will be happening at the beginning of March '26. Thank you for your time and your attention. Now I hand over to Giorgio, again. Medda Giorgio: Thank you, Alessandro, and I will move to Slide 16. So following the completion of the ordinary supervisory review by the Bank of Italy on part of our Italian business, we can say that we have full clarity and greater visibility on the regulatory time lines ahead. This gives us a very solid foundation to move forward with confidence towards the launch of TNB that is a key milestone in Azimut's evolution. The group strategic plan, Elevate 2030, which will include targets for all business lines and both the Italian and global platforms will be presented in full as previously announced to the market following the authorization of the TNB transaction. However, global expansion continues to be a cornerstone of Azimut's strategy, and we continue building on our presence in 20 markets. And we are very determined to continue strengthening our leadership among the world's leading independent players. And that is why, in the meantime, we have decided to share a few key guidelines focused on our global business that is a part not impacted by the supervisory review. This plan emphasize growth, diversification and sustainable value creation for shareholders. With Elevate 2030, we are certainly defining an even more ambitious growth trajectory, one that will showcase the full potential of our diversified global platform and reinforce Azimut's position as a truly global success story. But let us now take a closer look at what lies ahead, and I will move to Slide 17. So first of all, to help everyone to better understand the potential of our global operations, we started with a bottom-up analysis of the expected contribution in terms of net inflows from each region. This has historically been an area where the market underestimated our potential, and we believe these figures better illustrate the scalability of our platform. What we're showing here are the expected yearly net inflows from our global operations only, and we are excluding Italy. These targets are indeed very ambitious, but we see them as incredibly realistic. They are consistent with our historical growth trajectory, which also reflects a clear step-up as we continue to scale, broaden our investment solution base and bring innovation to our markets. And indeed, we believe a strong potential for Azimut to replicate the success that we have achieved in Italy. We expect total net inflows from our global platform between EUR 5 billion and EUR 8 billion per year, with the Americas region remaining a major growth driver, contributing EUR 2 billion to EUR 3 billion annually, supported by the integration of NSI in the United States, which will add approximately $16 billion or EUR 14 billion upon closing of the transaction at the end of the year. Our strategic affiliates led by Sanctuary Wealth in the U.S., AZ NGA in Australia, also very well positioned now to capture powerful structural trends and the shift of top financial advisers away from bank-owned networks towards independent platforms continues to accelerate and the ongoing intergenerational wealth transfer in both markets is expanding every day the addressable client base for advisory-driven models like ours. For the strategic affiliates, we are expecting to add between EUR 1.5 billion and EUR 2.5 billion of annual inflows, confirming the strength of our partnership model in high potential markets. The EMEA and Asia Pacific regions will also contribute steadily, driven by our ongoing expansion in markets such as Egypt, Taiwan and Singapore. And overall, this figure illustrates the depth and balance of our global business. In general, what I would like to stress here that the international component of Azimut is becoming an increasingly powerful engine of growth and value creation under the new strategic plan. So moving to Slide 18. Here, we are really converting the inflows into the overall asset base at the end of the period. And we are now projecting our global average total assets to grow from around EUR 54 billion to between EUR 95 billion and EUR 110 billion by 2030. This is a very exciting plan. We are essentially showing here our ambition to double our asset base. But certainly, it demonstrates the strength and maturity of our global platform. Achieving these goals will require certainly focus and determination, but I believe we have all the right elements in place. We have now a robust and diversified product offering across public and private markets. We have the ability to tailor solution to the specific needs of each client, and we have a unique entrepreneurial model and mindset that will allow us to move quickly and seize opportunities. This combination gives Azimut a unique and clear competitive advantage and positions us among the very few independent global players able to grow at scale while preserving quality and agility. And now moving to Slide 19. I want to really focus on margin. This is a very important element to help the market better understand what lies ahead and the true earnings power of our global business. Here, we show where our current net profit margins stand today by region and where we expect them to evolve by 2030. We have provided what is a wide enough range to capture different market conditions, but also we want to illustrate what is the significant operating leverage and the economies of scale that our global platform can deliver as it continues to grow. The Americas are expected to see margins rising from around 27 basis points today to between 25 and 35 basis points by 2030. And this will be our largest region by total assets, supported by the NSI integration and the planned launch of active ETFs, which will bring Azimut's global product capabilities to the world's largest market. EMEA remains our most profitable region with margins expanding towards 50 to 60 basis points, while we see the potential for the Asia Pacific region to gradually improve its contribution as the region scales and matures. Looking at these figures on a consolidated level, we expect the global business, excluding Italy and the strategic affiliates, to reach a net profit margin between 30 and 40 basis points by 2030, corresponding to an annual profit of approximately EUR 180 million to EUR 280 million. This compares with a margin of around 35 basis points and a net profit of EUR 70 million generated in the first 9 months of this year. Also, I think it's important here to put into perspective that since 2019, our global net profit has grown at a compound annual growth rate well above 35%. And this gives us a very strong base and clear visibility on the profitability path we are building towards 2030. I would move to Slide 19, 20 and 21. And on the next 3 slides, you see the same breakdown as before, but this time by business line rather than geography. And that should help everyone to cross check our assumptions and better understand the contribution of each vertical to the overall growth plan. I will not spend too much time here, but it's important to highlight the strength and balance across our global platform. And let me tell you that the Elevate 2030 plan will bring greater transparency to the market by showing our strategic and financial objectives through these 4 verticals that we have already introduced this year with the new reporting structure. This structure certainly enhances clarity, ensures consistency in how we represent value creation and makes it easier to appreciate the growth and profitability potential for each business line. And obviously, 4 verticals provide a diversified and complementary growth platform that is underpinning our market leadership, operational integration and long-term strategic partnerships. I would move now to Slide 23, where there is essentially highlighted what is a key pillar for Elevate 2030, that is strategic capital management. This is a framework designed to enhance our valuation to strengthen financial flexibility and deliver consistent and attractive returns to our shareholders. Our focus is on improving transparency and disclosure to help close the valuation gap that we continue to believe the market is still applying to the stock and not really truly appreciating the potential of Azimut. We are also proactively managing regulatory risk by simplifying our structure and ensuring greater operational clarity across jurisdictions. And we furthermore plan to unlock value from our global operations through a series of operations that could potentially include targeted demergers, dual listings and/or strategic partnerships. We're also very pleased today to announce a new share buyback program with a commitment to cancel up to EUR 500 million of repurchased shares over the next 18 to 24 months, equivalent to around 10% of our share capital. This initiative aims to maximize shareholder remuneration and reflects the constructive feedback that we have received from our investors over the last few months. And it's a clear signal of our confidence in the strength of the group, the resilience of our cash generation and our commitment to delivering tangible value to shareholders. Beyond this, we remain committed to maintaining a debt-free position given the strong cash flow generation of our business. However, we will preserve the optionality for future value-accretive M&A opportunities to be financed via debt. And as Alessandro has already highlighted, we will propose a new enhanced ordinary dividend for the full year 2025 versus the prior year. And certainly, we will give you more insight with our full year results in March 2026 when it comes to a broader and more comprehensive dividend policy as part of the Elevated 2030 plan. I mean, I think we can already anticipate that when it comes to shareholder remuneration, one key principle will be that any policy that we will announce to the market will be aligned with cash flow generation to ensure an attractive and sustainable payout over time. So let me move to the last slide, really to wrap up everything that we discussed and shared with you today. So first of all, we are upgrading our 2025 core net profit target to above EUR 500 million, and we project now net income to exceed EUR 1 billion in 2026. This reflects the solid momentum we have built throughout the year and continued strength of our recurring earnings. Second, we have made meaningful progress on the TNB transaction, gaining enhanced clarity on the time line for the next steps. And this gives us a clear regulatory and strategic pathway to move forward. Third, with Elevate 2030, we are releasing ambitious yet achievable targets for our global operations, and we project between EUR 5 billion and EUR 8 billion of annual net inflows over the next 5 years and total assets between EUR 95 billion and EUR 110 billion by 2030, with an expected net profit margin in the region of 30 to 40 basis points. And last point, our strategic capital management remains a key driver of value creation, supported by a EUR 500 million share buyback program with full cancellation of repurchased shares and the new dividend policy to be presented in 2026 after the completion of the TNB transaction. But as we mentioned, already we are providing an announced dividend payout for 2025, obviously applying on a payment in 2026. Together, we believe these initiatives position Azimut for a new chapter of profitable discipline and sustainable growth. With this, we are done and we certainly open the floor to any questions. Operator: [Operator Instructions] The first question is from Gian Luca Ferrari of Mediobanca. Gian Ferrari: Three for me, please. The first one is on the foreign business. I think what you are telling us today, Giorgio, is that the foreign operations are closing this year very close to the cost of capital you put in that development outside Italy. And given the trajectory you are disclosing today, is it fair to assume that by 2027, the IRR of this will reach 20% or something very close to that level? The second is on Nova. Last week, Amundi and then UniCredit, they have been pretty vocal in what is the relationship among them. I will not ask you the level of AUM you are expecting from UniCredit given the acceleration of the divorce, let's say, from Amundi. But I'm more curious to understand what is the level of margins after 2028? So after UniCredit will have exercised the call option. Is it fair to assume that your 20% in Nova will represent something like 15, 20 basis points on the AUM that UniCredit will have transferred at that point? The third question is, I don't know if I can ask this question, but are you eventually considering a dual listing of Azimut even in other stock exchange like in the U.S., for example? And sorry, if I may, the last one. I saw in the press release, you -- after the Bank of Italy inspection, you have some, let's say, adjustments to the business to be compliant with what Bank of Italy is asking to you. Are the costs related to that material or we are talking about a few million euros? Medda Giorgio: Gian Luca, I'll pick your first and second question. So regarding the foreign business or the global business, as we call it [indiscernible], you look at this year and you look at what we have delivered for the first 9 months, I think it would be fair to assume that we will generate a return on invested capital of between 13% to 15% that I think is above our cost of capital. So I think we are already proving value creation. And yes, indeed, when you look at the earnings trajectory over the next couple of years, certainly, I see as very realistic, a return on invested capital in the region of 20% within this time frame. When it comes to Nova, as you know, and I think it's important for me to stress it again, we will never, never disclose any confidential information regarding the activity of clients with our platform. We have never done that with any client. We will never do with Nova. But let me guide you towards some generic principles that govern our partnership with Nova. Certainly, the moment that UniCredit will exercise the call option to buy 80% of Nova, that should not have a material impact on earnings contribution. As already today, we have an agreement under which we are working like UniCredit was already an 80% shareholder. And when it comes to basis points, I think we've guided in the past a range between 40 to 50 basis points. I would assume that we are ballpark again in line with that level in the second stage of this partnership if we get to the second stage after the exercise of the call option. You were also asking about dual listing. Yes, indeed, the U.S. stock exchange remains a very viable option for us. Certainly, we see today a very significant valuation differential for players in our industry being listed there as opposed to be listed in European markets, but we will retain obviously full optionality in deciding which exchange will be eventually decided for our alternative listing. Alessandro Zambotti: I take the Bank of Italy side. So in general, as you said and as you probably read on the press, the report is focused on increase our strength in terms of [indiscernible] strategic planning. So nothing let's say, that cause us an impact on the business and therefore, on the P&L of the group. Therefore, it's just a matter to focus on paperwork and fix what, let's say, they found missing. But as you said also during the question, it's just a few, let's say, a few euros to spend to fix quickly the gap and then looking forward, focusing on our business. Operator: The next question is from Giovanni Razzoli of Deutsche Bank. Giovanni Razzoli: Two set of questions. The first one is on the target for the international operation contribution. You are targeting EUR 5 billion to EUR 8 billion of inflows, half of that are from the states. But if I look at the 9 months run rate, you are already at close to EUR 4 billion, EUR 4.5 billion with U.S. at EUR 2.5 billion. So I was wondering if we can consider the low end of the range, this EUR 5.8 billion contribution of inflows from the international operation as a quite conservative target. The second question relates to the announcement of the share buyback. I was wondering how shall we look at the 10% share buyback that you have announced in the context of the 3% treasury shares that you have already owned. So shall we assume that the 10% is on top of the 3% or you will proceed with the cancellation of the 3% and then on top of that, in 2 years' time, you will buy another 10% with the cancellation? And then as you have mentioned medium, long-term targets, given that your net financial position is very strong, actually, you are cash positive with a capital-light business, shall we assume that apart from this EUR 500 million share buyback, if I move forward, I don't know, 3, 4 years down the road, the share buyback becomes a kind of recurring component of your distribution strategy, let's say, EUR 500 million of share buyback in 2 years' time as a kind, as I said, of recurring contribution of your remuneration policy? Medda Giorgio: Yes, Giovanni. So let me start with the question regarding the EUR 5 billion to EUR 8 billion expected net new money from our non-Italian operations. Indeed, we have provided you a target. This is a target applied for a 5-year period. Certainly, we always work with the ambition of beating the targets that we set for ourselves. And indeed, I would say that the bottom end of that range assumes a deterioration in market conditions and things changing as opposed to what we are leaving now. But the range is a range, is a long period of time, and I would certainly with everyone in Azimut to make sure that our real objective is to beat that range. When it comes to the share buyback, I don't know which figure you are looking at, but I would say that probably today, treasury shares amount to 1% of our outstanding capital. And you should assume that the 10% is on top of this 1%. And for the question regarding what will happen in the next 3 to 4 years, I would certainly be thinking what we have announced today. And time will tell. I think we are making a very strong statement in terms of committing to ensure that our shareholder remuneration policy is inclusive and makes all our shareholders to benefit from the value that we create every day in our business around the world. What is important to say here is that after the TNB transaction, we'll be able to provide a more comprehensive shareholder remuneration policy, including also the ordinary payout policy when it comes to dividends. Operator: The next question is from Hubert Lam of Bank of America. Hubert Lam: [indiscernible] in the global business. Just wondering how much of that would you expect it to be coming from organic in your plans? And how much is it M&A? Do you need M&A to kind of get there? Or are you confident that organic, you can still achieve your targets? Second question is on the share buyback, the EUR 500 million. I'm just wondering in terms of timing when it could start, do you need the approval for the new bank first before you can start the share buyback? Or can it come before that? And lastly, any questions on the new bank. Any update in terms of expected profits you expect from this, both in '26 and maybe beyond that? Medda Giorgio: Hubert, I'll reply to your first 2 questions. I'm not sure I got right your first one. But let me start with the first one regarding organic growth from our global operations, the guidance we provided, you should assume it's mostly organic. And by the way, when you look at what we have done this year, again, the figure that we mentioned earlier is essentially mostly organic. So you should really consider any M&A contributing to this level. When it comes to the share buyback, as a matter of fact, the share buyback is live in the market because we had already approved the share buyback with our AGM in the first quarter this year. What the AGM will approve next year will be the renewal of the plan and the cancellation of the repurchased shares. But the share buyback is, as a matter of fact, right now live in the market. And as far as your first question is concerned, we missed it. Hubert Lam: Yes. Sorry about that. Yes, so the answer to the first 2 are very clear. The third question -- yes, sorry, on the new bank. Just wondering how much in terms of profit contribution we can expect from it in terms of delivering profits in '26. I know that's just the first year and also like beyond, any update in terms of guidance around that? Alessandro Zambotti: Well, nowadays, it's running around -- with the projection at the end of the year, it's around EUR 60 million for '25. Therefore, I would say we are going to be the 20% of this range less a few costs that obviously has to be incurred through the fact that it has no spending banks. Therefore, I would say that we are in this range. Operator: The next question is from Alberto Villa of Intermonte SIM. Alberto Villa: A few left. One is on the acquisition side. I read that your Chairman also indicated that there might be opportunities for future acquisitions, especially in LatAm. So I was wondering if you can give us an idea what is, let's say, of interest for the group in terms of completing the setup of the global operations you have. And broadly speaking, what is the leverage that you would consider as a good setup for the group if you find an interesting opportunity also inorganic in the framework of the -- also the capital remuneration and shareholder remuneration that you have in mind? Medda Giorgio: Okay. Thank you, Alberto. So your first question referring to the interview of our Chairman a couple of weeks ago in Italy. Indeed, we will continue to explore and to seek acquisition opportunities on a bolt-on basis and acquisitions that will never be material in terms of cash outlay and certainly will carry a strong strategic sense in terms of adding and complementing our existing businesses around the world. I think during the interview, it was mentioned our interest in Latin America. Let me tell you that there are a few situations we are looking at in Brazil, but that would be negligible in terms of cash investment for the firm, but certainly we will strengthen our distribution business in the country. And when it comes to the leverage, we often said that we certainly recognize the merits of having an optimal capital structure policy. And in general, we would guide the market when it comes to what we would envisage in the case of a transformative or material M&A transaction in terms of leverage, probably in a situation where we have a net debt to EBIT in the region of 1 to 1.5x ratio. Operator: The next question is from Elena Perini of Intesa Sanpaolo. Elena Perini: I have some left. The first one is about your new net profit target for '25 and 2026. So basically, you move the more than EUR 1 billion target to next year due to the timing of the conclusion of the TNB transaction, if I understand correctly. And while you have for 2025, a target about EUR 500 million. In terms of targets, just to refer to your global business. The wide range that you set for 2030 is EUR 180 million to EUR 280 million is only due to the different range of annual flows and due to the different potential margins on the assets? Or are there any other factors that could explain this wide range? And then a clarification about other income and tax rate. About other income, you mentioned structuring fees. Are there any recurring items for next quarters too? Or do they represent a one-off item? While for the tax rate, I think that there are some one-offs for this quarter as you confirm your guidance of 25% for the full year, but I'm asking you about this. Alessandro Zambotti: Yes. Thank you, Elena. I'm going to take a few of your questions, and then Giorgio will conclude. So starting from your first part relating to the net profit, the new target and as well the moving of the EUR 1 billion to the '26, it's clearly -- your understanding is correct. I mean the contribution of TNB that we plan -- I mean, we're planning at the end of the year is not going to happen. Therefore, obviously, the contribution and the equity transaction is going to happen in '26 and therefore, as well the P&L impact from this transaction is going to be booked next year. And at the same time, following the good results and the good trend of the group, we were updating the guidance for the, let's say, the simple reason that the projection that we see, the trajectory that we see for the last few months of the year is if nothing happens, let's say, complicate, we will be able to get the target. Then you refer to the other income. As you were saying, there is a one-off effect that is linked to the structuring fees. But at the same time, as I was saying at the beginning, it has not to be considered one-off for the yearly basis because it's quarterly basis, for sure, we cannot say that every quarter, we will have this contribution. But looking on a yearly basis, this amount I mean could happen that following this type of services that we are providing, they came up -- I mean, a contribution as well on the other income on the future years. And then at the level of the tax, I think it's more close to the constant of seasonability. I mean, this quarter, it's always lower than in December, considering also the provision of all the dividends coming from the other countries, we will probably get higher impact of tax for that, we kept the guidance stable as per the previous. Medda Giorgio: And yes, when it comes to the 2030 margin targets, the EUR 180 million to EUR 280 million net profit from global operations. Look, this range is admittedly very large. It reflects simply the addition of the lower bound targets for each division or geography and the upper bound. There is nothing else there. It certainly is a basic assumption that the business mix going forward will essentially remain unchanged or not dramatically different from what it is today. But as I said, we work every day to beat the target that we give ourselves, and we certainly do our best to even do better than what we are disclosing today. It's 5 years, it's a pretty long period of time, but we are starting off a very strong base, and I see us capable of doing very, very well. Operator: The next question is from Ian White of Autonomous Research. Ian White: Just a couple from me, please. First of all, can you call out some of the most important drivers of the improved organic net inflow performance this year, please? I'm particularly interested in where you think you've seen the strongest growth in your market share, thinking about the organic flows specifically. That's question one. And question two, in terms of the Bank of Italy's inspection, can you say a bit more about the specific findings there and the remediations that you're going to introduce? Am I right to read into the statement today that the delay to TNB approval is linked to the regulators' findings? And if so, what's your view as to why the regulator has connected those things, please? Medda Giorgio: Okay. Let me take your questions. So I'll start with the first regarding the underlying drivers of our terrific net new money performance this year. I think we -- if you look at the presentation that we have shown earlier, Slide 6, you find what is a pretty accurate detailed breakdown in terms of net new money to different product lines as opposed to different geographies. Let me tell you from a qualitative standpoint that fund solutions have been doing very well in Italy. Certainly, we have the contribution of Nova here, but let me mention what also we have done in Turkey, in Egypt, in the U.S., that is certainly our key product, our bread and butter, and we are proving now to be able to grow both catering to individual clients and institutional as well in terms of wholesale agreement. Let me mention that our Wealth Management business has been this year delivering incredible growth out of Asia, out of the Middle East. Switzerland, Monaco as well doing better than the previous years. And we see now what is a very sustained momentum that is a testament of our ability of building now a cross-border platform and being able to deal with high net worth, ultra net worth individuals that are recognizing Azimut's the ability and the capability to deliver performance vis-a-vis even larger players. Then when it comes to your question regarding the ordinary inspection from Bank of Italy, yes, again, I would refer to the press release, you should assume that we are subject to inspections every week. As you can imagine, we operate across 20 countries. We are subject to the supervision of 20 regulators, sometimes in certain markets like in the U.S. by 2 regulators in the same country. That is also the case for Italy, by the way. And there are routine inspections. So you can say that every day, we are subject to an inspection. So I do not see the Bank of Italy inspection in Italy has been particularly different from others that we have been subject to. And also, let me stress you that the -- let's say, the topic of the inspection was not the announced transaction with TNB. The inspection was very much covering for our, let's say, asset management product factory activities and has been very much referring to this aspect of the business that is not related to the announced transaction with FSI. One of the outcomes of the transaction was that we need to put in place some very ordinary remedial actions. And as you can imagine, although these actions are not related to the TNB transaction and considering the time line is relatively short, we will work on this remediation plan with some very close deadlines, also suggesting that there's nothing dramatic there, maintaining what is an achievable target for the transaction to close within Q2. By the way, this inspection started even before the binding agreement was signed with FSI, and it's really to be seen as completely unrelated. Maybe unfortunate in terms of timing, but to be honest, not really a reason of concern for us. Ian White: Okay. If I can just clarify, I'm not sure if I missed this. In terms of the -- is the delay to TNB approval a direct consequence of things that the regulator has found on its -- during its ordinary inspection? Or am I reading that incorrectly? Medda Giorgio: Not at all. It's procedural, if you want. And as we said very often, the 2 things are separate. There is no really -- we should not see the TNB transaction as the inspection that could be related to each other. As a matter of fact, the transaction occurs in a way where the company that is spinning off half of our network is the one that was subject to the inspection, but nothing of the activities that will be spun off has been subject to the inspection itself. It was mostly related to funds management to discretion portfolio management, really nothing at all that was related to the asset base that will be spun off. Operator: [Operator Instructions] Mr. Medda, there are no more questions registered at this time. Medda Giorgio: Okay. Let's close the call here, and let me wish everyone a good end of the year. And obviously, we keep looking forward to seeing you soon. Thank you. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Cipher Pharmaceuticals Quarterly Conference Call for the company's Q3 2025 results. [Operator Instructions] As a reminder, this conference is being recorded today, Friday, November 7, 2025. On behalf of the speakers that follow, listeners are cautioned that today's presentation and the responses to questions may contain forward-looking statements within the meaning of the safe harbor provisions of the Canadian provincial securities laws. Forward-looking statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are implied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. For additional information about factors that could cause results to vary, please refer to the risks identified in the company's annual information form and other filings with Canadian regulatory authorities. Except as required by Canadian securities laws, the company does not undertake to update any forward-looking statements. Such statements speak only as of the date made. I would now like to turn the call over to Mr. Craig Mull, Interim Chief Executive Officer of the company. Please go ahead, Mr. Mull. Craig Mull: Good morning, everyone, and thank you for joining us today. Before I begin, I would like to remind everyone that all figures discussed on today's call are expressed in U.S. dollars, unless otherwise specified. Cipher demonstrating meaningful growth during the third quarter of 2025, which was largely attributed to the addition and performance of our U.S.-based Natroba business. Sales from Natroba and its authorized generic Spinosad were $8.1 million during the third quarter of 2025, a 4% sequential increase over the last quarter's revenues of $7.8 million, consistent with the product seasonality, whereby head lice and scabies infections are generally more prevalent in the warmer months of the year. Additionally, the Natroba business continues to have strong profitability with gross profit of $7 million and a gross margin percentage of 86% during the third quarter of 2025. Adjusted EBITDA from the Natroba business was a strong result of $5 million, which contributed to our total combined business adjusted EBITDA of $7.3 million during the third quarter of 2025. Consistent with our past track record, our earnings translate directly to free cash flow, which has allowed us to continue to deleverage the business. During the third quarter and after the quarter-end, we repaid a total of $17 million on our revolving credit facility, which has now been reduced to a balance of $8 million at the present time. This is an incredible feat given that we drew $40 million on the revolving facility to acquire the Natroba business just at the end of July 2024. Our CFO, Ryan Mailling, will provide a detailed overview of our financial results following my commentary. I would like to spend the balance of my remaining remarks to discuss our business development activities, which we are very active in and where I am focusing the majority of my time. We have 4 distinct strategies ongoing at the moment to drive shareholder value and grow our business. Firstly, it is critical we continue to invest and build upon the Natroba business and the U.S. operations to position it to further grow heading into 2023. To supplement our existing sales approach, we will be launching a direct-to-consumer sales model early in 2023, which is a strategy many pharmaceutical manufacturers are taking as a direct and modern sales approach to the U.S. market. We believe Natroba is right suited for a direct-to-consumer sales model, whereby permethrin and related OTC products are no longer an effective solution to the needs of individual consumers and families suffering from head lice and scabies. They simply need a better solution and an ability to get it fast when it is needed. Our platform will streamline the process to obtain a prescription, efficiently adjudicate a claim and provide a convenient local pickup or delivery option to consumers. The strategy also includes partnerships with retailers to ensure that Natroba and Spinosad is adequately stocked in states and city centers across the U.S., so it is available through this platform. We are excited about our new DTC strategy, and we'll provide more details on the rollout in the coming months. A second area of our business development strategy is we are actively pursuing complementary products, which can be directly commercialized through our existing U.S. sales force. We are currently active in discussions with various parties, and we'll continue to provide updates. However, as with all business development opportunities, the activities take time and the opportunities may or may not come to realization. A third strategy we are pursuing is launching Natroba in Canada, and we are on track to submit our new drug submission to Health Canada during the fourth quarter of 2025. We believe Natroba will fill an unmet need in Canada for a highly effective treatment for head lice and scabies, and we will continue to provide updates as developments occur with Health Canada's review and the submission process. The fourth strategy I would like to discuss with you is we are actively pursuing out-licensing opportunities for Natroba globally. We continue to believe there is an unmet need for a highly effective product like Natroba to address head lice and scabies indications in other territories globally. However, we believe it is important to find the right fit with our out-licensing partner for Natroba. Product pricing in territories outside of the U.S. is an important element we must consider when finding the right fit for the out-licensing. With that being said, we are in discussions with various organizations at the present time and hope to provide exciting updates as developments occur in this area. Thank you for joining us here today, and I look forward to answering any of your questions after our prepared remarks. I will now pass the call over to our CFO, Ryan Mailling. Please go ahead, Ryan. Ryan Mailling: Thanks, Craig, and good morning, everyone. As Craig mentioned at the beginning of today's call, all amounts provided are expressed in U.S. dollars, unless otherwise noted. Today, Cipher Pharmaceuticals is reporting results from the company's third quarter and 9-month period ended September 30, 2025. Total net revenue for the 3- and 9-month period ended September 30, 2025, was $12.8 million and $38.2 million, respectively. Net revenue for the third quarter of 2025 increased by $2.4 million or 24% compared to the same quarter in the prior year. Net revenue for the 9-month period ended September 30, 2025, increased by $16.7 million or 78% over the same period in 2024. Increases were attributable to the addition of the U.S.-based Natroba business on July 29, 2024, for which only 2 months of revenue were included in our prior year results for both the 3- and 9-month periods ended September 30, 2024. Product revenue from the U.S.-based Natroba business comprised of the brand Natroba and authorized generic Spinosad was $8.1 million and $22.5 million, respectively, for the 3- and 9-month periods ended September 30, 2025. Product revenue from the U.S.-based Natroba business for the 3 and 9 months ended September 30, 2024, was $5.5 million. Product revenue from the Canadian product portfolio for the third quarter and 9 months ended September 30, 2025, was $4 million and $12.7 million, respectively. Canadian product portfolio revenue of $4 million increased by $0.2 million or 5% for the third quarter of 2025 compared to the $3.8 million in the third quarter of 2024. For the 9 months ended September 30, 2025, product revenue from the Canadian product portfolio of $12.7 million represented an increase of $1.9 million or 18% compared to $10.8 million in the same period of the prior year. Additionally, as the sales for our Canadian product portfolio are denominated in Canadian dollars, when translated on a constant currency basis, Canadian product portfolio revenue for the 9 months ended September 30, 2025, was impacted by changes in the U.S. dollar relative to the Canadian dollar. The impact was nominal for the third quarter. However, when translated on a constant currency basis for the 9 months ended September 30, 2025, Canadian product portfolio revenue increased by $2.2 million, representing an increase of 21% over the 9 months ended September 30, 2024. The products comprising our Canadian product portfolio benefited from a combination of increased sales volumes and favorable changes in product mix for certain products for the 3 and 9 months ended September 30, 2025, compared to the same periods in the prior year, which contributed to the overall increase in revenue. Moving on to our U.S. licensing revenue. Total licensing revenue for the 3 and 9 months ended September 30, 2025, was $0.8 million and $3 million, respectively. Licensing revenue decreased by $0.3 million and $2.3 million, respectively, for the third quarter and 9 months ended September 30, 2025, compared to the same periods in the prior year. The overall licensing revenue of $0.8 million for the third quarter of 2025 represented a 28% decrease compared to $1.1 million in the same quarter of the prior year. The decrease is due to the Absorica portfolio in the U.S., which contributed $0.4 million of licensing revenue in the third quarter of 2024, a decrease of $0.2 million when compared to the $0.6 million of revenue for the same quarter in the prior year. The decline in the Absorica portfolio licensing revenue resulted from lower royalty revenue contributed to by reduced sales volumes and net sales realized by our distribution partner on which Cipher earns a net sales royalty. This was combined with Cipher no longer earning a royalty on Absorica LD in the U.S. market effective January 1, 2025. We also earned revenue from supplying product to our distribution partner, however, revenue from this remained consistent year-over-year in the third quarter. Overall licensing revenue for the 9 months ended September 30, 2025, was $3 million compared to $5.3 million for the same period in the prior year, representing a 44% decrease. The decrease for the 9 months ended September 30, 2025, was contributed to by the Absorica portfolio and Lipofen, including its authorized generic. Licensing revenue from Absorica was $1.7 million for the 9 months ended September 30, 2025, a decrease of $2 million or 54% when compared to the same period in 2024. Revenue from Absorica for the 9-month period was impacted by year-over-year declines in product shipments on which we earn revenue from supplying product to our distribution partner. The decline in the Absorica portfolio licensing revenue for the 9 months ended September 30, 2025, was also impacted by lower royalty revenue contributed to by lower sales volumes and net sales realized by our distribution partner on which Cipher earns a net sales royalty. This was further contributed to by lower contractual royalty rates year-over-year. Market share for Absorica in the authorized generic of Absorica was 2.9% at September 30, 2025, according to Symphony Health market data, representing a decrease of 2.7% compared to 5.6% at September 30, 2024. The products continue to face increasing generic competition and related market dynamics within the U.S. market. Licensing revenue from Lipofen and the authorized generic of Lipofen was $1.1 million for the 9 months ended September 30, 2025, representing a decrease of $0.4 million compared to the same period in the prior year, attributable to lower sales volumes and net sales realized by our distribution partner on these products, on which Cipher earns a net sales royalty. Selling, general and administrative expenses for the 3 and 9 months ended September 30, 2025, were $3.7 million and $12.8 million, respectively. Selling, general and administrative expenses for the third quarter of 2025 of $3.7 million represented a decrease of $2.5 million or 40% compared to the same quarter in the prior year. The decrease was primarily attributable to the nonrecurring acquisition-related costs of $1.6 million in connection with the acquisition of the U.S.-based Natroba business, combined with $0.7 million in legal costs with respect to an arbitration process, which were incurred during the third quarter of 2024. However, these costs were not recurring in the third quarter of 2025. Selling, general and administrative expenses for the 9 months ended September 30, 2025, of $12.8 million increased by $3.5 million compared to the same period in the prior year. This increase is attributable to a full 9 months of selling, general and administrative expenses for the acquired U.S.-based Natroba business in 2025 to date compared to only 2 months of selling, general and administrative expenses for this business post-acquisition in the same period in prior year. Additionally, legal costs associated with the arbitration process were $0.5 million higher for the 9 months ended September 30, 2025, compared to the same period in the prior year. These increases in selling, general and administrative expenses were partially offset by $1.9 million of nonrecurring acquisition-related costs in connection with the acquisition of the U.S.-based Natroba business, which were incurred during the 9 months ended September 30, 2024. However, these costs did not reoccur in the same period in the current year. Net income for the 3 months ended September 30, 2025, was $5.5 million or $0.21 per diluted common share compared to $0.3 million or $0.01 per diluted common share for the same period in prior year. Prior year net income for the 3 months ended September 30, 2024, was adversely impacted by $1.6 million of nonrecurring acquisition-related costs in connection with the Natroba acquisition and $0.7 million of legal costs with respect to the arbitration. Net income for the 9 months ended September 30, 2025, was $14 million or $0.54 per diluted common share compared to $8.2 million or $0.33 per diluted common share for the same period in prior year. Net income for the 9 months ended September 30, 2025, benefited from the inclusion of the U.S.-based Natroba business for the full 9 months of the period compared to the inclusion of this business for only 2 months post-acquisition during the same 9-month period in the prior year. However, net income for the 9-month period ended September 30, 2025, was also adversely impacted by $0.8 million of noncash fair value adjustments associated with the inventory acquired in the Natroba acquisition, which were recognized in cost of products sold during the period. $5.8 million increase in net income year-over-year was further contributed to by the $1.9 million of nonrecurring acquisition-related costs incurred in connection with the Natroba acquisition during the 9 months ended September 30, 2024, which did not recur during the same period in the current year. Adjusted EBITDA for the 3- and 9-month period ended September 30, 2025, was $7.3 million and $21.1 million, respectively, compared to $4.1 million and $10.7 million, respectively, for the same period ended September 30, 2024. This represents an increase of 79% and 97%, respectively, for the third quarter and 9 months ended September 30, 2025, when compared to the same periods in the prior year. The increase in adjusted EBITDA was mainly driven by the addition of the U.S.-based Natroba business for the full period in 2025, partially offset by declines experienced in U.S. licensing revenue. Company had $8.4 million in cash and $13 million in debt outstanding as of the end of the third quarter of 2025. Cipher continues to generate meaningful free cash flow from operations with $10.8 million in operating cash flow during the third quarter of 2025 and $21 million generated from operations for the 9 months ended September 30, 2025. During the third quarter of 2025, Cipher allocated $12 million of its accumulated cash to make repayments on its revolving credit facility and utilized an additional $1.6 million of accumulated cash for repurchases of common shares under its normal course issuer bid. Subsequent to the third quarter of 2025, on October 31, 2025, Cipher further allocated a portion of its cash that had accumulated from free cash flows to make an additional repayment of $5 million on the outstanding balance of its revolving credit facility. Accordingly, after making this payment, the company now has a reduced debt balance of $8 million outstanding on its revolving credit facility and having completed $32 million in total debt repayments during the fiscal year-to-date, we have made substantial progress towards becoming net debt free. Due to the revolving nature of Cipher's credit facility, after making these repayments, we continue to have $82 million of potential financing available to us, comprising $57 million of remaining availability on our revolving credit facility, plus an additional $25 million accordion option. Cipher's continued strong cash flows from operations continued with access to capital, put Cipher on excellent footing to execute on our business strategy, pursuing growth opportunities. which Craig highlighted during his remarks. We'll now open the call for questions. Operator: [Operator Instructions] Your first question comes from Andre Uddin of Research Capital. Andre Uddin: Besides looking at your sales force and DTC advertising, can you maybe discuss if there's an opportunity for any potential contracts with the military for state prisons for Natroba? Craig Mull: Very good question. Right now, we do have a kind of a strategy pillar where we're working through government contracting, as you just said. An example of a recent activity, which is just some initial discussions as I participated just the other week in a discussion with the VA and to expand the product through VA and get access there. So, that was kind of our first step into that, and then we wanted to then move into other government agencies. So, there's some traction there. But obviously, we don't highlight it because it's at an early stage, but we're certainly moving on it. Ryan Mailling: And Andre, just to add to that, there are other groups of similar interest to us, including nursing home and retirement associations, school nursing associations. The military, obviously, is an area that we think that there's a great demand for this type of product. So, we're starting to reshape our sales force more to go after these, what we call them pillars of business where we are focused on associations and groups where we can get our message out much more efficiently and much more cost efficiently as well. Andre Uddin: And just maybe you could also just going along the same lines, can you discuss how the preferred drug listings for Medicaid is proceeding in some of the other states? I know you have Illinois, but still moving forward for Natroba? Craig Mull: It is. So, some of this is -- some of it is kind of ongoing. So, I'm not able to call it greatly disclose the status of those. But what I can say is at the present time, there are a number of states of similar size to Illinois that are in the -- have our bid, which is submitted to do exactly what you said, which is remove permethrin 5% from the preferred listing and to favor Natroba or Spinosad as preferred. So, there are a number of states right now with bids in their hands that they're considering. And how that works on an ongoing basis is the bids come up for renewal annually. In the most part, some of them go by a different tempo. But as we do that, some of the things are, one, we're adding both Natroba and Spinosad onto state formularies, which just ensures product gets dispensed as well as provide them an option and a financially beneficial option to have our product as preferred. So, states are states like that option, and we hope to have some announcements coming forward as states decide on those bids. Andre Uddin: And I like how you're paying down your debt. I was just wondering if you could just elaborate a little bit more in terms of in-licensing for your business development pipeline, like what does that look like and where prices are? And that's sort of my last question. Craig Mull: On the in-licensing or acquisition side, there are lots of opportunities out there. We're really focused on those opportunities that fit best with our current U.S. operations. And we're in discussions with a number of different opportunities or targets at the moment. Again, as we go through due diligence and the process, obviously, some fall off the table, but we're encouraged recently by some discussions and meetings that we have with what we consider to be products that fit well with our structure in the U.S. Operator: Your next question comes from Max Czmielewski of Stifel. Unknown Analyst: I'm on here for Justin today. But it's exciting to hear you are joining the farm to table trends. And I guess on that, if you could give a little bit more detail on how you think about balancing pricing. I know it's not an expensive product at baseline. So balancing pricing with volume expectations from the DTC approach and how you're thinking about marrying that with your digital marketing plans. Bryan Jacobs: Max, it's Bryan Jacobs here. So, kind of your first question is on pricing. What we've always found is it's difficult when you have a far superior and when I say superior, efficacious product versus the alternatives to really want to compete on price. And if I take our business aside is I think that that's a losing strategy for anyone. If we have the best product, you're going to command a bit of a premium price. But compete -- on the flip side of that is our product is heavily covered on Medicaid and through other -- and on commercial plans. So, really what it is, is it's an educational item to a family because if you think about it, an alternative is you're frantic like you may have something like head lice or scabies. But for head lice, you go to a pharmacy and you try and grab something off the shelf and you may use it and you run out of it, you may need multiple boxes of that, and it doesn't work. So, you're battling with head lice for many weeks. So, the cost of that and the cost of the time of that is kind of a problem for families. Whereas our product, once you pay your co-pay on insurance and get a prescription, you wouldn't be worse off, and you would use the product once and it kills all lice and eggs and your kid goes back to school the next day completely lice-free. So, part of it is ensuring that when people search for the product that works, bringing them into our platform and saying, okay, wow, this is what I want and then being able to get the product in their hands. And that's why we're working through ensuring that the product is available at different retail outlets and giving them a delivery option, so it can show up at their door. We think that's going to be a very compelling business model. And like you said, that's the stable type approach that we're working towards. And this is a supplement to our existing plan. So, we're going to launch this, and we believe it's going to be kind of the next phase of growth for the Natroba franchise and then kind of scale around it from there. Unknown Analyst: And I guess my second question is based around one of your pillars of growth and how you're thinking about your overall strategy and out-licensing Natroba in global markets. Where do you think you see the most opportunity? Is it on -- to say this with diplomacy, more of the emerging market side or developed markets? Are there areas in which permethrin doesn't have the same issue of resistance that wouldn't make sense for a marketplace? Can you just give some color on that? Craig Mull: Sure. Craig here, Max. First of all, let me kind of see if I can address your questions in reverse order. The issue with the resistance of permethrin 5% and 1% is a global issue. And most jurisdictions, if not all, have this resistance problem for permethrin. So, our product is going to shine against other products in other jurisdictions as well. The issue that we're finding is that in a lot of these underdeveloped countries or less developed countries, the pricing isn't where it should be for our product. And so, we're working with different outfits in perhaps less populated countries or less affluent countries. to try to find the best kind of cost/pricing structure. Europe is a good market for this product, particularly the Southern European countries, Spain, for example. And they have reasonably high reimbursement of drugs in general, and this would fall into that. Some Asian markets as well, including specifically Japan, has a relatively lucrative drug payment plans. So, our focus is going to be in Europe, particularly Southern Europe and Japan and a few other Asian countries. Does that address your question, Max? Unknown Analyst: That's perfect. Operator: The next question comes from Doug Loe of Lead Financial. Douglas W. Loe: Congratulations on a solid cash flow quarter again. So maybe just a housekeeping question. So, as you previously announced, your debt levels are down to $13 million in the quarter. Your debt-based financial ratios are well into safe territory. Just wondering, are you comfortable with current debt levels? Or do you expect to deploy any supplemental operating cash to bring debt levels down to even lower levels? Ryan Mailling: Doug, I think, obviously, we need to balance our priorities and cash availability and deployment. But I think, yes, we're going to continue to look to repay our debt. There's no reason not to at this point. Craig Mull: We don't have far to go really, I mean, I'm thinking that we're going to start accumulating cash for our next acquisition. And that's really the plan there. We will be debt-free very close to the end of the year. And then from there, we're going to be accumulating cash if we find the right deal. Douglas W. Loe: Well, I infer from that answer then that no product and licensing opportunities that would require new cash would be imminent before debt repayment would be the priority. I assume that's what you're implying with your answer. Craig Mull: Yes, we're waiting for the right deal to come. And in the meantime, we'll pay off our debt, and we'll stockpile our cash in anticipation. Ryan Mailling: Just to add on, Doug, it's a revolving facility, so we have access to it if we need it. Douglas W. Loe: Of course. Understood. And then yes, just a sort of a competitive landscape question. So, one of the key drivers that was originally identified when you acquired Natroba and ParaPRO was the emergence of resistant strains to permethrin. And we certainly see that dynamic percolating through the medical literature as well. I was just wondering, is that reality broadly known within the medical communities where the head lice is conventionally treated? Or do you think it would make sense to conduct a small study showing that Natroba is more effective than permethrin in resistant strains that -- or treating resistant strains to which permethrin is no longer effective. I'm not sure whether that would be a prudent deployment of R&D capital, but just wondering if you'd considered that and if that might be something on the horizon. And I'll leave it there. Bryan Jacobs: Doug, it's Bryan. We do have a study that's been out there for a while, dates back to 2015 that just talks about the resistance profile across the U.S. It was conducted across literally north, south, east, west states. So covered, I believe, in the high 40s number of states where they collected lights and demonstrated the fact that their resistance and the resistance profile was 98%. And this was done many years ago. So, the one thing that you know about resistance over time, it only gets greater. So, we use that as part of our communications tool when we're reaching out to physicians. It's one of the tools that we have in the toolkit. There is no doubt that part of what we need to do is to get it more ingrained into the medical community. So, ensuring -- we're now getting the attention of a lot of physicians, a lot of KOLs that are attuned to this. And an example of that, as Craig said, we're working after different verticals because that's the way to really kind of go about it, tackle things at the school board level at the long-term care home consortium level. So, we have a KOL at the moment who's working through writing a new protocol associated with if there's an outbreak, this is the product to use, not only because permethrin, you have to do multiple doses over a period of time while people are infectious, but just the fact that it also may no longer work. The 2 dosing -- when permethrin 5% first came out, it was a 1 dose. And then it was broadly known as you need to do one dose and you need to be -- you need to wait 10 days and then dose again. What's not broadcasted right now is it's probably getting into third or fourth until if you pour the permethrin on anything, it will die, but that it's absorbing into your skin during that time. So, it's certainly the best product out there. So, ensuring we use the data that we have and attacking it at the right verticals as opposed to a door-to-door approach is -- as Craig was describing, that's going to be part of our strategy in 2026. Operator: [Operator Instructions] Your next question comes from Tania Armstrong of Canaccord Genuity. Tania Gonsalves: Just a couple from me. So, first on Natroba, I think, Craig, you mentioned earlier in your remarks that seasonality plays a role here and sales tend to be higher in warmer months. I would have thought that sales are also quite high in that like September time frame when kids return to school. Do you guys see that? And should we expect then a downtick in revenue into Q4? Bryan Jacobs: It's Bryan Jacobs here. Nice to meet you. I don't know if we've talked before. Your last part of your question there, do we expect Q4 to be lower than Q3 and Q2? Generally, yes. And even though Q3 is, call it, the hottest, warmest season and you have back-to-school, as you indicated, what we did see this year was that both -- as opposed to having a huge spike in Q3, we feel Q2 and Q3 were more balanced because the stocking and getting ready for it at the wholesale and retail channels happened earlier. Tania Gonsalves: That's good color. And with respect to -- this came up in an earlier question, but just getting on some of these bids that you've made to states outside of Illinois to get on their formularies and displace permethrin. Have there been any states that you have submitted a bid and not won that? Bryan Jacobs: No, there haven't. At the present time, we have a number of states that have the bids that are contemplating it. It's typically what happens there is they give you -- the process works as you approach the renewal of the bid, you submit it and the states just work where they make the decision towards the very end, you kind of hear about it. So, we're hoping in the coming months as we look at some of them renew kind of right on the calendar year that we'll hear back on those. But no, we haven't had anyone turn down that as of late. Tania Gonsalves: And then just lastly, and apologies if I missed this in your remarks, but the compensatory damages and reimbursement for legal fees as part of that Sun Pharma litigation, how should we think about that being accounted for in Q4? Will there just be a contingent consideration line item on your balance sheet? Or have they actually paid you the cash yet? Or are they withholding a portion as they appeal to the outcome? Craig Mull: Tania, it's Craig Mull here. Most of that arbitration award now is public information, and you probably are aware that Sun has decided to try to vacate the order of the arbitrator, and that's going through New York courts at the moment. We don't know how that will go. I certainly like our position a lot better than theirs. But we haven't received any payment, and I don't think that we will be recording any until we hear what the New York courts say. Ryan Mailling: Yes, I can tell you Tania, it's really dependent on timing of this outcome and what the outcome is. So, at this point, it's a contingent asset or gain, which you don't recognize until you have certainty on. Tania Gonsalves: And how long do those appeals processes? I know it varies, but for something like this, how long would you anticipate this taking? Craig Mull: I was told by our litigators that it's likely a few months. Operator: There are no further questions at this time. I will now turn the call back over to Craig Mull. Please continue. Craig Mull: I want to thank everybody for your time today, and I appreciate that you joined our call. We look forward to reporting positive news on the coming quarters as we progress with our plans. Again, thank you very much for your time, and we appreciate your support and interest. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Wheaton Precious Metals 2025 Third Quarter Results Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded on Friday, November 7, 2025, at 11:00 a.m. Eastern Time. I will now turn the conference over to Emma Murray, Vice President of Investor Relations. Please go ahead. Emma Murray: Thank you, operator. Good morning, ladies and gentlemen, and thank you for participating in today's call. I'm joined today by Randy Smallwood, Wheaton's Chief Executive Officer; Haytham Hodaly, President; Curt Bernardi, EVP Strategy and General Counsel; Vincent Lau, Chief Financial Officer; Wes Carson, VP Mining Operations; and Neil Burns, VP, Corporate Development. For those not currently viewing the webcast, please note that a PDF version of the slide presentation is available on the Presentations page of our website. Some of the comments on today's call may include forward-looking statements. Please refer to Slide 2 for important cautionary information and disclosures. It should be noted that all figures referred to on today's call are in U.S. dollars, unless otherwise noted. With that, I'll turn the call over to Randy Smallwood. Randy Smallwood: Thank you, Emma, and good morning, everyone. Thank you for joining us today to discuss Wheaton's third quarter results of 2025. We are pleased to announce that our portfolio of long-life, low-cost assets has once again delivered strong results this quarter, enabling us to achieve record revenue, earnings and operating cash flow for the first 9 months of 2025. This performance underscores the streaming model's unique ability to generate predictable levered cash flows while maintaining a deferred payment schedule, an advantage not offered by the traditional royalty model, which requires full upfront payments and lacks embedded leverage. And of course, 100% of Wheaton's revenue comes from streams, providing a competitive advantage amongst others in the space. As a result of strong performances by key assets, including Salobo and Antamina, coupled with the ramp-up of production at Blackwater and Goose, we recorded production of 173,000 gold equivalent ounces this quarter and are firmly on track to achieve our 2025 production guidance of 600,000 to 670,000 gold equivalent ounces. And with over $1.2 billion in cash and undrawn $2.5 billion revolving credit facility in Accordion and strong growing projected cash flows, the company remains well positioned to meet all funding commitments and pursue new accretive opportunities continuing to grow our -- and continuing to grow our competitive dividend. Based on this strong financial foundation, Wheaton also continues to invest in innovation across the mining sector as well as community initiatives alongside our mining partners. During the quarter, Wheaton launched its second annual Future of Mining Challenge, which this year focuses on advancing sustainable water management technologies. Following the close of expressions of interest phase, 17 proposals have been selected to advance with the winner to be announced at the PDAC conference in March of 2026. And with that, it is my pleasure to now turn the call over to our President, Haytham Hodaly. Haytham Hodaly: Thanks, Randy, and good morning, everyone. Alongside strong performances from our producing assets, Wheaton's growth profile was further derisked through continued progress across 6 key development projects scheduled to come online over the next 24 months. Notably, several of these projects have announced accelerated time lines or expansions, reinforcing confidence in our previously forecasted 40% production growth by 2029. Furthermore, recent joint venture announcements marked significant progress for Copper World and Santo Domingo, further derisking both projects. We are pleased to have announced 2 new streaming transactions over the past 2 months, one with Carcetti on the Hemlo mine and another with Waterton Gold on the Spring Valley project, for which Neil Burns will share more details later in this call. These announcements reinforce our disciplined approach to capital deployment as we remain focused on identifying accretive opportunities that are thoughtfully structured to deliver meaningful and lasting value for all stakeholders. With a solid foundation of organic growth that continues to strengthen, the company is well positioned to pursue opportunities that align with our long-term strategy and uphold our commitment to quality as we have demonstrated with our most recent transactions. And with that, I would like to now turn the call over to Wes Carson, who will provide more details on our operating results. Wes? Wesley Carson: Thanks, Haytham. Good morning, everyone. Overall production in the third quarter was 173,000 ounces, a 22% increase from the prior year, primarily due to strong production at Salobo and Antamina, coupled with commencement of production at Blackwater. In Q3, Salobo produced 67,000 ounces of attributable gold, a 7% increase from the last year, driven by higher throughput grades and recovery. Vale reported that by the end of July, Salobo III had fully ramped up and the entire complex is now operating at full capacity, consistently delivering strong operational performance. Vale continues to advance a series of growth-focused initiatives to enhance efficiencies and support long- and medium-term production growth across the Salobo complex. Constancia produced 19,500 ounces of attributable GEOs in Q3, a 9% improvement from last year, primarily driven by 19% higher gold production resulting from higher grades, partially offset by an 11% decline in silver output due to lower throughput. On September 23, 2025, Hudbay Minerals commented on the ongoing social unrest in Peru, where Constancia was impacted by local protests and illegal blockades. The mill was temporarily shut down as safety precaution, while authorities addressed the situation. On October 7, 2025, Hudbay announced that operations had resumed and throughput has since returned to normal levels. Penasquito produced 2.1 million ounces of attributable silver in Q3, up 17% from last year, primarily driven by higher throughput and partially offset by lower grades as mining transitioned back into the Penasco pit, which contains lower silver grades relative to Chile Colorado. In the third quarter, Blackwater produced 6,400 ounces of attributable GEOs supported by higher-than-expected throughput and grades. Production for the year is expected to be weighted to the fourth quarter with higher mill throughput rates and feed grades expected compared to Q3 2025. Artemis has also announced a 33% increase to Phase 1 processing plant capacity, raising the nameplate from 6 million tonnes per annum to 8 million tonnes per annum with a targeted completion date by the end of 2026. In addition, Artemis is nearing completion of front-end engineering and design work for an optimized and accelerated Phase 2 expansion with an investment decision expected before year-end. In Q3, Almina restarted production of the zinc and lead concentrates at the Aljustrel mine, resulting in the resumption of attributable silver production to the company. During the quarter, Goose transitioned from commissioning to commercial production, which was announced on October 6. As reported by B2Gold, open pit and underground mining rates at the Umwelt deposit have continued to meet or exceed expectations during the 30-day commercial production period. B2Gold has also reported that gold recoveries have been in line with expectations and are expected to average higher than 90% through Q4 of 2025. Wheaton's production outlook for 2025 remains unchanged with -- and we continue to believe that we are well on track to achieve our annual production guidance of 600,000 to 670,000 GEOs. At Salobo, attributable production is expected to remain steady through the remainder of the year, supported by solid mining rates and consistent plant performance through Salobo I, II and III. At Penasquito, attributable production is forecast to be in line with budget and slightly down from Q3 due to steady mill performance and planned mine sequencing within the Penasco pit. At Antamina, attributable production is anticipated to strengthen in Q4 as the mine continues processing a higher portion of copper zinc ore. As mentioned by Randy, we remain confident that our catalyst-rich year is progressing as expected, with initial contributions from Mineral Park, Platreef and Hemlo still forecast by the end of 2025. That concludes the operations overview. And with that, I will turn the call over to Vincent. Vincent Lau: Thank you. As detailed by Wes, production in Q3 was 173,000 GEOs, a 22% increase from last year due mainly to strong production from Salobo and Antamina, coupled with the commencement of production at Blackwater. Sales volumes were 138,000 GEOs, an increase of 13% from last year, driven by strong production from the second quarter, partially offset by a buildup of produced but not yet delivered or PBND, due to timing differences between production and sales. At the end of Q3, the PBND balance was approximately 152,000 GEOs, which is about 2.9 months of payable production. We expect PBND levels to stay at the higher end of our forecasted range of 2 to 3 months for the remainder of 2025, partly due to the ramp-up of new mines forecast in Q4. Strong commodity prices, coupled with solid production led to record quarterly revenue of $476 million, an increase of 55% compared to last year. This increase was driven mainly by a 37% increase in commodity prices and a 13% increase in sales volumes. 58% of this revenue came from gold, 39% from silver and the rest from palladium and cobalt. With silver recently outpacing gold and reaching record highs, our substantial silver exposure sets us apart from our peers and positions us well to benefit from the current pricing momentum. Net earnings increased by 138% from the prior year to $367 million, while adjusted net earnings increased by 84% to $281 million. Operating cash flow increased to $383 million, a 51% increase from last year. These gains outpaced the increase in gold and silver prices during the same period, highlighting the leverage from fixed per ounce production payments, which made up 76% of our revenue. During the quarter, we made total upfront cash payments for streams of $250 million, including $156 million for Koné, $50 million for Fenix and $44 million for Kurmuk as our portfolio of development assets continued to advance toward production. During the quarter, CMOC exercised its 1/3 buyback option under the Cangrejos PMPA in exchange for a $102 million cash payment, resulting in a gain of $86 million and delivering an impressive pretax IRR of 185% to Wheaton. Overall, net cash inflows amounted to $151 million in the quarter, resulting in a cash balance of approximately $1.2 billion at September 30. For the Hemlo stream, we expect to make the entire $300 million upfront payment at deal close in Q4 2025 and begin recording production immediately thereafter. For the Spring Valley stream, the total upfront payment of $670 million will be paid in installments as various conditions are satisfied. This structure reflects our disciplined approach to providing funding throughout construction while ensuring the project remains adequately financed and on track at each stage. When these 2 streams are added to our existing stream funding commitments, we expect to disburse approximately $2.5 billion in upfront payments by the end of 2029. This reflects growth that we have seeded but not yet funded and demonstrates a highly efficient use of our capital. With $1.2 billion in cash and expected annual operating cash flows of $2.5 billion over the next 5 years, we currently expect to fund these commitments without using debt. In addition, our fully undrawn $2 billion revolving credit facility, together with a $500 million accordion provides exceptional financial flexibility and positions us with the strongest liquidity profile amongst our peers to pursue additional accretive opportunities. This concludes the financial summary. I'll now hand things over to Neil to walk through the details of Hemlo and Spring Valley streams. Neil Burns: Thanks, Vincent. It's been a very busy few months for the corporate development team, and I'm delighted to provide an overview of our 2 most recent deal announcements, which further reinforce Wheaton's already sector-leading growth profile. On September 10, Wheaton entered into a financing commitment with Carcetti Capital Corporation to support its proposed acquisition of the Hemlo mine. Upon deal close, which is anticipated in the fourth quarter, Carcetti intends to change its name to Hemlo Mining Corporation or HMC. Wheaton's initial financing commitments included a gold stream of up to $400 million. However, following the strong success of its recent equity raise, which Wheaton supported with a lead order of $30 million, HMC has indicated its intention to proceed with a $300 million amount. In this scenario, Wheaton expects to receive 10.13% of payable gold until a total of 136,000 ounces have been delivered, after which Wheaton will receive 6.75% of the payable gold until an additional 118,000 ounces have been delivered, after which Wheaton will receive 4.5% of payable gold for the remaining life of the mine. These amounts would be adjusted proportionally if HMC were to elect a different stream amount. In return, Wheaton will make ongoing payments with gold ounces delivered equal to 20% of the spot price. Each of these drop-down thresholds will be subject to an adjustment if there are delays in deliveries relative to an agreed schedule commencing in 2033. If deliveries fall behind an agreed schedule by 10,000 ounces or more, the stream percentage will be increased by 5% until deliveries catch up in a mechanism that's aimed to mitigate timing risk. Assuming that HMC elects an upfront payment amount of $300 million, attributable gold production is forecast to average over 14,000 ounces of gold per year for the first 10 years of production and over 10,000 ounces per year for the life of the mine. Hemlo presents an opportunity -- a unique opportunity to add immediate [ attributable ] gold ounces from a politically stable jurisdiction backed by a long history of production and a very capable operating team. We are proud to support HMC in its acquisition of a mine that has long been considered a cornerstone in Canada's mining industry while also continuing to contribute to the momentum across the sector. Just yesterday, you will have seen Wheaton announced gold stream on the Spring Valley project located in Nevada and owned by Waterton Gold for cash consideration of $670 million. This represents a compelling opportunity to secure a significant gold stream while supporting an existing partner in the development of a high-quality, low-cost gold mine located in a prolific mining jurisdiction. Under the agreement, Wheaton will receive 8% of the payable gold until 300,000 ounces have been delivered, after which Wheaton will receive 6% of the payable gold for the remaining life of mine. In return, Wheaton will make ongoing payments for the ounces delivered equal to 20% of the spot price until the uncredited deposit has been fully reduced and 22% of the spot thereafter. Wheaton will also provide a $150 million cost overrun facility to provide further capacity to a project with an already conservative capital estimate. Attributable gold production is forecast to average 29,000 ounces of gold per year for the first 5 years of production and over 25,000 ounces of gold per year for the first 10 years, first production expected in 2028. This production profile reflects an optimized scenario that incorporates updated mineral reserves and resource estimates beyond the feasibility, which was published earlier this year. Located in a proven mining district, Spring Valley comprises an extensive land package of over 30,000 acres, very little of which has been explored. In fact, mining activities will occur on concessions, representing less than 5% of the total land package, leaving an opportunity for mine life extension with future exploration success. With its strong exploration potential, strategic location, proven leadership team, we believe Spring Valley aligns perfectly with our commitment to investing into high-quality assets in stable jurisdictions. We're excited to deepen our relationship with Waterton as they look to unlock the full potential of this asset. With that, I'll now hand the call back over to Randy. Randy Smallwood: Thank you, Neil. In summary, Wheaton delivered another strong quarter marked by several key achievements. We delivered solid revenue, earnings and cash flow, resulting in record year-to-date performance. We made notable progress on our near-term growth strategy with Aljustrel resuming production of its zinc lead concentrates and the ramp-up of production at both Blackwater and Goose, reflecting the continued momentum of our catalyst-rich year. Our growth profile was further derisked as construction progressed across key development projects, including Mineral Park, Platreef, Fenix, El Domo, Kurmuk and Koné. In addition, joint venture agreements were announced for both Copper World and Santo Domingo, further derisking these projects. We also announced 2 accretive precious metal streaming transactions located in low-risk jurisdictions. First, on the currently operating Hemlo mine located in Ontario and just yesterday on Waterton Spring Valley project in Nevada. We believe our 100% streaming revenue model provides significantly greater leverage to rising commodity prices, while keeping us insulated from inflationary cost pressures, resulting in some of the highest margins in the precious metal space. We take pride in being the founders of the streaming model, an optimal alternative to traditional equity financing. Streaming provides upfront capital at a fair valuation without further share dilution, resulting in a dramatically improved return on invested capital and superior long-term value creation for the shareholders of our mining partners. Our balance sheet remains robust, providing ample flexibility to pursue well-structured, accretive and high-quality streaming opportunities. And finally, we take pride in our community investment leadership amongst precious metal streamers and have always and will always support both our partners and the communities where we live and operate. With that, I would like to open up the call for questions. Operator? Operator: [Operator Instructions] Your first question is from Will Dalby from Berenberg. William Dalby: Yes. I have 2 questions. Firstly, on future growth. You've got a really compelling growth profile, but I'm just sort of wondering how you think your volume growth stacks up versus peers, both on an absolute and a risk-adjusted basis, sort of thinking in particular about some peers whose growth relies on restarts or on higher-risk jurisdictions. I'd be very interested to hear how you see your position in that context. Haytham Hodaly: Thank you. It's Haytham. Will, thank you for the question. From an absolute perspective and a relative perspective, I'll tell you, we've got growth close to 250,000 ounces a year between now and 2029. And that is certain growth, that's growth that's actually been permitted and a majority of that, I would say, almost more than 90% of that's actually in construction and heading towards development towards production. In the next 2 to 3 years, there's 2 projects starting this year, a couple starting next year and another 1 or 2 starting over the next couple of years after that. So it's a very, very strong growth profile. In terms of the actual number of ounces, we're generating close to an additional 250,000 ounces, which is probably almost double what our next closest peer is actually generating in terms of growth over the same period. So we're very excited about that. And that excludes a lot of the growth that you're seeing here with these latest transactions as well, where with the Hemlo transaction, with the Waterton transaction, but not to mention a significant number of our peers have also announced expansions, optimizations, et cetera, between now and then, which are also not included in that number. So we're very optimistic and very excited about going forward. William Dalby: Very clear. And then just a second question. If we rewind a bit, say, 10 years ago, your capital was largely going into repairing balance sheets. 5 years ago, it was mostly sort of funding gold projects. Looking ahead, do you see the next 5 years is more about deploying capital into larger-scale copper projects given the current supply shortage there and the need for new mines to come online? Haytham Hodaly: Yes, definitely. I mean the large porphyry copper gold systems that we're seeing in the high sulfidation epithermal systems that we're seeing through some of the diversified base metal producers, those are definitely an area of future growth as they require billions of capital, not millions or hundreds of millions, but actually billions of capital. So streaming naturally should play and likely will play a part in the overall financing packages. There are still lots of opportunities we're seeing outside of that space as well, though, Will, I would say, with commodity prices where they're at, specifically, you look at silver as an example. Silver has had a nice run that is prompting many to consider what their silver is worth within their existing portfolio. So for the first time in a long time, we're seeing more -- not more silver, but are we see more silver opportunities, not more than gold, but we're seeing additional silver opportunities that we previously hadn't come to the market. So we're very excited about that as well. Operator: Your next question is from Josh Wolfson from RBC Capital Markets. Joshua Wolfson: I had a question first on Spring Valley. Some of the technical information out there is a bit light. I know there's a 2014 43-101 and then a feasibility study earlier this year, at least a summary of which I noticed that Wheaton provided some of its own interpretations of what the mine will look like. I guess just maybe drilling down on some of the assumptions, would Wheaton be able to provide some perspective on how it sees the asset in terms of what the underlying assumptions or changes in its perspective was versus the updated feasibility study? And also what we should think about recoveries? I noticed there's a big difference between the original 2014 report and what's -- what was issued earlier this year. Neil Burns: Sure, Josh. It's Neil Burns here. Waterton did put out a feasibility study earlier this year, which was done not surprisingly with much lower gold prices. I believe the reserve pit was [ done ] at $1,700 gold. If you look on Salobo's website, they've updated their R&R. And I believe the reserves are at $1,800 and the resources perhaps at $2,200. They do model the recoveries, and they have updated those. Those are detailed in the footnotes of those R&R tables, and they do them separately by the Redox state of oxide transition and sulfide naturally with decreasing recoveries as you get into the sulfides. And they split it between the ROM and the crush. So I think that's a spot where you can get some additional color. And that was just updated, I believe, earlier this week. Randy Smallwood: Josh, I mean, Spring Valley is so similar to hundreds of different operations down in Nevada, right? You're looking at a heap leach operation that's going to have crushed components. It's always going to be focused on the highest grade portion of whatever is coming out of the pit and then run of mine. And one of the areas of upside that I see in this -- that we see in this asset is the fact that, as Neil mentioned, the pricing for the reserves and even the resources are about half of what the spot price is right now. And the waste dump is about the same distance away from the pit as the heat pad. And so the ROM processing capacity, the decisions as to where that truck dumps that ore as it has lower grade material, but it's still economic because the spot price is of $4,000. I think there's incredible upside on this asset to even see more production than what's being forecast by Waterton. Just in terms of operational flexibility, it's a simple project. It's -- the highest grade of the day will go through the crusher and everything else. It will be a choice as to whether you put it into a waste dump or put it into a ROM heap leach pad and push it forward. So I just -- they're pretty simple Nevada. There's lots of capacity for heap. It's a big flat area just to the east of the ore body that has all sorts of expansion capacity. And so it's a classic Nevada operation that we see as it's going to be going for [indiscernible]. Just we're excited about what the real potential is here. And then the expiration over and above it, as Neil highlighted during the talk, so little of this property has actually been poked at. It's right north of the Rochester operation, which continues to shine for core. And of course, Florida Canyon is to the north. And so it's right in a corridor that's got a lot of mining history. And we do think that this asset is well set up to deliver. Joshua Wolfson: Got it. One more question. I know we've talked about some of the Nevada premiums that are out there. This might apply in that situation. When you look at the value opportunity here in the valuation paid, how would you assess this in comparison to some of the public consolidation opportunities that could be out there depending on prices, obviously? Randy Smallwood: Yes. I mean, consolidation, when I look at -- I mean the biggest comment I'd have on the consolidation side is that what we found is that a lot of the smaller companies have had to give up structural weaknesses, structural flaws in their agreements to try and get scale. And we've seen some pretty large-sized examples of that recently with deals scale of $1 billion with 0 security backing it. And so we just see issues with the value of some of those assets within the M&A side. And so as we like to say, we're -- we think there's no stream as good as a Wheaton stream. We invented the model and we continue to try and perfect it. I think Hemlo was a real step up in terms of how to actually deliver value not only to our shareholders, but to our partners in terms of support and strength all the way across and trying to find that great balance of satisfying both sides of the spectrum. And so the acquisition side, most of those companies do trade at a bit of a premium to NAV. And we -- whereas when it comes to going out and looking at new assets, we can find leasings at NAV or less, slightly less than that. It's still attractive compared to an equity financing or to other alternative forms of financing for these companies that are looking for capital. So as Haytham and now Neil, the team has done a great job of continuing to put the capital back to work, looking at opportunities like this. And I think Spring Valley is a great example of that. It's a lower-risk jurisdiction. It's our first real footprint into Nevada, which is a jurisdiction we've looked at for a long time, but we have seen some incredibly expensive transactions in our eyes -- take place in Nevada. This one we feel is attractively priced, especially when we go over the upside that we -- that I just finished describing to you. And so we're pretty excited about having this one. And we like this path. We're always looking at the M&A side. And if we do see some opportunities in that space that make sense, we would act. But to date, we're doing -- we find better value in just sourcing new opportunities. We are blessed with an industry that always needs capital. So that's our business, supplying capital. Operator: Your next question is from Tanya Jakusconek from Scotiabank. Tanya Jakusconek: Some of them have been answered already. Maybe, Haytham, for you, as I think about the environment, the opportunities out there, one of my questions was on silver. I just -- I think you touched it a little bit, you're seeing more on the silver side than previously. Are we seeing some big silver opportunities? Haytham Hodaly: That's interesting, Tanya. It's funny you asked that question. There are some larger silver opportunities that are out there, but we're being very proactive to go out and find those. With that, I'm going to turn the mic over to Neil to just tell you a little bit about the current environment for growth. Neil Burns: Thanks, Haytham. Tanya, in terms of volume, we continue to be as active as we've ever been. We have literally over a dozen active opportunities in the pipeline. From a stage perspective, it's interesting because we've seen an increase in operating opportunities, which is great to see. It's something we hadn't seen for a number of years. And it's also been driven by an increase in M&A activities with the major selling off some noncore assets. Metal mix, which you already touched on, is probably 60-40 gold, silver, I would say, at the time -- at this time. In terms of size, the majority are in the $200 million to $300 million range. But we also have a couple of exciting $1 billion-plus opportunities, but those are a bit longer lead time. Randy Smallwood: The one thing, Tanya, that I would add on the silver side, your question is specifically on silver. Keep in mind that most silver is produced as a byproduct, actually from base metal operations. And the one thing that we're hopeful is that with the strength that we've seen in silver prices of late that perhaps some of those base metal operators would like to crystallize some of that value and help strengthen their own balance sheets and fund their own growth. And so that does fall into an opportunity set with this strength that we've seen where we may be able to pick up some, as Neil said, some operating access to silver streams on operating assets. So we're out there pounding the pavement. And with these kind of silver prices, there's definitely an interest in terms of learning more. So stay tuned. Tanya Jakusconek: Yes. It's just I've been hearing more on the silver side. And so I just wondered if -- and I've heard of some of the big ones like $1 billion silver deals, and I just wondered if those were something that you were focused on. Randy Smallwood: Yes. You know me well enough, Tanya, that I've always liked silver a little bit more than gold. So if there's opportunities in the space, we're definitely trying to track that down. Neil and the team are doing a great job on that front. Tanya Jakusconek: And when you mentioned the $200 million to $300 million range, were those mainly on the gold opportunities? Neil Burns: A mixture, actually. There is -- I would say, probably an even mixture between gold and silver within those $200 million to $300 million opportunities. Tanya Jakusconek: Okay. And are you also seeing because I am hearing, and I don't know if that's the same, that's there's probably more assets for sale within the senior gold companies than the market expects. Like yes, we've seen Newmont sell out their Newcrest assets and Barrick's cleaned up their portfolio somewhat. But I'm hearing that there's also more coming out of the senior space than expected. Is that what you're seeing as well? Haytham Hodaly: Maybe I'll answer that, Tanya, just with regards to divestitures from -- of noncore assets from senior producers. I will say that we did see a lot of that over the last 12 to 18 months, for sure. Right now, it has declined quite a bit. But obviously, with changing management teams, changing focus of various companies, we do expect that to start again. We haven't seen a lot of it yet. Tanya Jakusconek: Okay. So you're expecting more of that to come? Haytham Hodaly: We hope so. We'd love to be able to support another acquirer of some of these high-quality assets. Keep in mind, a lot of these assets when they were within these senior companies, they're being valued at a reserve base of, call it, Neil mentioned one $1,700, Barrick was doing theirs at $1,400 previously. You start using numbers of $2,100, $2,500, you go from a 6-year reserve life to a 20-year reserve life. So I think a lot of that is probably something we're going to see here in the near term. Tanya Jakusconek: And just your Spring Valley acquisition, if you assume that all of the resources get converted and you can mine out 4 million ounces mineable, let's say, would it be fair to say at spot that you'd be in that sort of 4%, 5% internal rate of return, like in line with the cost of capital? Haytham Hodaly: Well, based on our analysis, I can tell you our numbers are higher than that based on exploration upside that we've seen, based on expansions in the existing pit dimensions, based on the higher/lower cutoff grades, we are getting a higher rate than what you're quoting there. I will leave it to you to figure out what your actual rate is based on how many years of additional exploration upside you want to add on top of that, but we're pretty optimistic that eventually this will get to double digit. Randy Smallwood: I will add, Tanya, that the resource is still limited. It's -- there's plenty of exploration potential, wide open mineralization. And so it's the drill data that's actually the limiting factor on the resource, not the economics. Tanya Jakusconek: Yes. No, no. I mean I just looked at it on a 4 million-ounce mineable scenario. Okay... Randy Smallwood: I've seen enough of it down there to think that there's probably even more than that. Tanya Jakusconek: Yes. As I said, it's in the good camp. So those camps go on for a while. Maybe if I could ask just a modeling question. I saw the updated DD&A in the portfolio. Can someone just remind or reguide us on your depreciation and guidance for what you expect for 2025 and maybe 2026 with the new portfolio updates? Vincent Lau: Sure. Tanya, it's Vince here. We did update our depletion on a normal course. Not a big change. Antamina, we saw a bit of a drop because they had some tailings lift there. Stillwater, a little bit higher just because of the change in mine plan. But all the detailed depletion rates, we've now put into the financials and in the MD&A. So you can see exactly what has happened there and help you out on the modeling front. Tanya Jakusconek: All right. I forget what the guidance was corporately beginning of the year. But yes, I'll go back and... Vincent Lau: I think net-net, it's not going to change materially going forward. So I would roughly say it's at the same levels going forward. Tanya Jakusconek: Okay. And then my final question is maybe a reminder. I've seen a lot of the other companies sell out investment portfolios of equity interest. Can you just remind me what's left within yours? Haytham Hodaly: Yes. There's -- we've got -- I don't have the list in front of me, Tanya. I can tell you, and it's listed on -- I think, on our -- at least some of it's broken down some of the larger positions, but we have about a USD 260 million equity book right now. I can tell you, we're not looking to divest any of those positions. Those positions are all with our existing partners that are ramping up operations. And we are going to continue to be strong supporters. Eventually, there may be some liquidity events where we can actually get off our positions. But at this point in time, we're -- if nothing else, we'd be helping our partners as they need it going forward to continue to strengthen their balance sheets. Operator: Your next question is from Martin Pradier from Veritas Investment Research. Martin Pradier: In terms of Antamina, I noticed that the depreciation dropped in half almost. What happened there... Neil Burns: On depletion drop, yes. So... Martin Pradier: Yes, the depletion... Neil Burns: Thanks, Martin. Yes. So that really is, as Vincent mentioned, it's because of the tailings expansion. So right now, Antamina marks their reserves with tailings capacity. And in Q1 this year, Antamina managed to secure the permits for further expansion of the current tailings facility, and that increased the reserves dramatically, which then drops that depletion rate down. So that's the reasoning behind that. Randy Smallwood: Essentially, what happened was the tailings capacity doubled, which meant that the -- with that much -- the depletion -- that much more -- the reserve doubled because of that excess capacity because with that tailings capacity, then you could class it as a reserve. And so it's -- the resource there is very, very high geological confidence, but Antamina's approach is that it's not a reserve until it actually has permitted tailings capacity. And so the fact that it went up just meant that we had a substantive increase in reserves, which means the depletion rate drops. Martin Pradier: Okay. Perfect. I understand. And in terms of Salobo, should we expect a strong Q4? I thought that there was like a little bit higher grade in Q4. Haytham Hodaly: Salobo is reasonably flat in Q4. So we're expecting -- we've seen very strong performance through the year this year. And we were just on site at the end of September there. And really, they are planning to continue on as they have for the rest of the year here. So reasonably flat for Q4. Randy Smallwood: I think they moved forward a little bit of preventative maintenance that was scheduled in Q4 into Q3. So that should help a little bit on the Q4 side. There was a short stint in Q3. So... Operator: Your next question is from George [ Ity ] from UBS. Unknown Analyst: Nice update here again. Can I ask about the Spring Valley stream? And sorry, I joined a little bit late, so I may have missed this, but the payment profile can you remind me of the various conditions for the payment and the profile of time line, please? Haytham Hodaly: Yes, you bet. I mean, still, I would say, of the $670 million, the majority of that will go in during development. There'll be a small amount that goes in upfront, approximately, I would say, $310 million over the next -- well, close to $310 million over the next 6 to 12 months, I would say. And then the remainder will go in alongside the company's equity investment. So we put in $120 million, they put in $120 million, and we do that a couple of times until we get to the $670 million number. Randy Smallwood: It's strip fed over the construction other than a small amount ahead of construction starting just to get some equipment orders in and stuff like that, but it's trip fed over the construction, which is expected to start shortly. Unknown Analyst: Yes. Okay. No, that's great. And then just talking before about all these asset opportunities coming up, some large ones, like that $900,000 per ounce -- sorry, the [ $870,000 ] rather GEO profile by 2029. Is it fair to assume there's potentially a bit of upside here with new streams like Spring Valley given the environment is so strong right now? Do you think that [indiscernible] is a bit of... Randy Smallwood: Yes. Not only that, a lot of our existing operations and start-ups have announced accelerated plans for start-up and for expansions. We've got Blackwater moving forward with expansions. Platreef has accelerated their ramp-up in production over that 5-year period. Salobo itself also is fine-tuning in terms of trying to improve throughputs and recoveries. And so we -- even the existing portfolio without the new acquisitions has made that forecast look very conservative and gets us even closer to that 1 million ounce number sooner than later. Thank you, George, and thank you, everyone, for your time today dialing in. Our record-breaking performance over the first 9 months of this year underscores Wheaton's position as a premier low-risk choice for investors seeking exposure to gold and silver. Recent transactions in low-risk jurisdictions underscore the quality of opportunities we're pursuing. Our corporate development team continues to see strong demand for streaming as a source of capital, and we are excited about the pipeline of opportunities that lie in front of us. With our high-quality operating portfolio, 100% streaming revenue, sector-leading growth profile and unwavering commitment to sustainability, we offer shareholders with one of the most effective vehicles for investing in precious metals. We thank all of our stakeholders for their continued support as we enter this exciting period of sustained organic growth. We look forward to speaking with you all again soon. Thank you. Operator: Thank you. Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to NFI 2025 Third Quarter Financial Results Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Stephen King, Vice President, Strategy and Investor Relations. Please go ahead. Stephen King: Thank you, Michelle. Good morning, everyone, and welcome to our conference call. Joining me today are Paul Soubry, President and Chief Executive Officer; and Brian Dewsnup, Chief Financial Officer. On today's call, we will give an update on our quarterly results, highlighting the continued improvement in our overall margins and unit economics, as we convert our strong backlog. We'll also provide an update on the nonrecurring battery warranties that impacted the quarter and recap our outlook. This call is being recorded, and a replay will be made available shortly. We will be referring to a presentation that can be found in the Financials and Filings section of the NFI Group website. As we move through the slides via the webcast link, we will call out the slide number. On Slide 2, we provide our cautionary or forward-looking statements and note that certain financial measures referenced today are not recognized earnings measures and do not have standardized meanings prescribed by International Financial Reporting Standards, or IFRS. We advise listeners to view our press releases and other public filings on SEDAR for more details. In the appendix of this presentation, we have provided a list of key terms and definitions that will be used on today's call. A reminder that NFI statements are presented in U.S. dollars, the company's reporting currency, and all amounts referred to are in U.S. dollars unless otherwise noted. Slides 3 and 4 provide a brief overview of our company. NFI is a global independent bus and motor coach mobility solutions provider. We offer a wide range of propulsion-agnostic buses and coaches on proven platforms, and we hold leading market share positions in transit and coach markets. More detailed information is available on our website. Slide 5 provides a brief insight into NFI's product and geographic mix and other major milestones. I will now pass it over to Paul to provide an overview of NFI's results for the third quarter. Paul Soubry: Thank you, Stephen. Good morning, everyone, and thank you for joining us this morning. I'll dive right into the Q3 results on Slide 7, starting with demand. Despite the third quarter being seasonally slower, we secured 644 equivalent units in new orders, generating 108.5% LTM book-to-bill ratio and a strong 71.8% option conversion rate. The highlights -- this highlights the continued strength in market demand supported by government funding in both Canada and the United States. Our total backlog, which includes both the firm and option orders, now totals 15,606 equivalent units worth USD 13.2 billion. In Q3, we delivered a 52% year-over-year increase in adjusted EBITDA and a $12.8 million improvement in free cash flow. Liquidity increased by $240.2 million, reaching $386 million at the end of the quarter. Total leverage, inclusive of all debt, improved to 4.28x, an improvement of 1 full turn since the end of 2024. These improvements were largely driven by the continued conversion of our strong backlog into operating results with increases in the average revenue and margin per delivered unit. While there were numerous positives, the quarter was negatively impacted by a warranty provision for an ongoing battery recall. On Slide 8, we provide details of this provision. In September, we announced a recall affecting approximately 700 buses and coaches, primarily New Flyer buses. The recall relates to batteries provided by our U.S.-based supplier, XALT E that was initiated due to the potential of to sell short circuit or cell fault primarily during charging or at full state of charge. For context, we provided an overview of the components of the battery system on this slide, starting with the cell all the way through to the battery enclosure. As safety is our top priority, immediately after issuing the recall, we implemented operational guidelines and software updates to limit the state of charge and the speed of charging on the affected buses and motor coaches. This allows customers to continue operating their vehicles with the affected batteries still in use. We've now determined that ultimately, we need to replace the batteries on these buses. The campaign is expected to take 18 to 24 months in total, beginning in the first half or the early part of 2026, and we will use a different battery supplier to replace those batteries. Our plan is for the replacement to be completed in the field, and we intend to leverage our service center network for this work. While we are still finalizing our approach, we do expect this work not to disrupt our production in 2026. Reflecting the expected replacement along with future potential costs to support other legacy XALT batteries in the field, we booked a $229.9 million warranty provision in the third quarter. This reflects our best and conservative estimate of the total cost of the battery recall and related support. We are comfortable with the tentative term sheet that we entered into with XALT and expect to finalize a definitive agreement for costs associated with the recall as we move into the -- through the fourth quarter. XALT recently announced its decision to wind down their U.S. battery operations. This announcement does not change our expectation that we will achieve a satisfactory agreement on the recall cost that meets our needs and those of our customers. We do also not expect this wind down to have any impact on New Flyer's production. We had previously moved most of our electric bus battery supply to an alternate U.S.-based supplier. We will use those different batteries on the buses going forward. We are currently -- we currently use the XALT battery on our fuel cell electric buses, and we expect all of the batteries needed for our 2026 production will be provided by XALT before they wind down operations. The batteries on the fuel cell buses are different than the batteries on the electric buses. Long-term, we'll be moving our fuel cell bus battery supply to an alternate provider. Recognition of the warranty provision for the battery recall impacted numerous financial metrics in the quarter. And given the nonrecurring nature of this event and the ongoing negotiations on an agreement for related costs, we have normalized adjusted EBITDA and adjusted net earnings calculations. This morning, we will call out a few other areas where the recall had a meaningful impact. And on Slide 9, we outlined some of these impacts. Without the battery recall, manufacturing segment gross margin would have been 10.2% with a gross profit per equivalent unit of $66,300, a 58% improvement from the third quarter in 2024. Manufacturing net earnings would have been $26.7 million. Reported working capital of $248 million was positively impacted by the provision and would have been $464 million without it. The graph on the right bridges net loss to adjusted net earnings with the battery recall and the associated tax impact being the largest bridging items. This is our third straight quarter of positive adjusted net earnings. I'll now turn the call over to Brian Dewsnup, our Chief Financial Officer, to provide a supply chain update and discuss our financial results in more detail. Over to you, Brian. Brian Dewsnup: Thanks, Paul. Picking up on Slide 10, we provide an update on our supplier risk profile. We currently have just 3 companies that we consider high risk/high impact, down from 50 in the peak of 2022. This improvement reflects the ongoing work of our sourcing, procurement and supplier development teams are actively working directly with suppliers to improve delivery performance. While there's been recent disruption in automotive supply chains, we largely have not seen any significant impact. It's a situation we'll continue to monitor. We don't have much of an overlap with automotive, but there could be cascading effects that may impact our supply base. Slide 11 highlights our recent strategic investment to strengthen our supply chain through our joint venture assumption of American Seating assets with GILLIG. We expect this partnership will drive financial stability and operational performance at American Seating. This will benefit improved performance for NFI, also the broader industry. Financial terms were not disclosed, but the transaction is not considered material. While we are now investors in American Seating, it's critical that we maintain a diversified supply base for seats and are continuing to work with other seat suppliers. The number of new Flyer buses built, but yet -- built, but they're still missing seats remained relatively flat since our last update. We did see an increase in August and September, followed by a reduction in October to 50 equivalent units. This impacted Q3 deliveries, and we remain focused on bringing this number down prior to the end of the year. We have lower production with American Seating in the fourth quarter, which should free up capacity for them to prioritize deliveries for seats on these essentially complete buses. On Slide 12, we recap quarterly deliveries. Transit deliveries were up 14% year-over-year, driven primarily by the North American business. This increase was achieved despite some zero-emission bus customer acceptance delays and seat-related disruption. Coach deliveries were down in the quarter due to lower private sector deliveries, although we anticipate a strong recovery in the fourth quarter, consistent with the seasonal nature of the business. Reflecting the strength of our backlog, we achieved 19% year-over-year increase in the average selling price for both heavy-duty transit buses and motor coaches. We also delivered a record 217 low-floor cutaway buses in the quarter. This is up 36% year-over-year, and the average selling price was up by 21%, reflecting continued strong demand. Turning to Slide 13. Aftermarket gross margin was essentially flat quarter-over-quarter and down year-over-year. This reflects sales mix, reduced program revenue from large midlife projects in North America and the impact of tariffs. In the Manufacturing segment, gross margin, excluding the impact of the battery recall was 10.2%, consistent with the second quarter. This reflects timing-related impacts in the third quarter and sales mix. The year-over-year improvement in gross margins highlights our improving backlog profile flowing through quarterly results. Slide 14 walks through year-over-year changes in adjusted EBITDA within our reporting segments. Manufacturing EBITDA was up by $36.1 million, driven by higher deliveries, favorable sales mix and improved pricing. Corporate adjusted EBITDA declined by $2.2 million, primarily due to negative impacts of foreign exchange, including a lower U.S. dollar. Slide 15 shows LTM adjusted EBITDA performance for both Manufacturing and Aftermarket segments from 2022 to 2025. Our Manufacturing segment continued its strong upward trajectory, achieving $174 million on an LTM basis, which is an increase of $114 million year-over-year. Slide 16, quarterly free cash flow was positive with a strong increase driven by the higher adjusted EBITDA and lower interest expenses. There was a significant positive impact from working capital in the quarter, but this was largely due to the battery recall increasing provision balances. Excluding those impacts, free cash flow, combined with changes in working capital would have been $35 million. This represents a $68.9 million improvement from the prior third quarter of 2024, reflecting lower inventory balances and our milestone payment structures. On Slide 17, we look at our total leverage, liquidity and return on invested capital. We continue to execute our deleveraging strategy and reduced total leverage to 4.28x on an LTM basis. Note that this calculation includes first lien, second lien convertible debentures and lease obligations. For banking purposes, which exclude convertible debentures and leases, total leverage was 3.37x. Liquidity was up approximately $241 million year-over-year and up by $59.3 million from the second quarter. This reflects our positive cash generation and debt repayment. ROIC has continued to trend positively supported by improved adjusted EBITDA and lower total invested cost base. I'll now turn the call back over to Paul to discuss the outlook. Paul Soubry: Thank you, Brian. As you look into the fourth quarter and our plans for 2026, we expect that NFI will continue to grow revenue, gross profit, adjusted EBITDA, free cash flow, return on invested capital and net earnings. I'll walk through the drivers behind this continued momentum and comment on the key risk factors in our operating environment. So I'm now on Slide 19. You can see the makeup of our backlog over 15,606 equivalent units, 37% of which are firm and 63% are options. Our firm orders provide significant visibility for the fourth quarter of 2025 and have also helped us fill the majority of our 2026 public market production slots. The options offer runway and visibility for our production schedules over the long-term. The black line represents the total dollar value of the backlog, which is now $13.2 billion, having grown $8.3 billion just over the last 3 years. In the third quarter, we saw higher new orders for internal combustion buses, which is consistent with our experience in the first half of 2025. As a result, the ZEB percentage of our total backlog remained relatively flat. Our improving total backlog and firm auction profile is displayed on Slide 20. The chart demonstrates the improvement in average sales price or ASP per equivalent unit across our total backlog, including both firm and option orders. Average selling price have increased for both heavy-duty transit buses in the dark blue and motor coaches in the light blue. Year-over-year, ASP for heavy-duty buses was up 1.5% and up a whopping 64% since Q3 of 2021. ASP for motor coaches was up 20% and 52% over that same time period. Now these pricing improvements are expected to continue flowing through our income statement. We saw this in the first 3 quarters of 2025, and we expect even more improvement going forward. We anticipate further gains in the fourth quarter, supporting our outlook for the highest quarterly adjusted EBITDA quarter in the company's history. The North American bidding environment remains strong as shown in our bid universe on Slide 21. We ended the quarter with active bids of 7,503 equivalent units. This includes 6,217 EUs and bids submitted, which is up 50% from the second quarter of 2025 alone. This reflects recent submissions on a large multiyear bid related to upcoming major sporting events that are being hosted over the next couple of years in the United States. The black line in the chart shows new awards. We saw some decrease from the previous quarter, primarily due to timing delays on new orders. The chart illustrates the typical correlation between bids submitted in light blue and contract awards in black with a lag of a few quarters from submission to award. Over our 5-year expected bid universe, which is compiled from customer fleet replacement plans, remains very strong at nearly 23,000 equivalent units. This sustained demand is driven by increasing fleet age with nearly half of the North American public transit fleet now over 12 years of age and continued strong government funding. On Slide 22, we show our book-to-bill and option conversion ratios. NFI's option conversion ratio has improved significantly, reaching 71.8% on an LTM basis. This improvement reflects increased order activity, a higher number of exercise options and the improved competitive landscape and our competitiveness. The slight decline in our book-to-bill from the second quarter reflects slower new orders and higher deliveries in Q3. On Slide 23, it reflects our guidance ranges for key metrics for 2025. Based on our year-to-date performance and our expectations for the remainder of the year, we've tightened up a few certain ranges. We now expect revenues to be between $3.5 billion and $3.7 billion and driving adjusted EBITDA ranging from $320 million to $340 million. In the fourth quarter, we expect higher deliveries, particularly in private markets and improved sales mix drive and should deliver our highest quarterly adjusted EBITDA ever. This reflects continued improvement in our per unit economics and a strong contribution from the aftermarket business. Cash CapEx are projected to be lower than initial expectations, even as we have invested into several new facilities, including our all-Canadian New Flyer build project in Winnipeg and the Alexander Dennis plant set up in Las Vegas, Nevada. For clarity, our guidance includes year-to-date impact of tariffs and some of the smaller potential tariff impacts on fourth quarter results. It does not reflect any material changes that tariff environment could have on demand, pricing or cost going forward. This risk is somewhat offset by the fact that the majority of our remaining 2025 vehicle sales are already produced or will be finalized in November. On Slide 24, we provide our latest views on the macro tariff environment. We observed some stability in the tariff environment during the third quarter, and we relatively consistent direct tariffs on goods that we import and suppliers that have started to provide additional details on suppliers, sorry, that have started to provide additional details on tariff surcharges that have been included in their pricing. Those are indirect tariffs, ones we pay to suppliers for parts and components used and installed on our vehicles. On November 1, a new U.S. Section 232 tariff of 10% was applied to all buses and coaches imported into the United States from any jurisdiction. This is expected to lead to increased pricing and tariff surcharges to end users as there is no domestic U.S. production of motor coaches. Prior to November 1, we have moved the majority of our finished goods inventory from Canada into the United States physically. We continue to view tariffs as a pass-through to cost to customers through contractual obligations and through general price increases and negotiation. This does require negotiation with customers, and we may not be able to cover all of our costs. We have generally had success in being able to find solutions with customers so far. Longer term, we will continue to assess our geographic production schedules to try and minimize tariff exposure. We've made significant investments in the United States operations, increasing our staffing in the U.S. by 7% since the beginning of 2025. And during the last 10 months, we've opened the Las Vegas, Nevada production facility for Alexander double-deck buses, opened a new service center for MCI in California, and we acquired the Michigan-based seat supplier. We also recently put our first bus into our all-Canadian build production line that has been commissioned in Winnipeg, Manitoba. Tariff-related costs have been accrued in work in process inventory as we complete customer negotiations. Within the Aftermarket segment, we have experienced some margin pressure, primarily due to the timing between tariff incurrence and the pricing updates. Our ability to adjust pricing models quickly has helped mitigate longer-term impacts. I'm now on Slide 25, so a few closing comments. The first 3 quarters of 2025 laid a very strong foundation for continued momentum. We increased deliveries, we converted backlog into results, and we've had solid cash generation supporting debt repayment and the deleveraging plan that we set out. Our total backlog of $13.2 billion, combined with option conversion rates and strong book-to-bill ratios reinforces our confidence in our near-term and our longer-term outlooks. In the U.K., we were pleased to see active engagement and very strong support from the Scottish government and several active procurements have supported growth that we project now for 2026 deliveries by Alexander Dennis. NFI's aftermarket business is a foundational business unit with steady and recurring revenue streams, a solid margin profile and significant free cash flow generation. Calculating and enforcing tariffs are becoming more established in our operation and as part of our industry. We continue to actively track trade developments, and we will take all actions possible to ensure an appropriate response where required. While there will be some headwinds and volatility, especially with private motor coach markets, our domestic production, our nimble aftermarket pricing, our extremely strong backlog and contractual provisions lead us feeling well positioned to respond as needed to the dynamic environment. So despite headwinds related to seat supply, tariffs and now battery replacement programs, we have not changed our overall view that NFI is a very strong trajectory of growth that should see significant investments in operating and financial metrics. We are confident in the strength of our markets, our business, our product offering and our people to deliver outperformance as we head into 2026. With that, we'll now open the line for questions. Michelle, please provide instructions to our callers. Thank you. Operator: [Operator Instructions] The first question will come from Chris Murray with ATB Capital Markets. Chris Murray: If we can go back to just talk about the battery reserve and maybe some extra color on that. So I guess the first piece of that, can you maybe walk us through your confidence level on what the actual cash cost might look like to NFI and the proportions that might be covered by the suppliers and how to think about that evolution over the next couple of years? And then if you can also talk about supply chain around batteries because I know at one point, I guess, XALT had been a bit of an issue about even getting batteries, which has led you to look for a second supplier. Now that XALT is exiting the market, do we still have a supply chain issue in batteries? And how do we think about that on a go-forward basis? Paul Soubry: Great questions. Thanks, Chris. So let me start with the second one first. We've been dealing with XALT for a decade, and XALT had gone from a private ownership in the United States to being acquired by a very, very large multi-international business who invested dearly in them. Yes, there's been volatility of supply dynamics over time. And as the percentage of zero-emission buses increased in our backlog, we did it out of not a concern of supply, but of surety and competitive dynamics. So we actively went out and set up a second battery supplier, which took us about 2 years to validate and commission onto our buses, and we've now been delivering buses with those alternate batteries for about 2.5 years now. So we go to a situation now where, yes, we have a recall we have to deal with, but XALT is leaving the U.S. market and leading the battery business. We have signed a term sheet. Of course, it's nonbinding, but it recognizes both how we would do the recall, the economics associated with it as well as how product support, technical support, field support, warranty support would work going forward. So that is the process we're in the middle. We signed the term sheet about, I don't know, 3 weeks ago, and we are actively negotiating with XALT and its parent on the economics associated with that. We do not have a definitive agreement, and therefore, we can't provide the details associated with it. We are confident that the batteries we're going to put on in replace of the XALT batteries are proven and the supplier has assured us that they can handle not only our ongoing manufacturing requirements for the manufacturing demand, but also the surge demand over the next 1.5 years or 2 years, whatever it takes to finish the actual recall. So I wish I could give you more color on actual dollar cash, the economics, the timing and so forth. We don't have that completed. Therefore, it's not prudent to be able to provide any details or insight into that at this point. Brian, do you want to add some color? Brian Dewsnup: Yes. Paul Soubry: Let Brian give you a little bit more color on some of the economics associated. Brian Dewsnup: Yes. Just as we mentioned in the call, we would expect the campaign to be executed over the next 18 to 24 months. So just from a cash flow perspective, we'll start that campaign in the first half of 2026. And so we would expect there to be an effect -- round figures, half of that done in 2026 and half in 2027. And then the warranty piece of what we put in there, we would expect to be disbursed over the next kind of 1 to 4 years. So while it's a big number, that will be done over kind of 2 to 4 years in terms of the cash effect of that. Chris Murray: Okay. That's helpful. And then I guess going back and thinking about the outlook. So a big quarter coming up. And I guess, even going to the bottom of the range still of guidance still implies that there's a lot of buses that have to move out the door. Can you talk a little bit about how you're feeling about that? But also I think more broadly, how you're feeling about the manufacturing platform, where you're at as we go into 2026. And as we move beyond, I guess, some of the, call it, the problems of COVID and the echoes of COVID and supply chain, '26 feels like it's setting up to be maybe the first normal year in almost a decade. But how do we think about this as a year kind of a normal operations with good backlogs supply chain kind of, for the most part, fixed and working. What do you think the business can actually do with this? Paul Soubry: Great question, Chris. So let's start with the fourth quarter. So the guidance that we've maintained on the low end, and we've just dropped the top end a little bit to reflect that we're almost -- we're 10 months into this business for this year. The guidance range suggests the fourth quarter of 2025 would deliver an adjusted EBITDA in the neighborhood of $105 million to $125 million. While we have always expected fourth quarter to be the biggest period, it has been further supported by some deliveries that were originally planned for Q3 '25 that moved into Q4. The exit rate does provide us with increased confidence in our ability to deliver growth in 2026. We've not yet provided guidance for '26. But as we've discussed previously, as we look into '26, we expect improvement in overall deliveries for a couple of reasons. First, we increased the Canadian build. So we've got 4 to potentially 5 units a week of additional deliveries. We freed up capacity that we would have taken for in Crimson, Minnesota to build a shell in Canada, send down to the U.S. for completion, now adds more capacity in the U.S. for builds. We should be finally past the seat supply disruption, 2 issues. We're now in control of our own destiny of American seating after a very long and protracted and painful process. And number two, as you know, we've diversified the supply to effectively 2 other suppliers. Our reliance on American Seating, for example, in the third quarter is somewhere in the range of 22% or 24% of the deliveries, not 60% like it was this time last year. The U.K. market has gone through quite a bit of challenges this year. Paul Davis has done an amazing job of idling its facilities where it made sense, working with the government of Scotland on furlough schemes, but more importantly, has been able to already solicit or solidify a reasonably serious increase in volume in the U.K. and in the ABL markets for 2026. And then, of course, the other thing that is often under the radar is that our ARBOC business continues to perform extremely well. They are by far the market leader in low floor cutaways in North America. They are also now deep into the reintroduction of a medium-class vehicle that we already have sales for book for 2026. Add to that, the underlying contribution that continues from the aftermarket business. Now if you look at some of the graphs, you may see a bit of a tail off on margin. You may see the EBITDA slightly less than last year. However, that part of that business is highly volatile associated with programs. So where customers will do midlives or upgrades to their fleets, something we can't really control. That core business of aftermarket continues to grow. And John Proven, who started well over a year ago now to run that business when Brian moved to CFO, has done a really good job at focusing on growth opportunities in that space. All that stuff adds up to what we believe will be a record quarter for us in 2024 -- sorry, in the fourth quarter of '25 and a very strong performance opportunity for 2026. Sorry a long answer, but I thought all those things are appropriate. Operator: And the next question will come from Krista Friesen with CIBC. Krista Friesen: I just wanted to go back to your slide on the high and moderate risk suppliers and just comparing it to what you put out for Q2 and the numbers for July 2025. It looks like there's been an uptick in the moderate risk from 9 to 12 and high risk from 1 to 3. I was just wondering if you can give a little bit more color on those suppliers and what's changed there? Brian Dewsnup: Yes. Good question. So obviously, there's a subjectivity here in terms of how we rate things. And so we've seen kind of a nominal movement there in our medium risk. I don't -- I don't think you should really read anything into that beyond the fact that we're actively managing this, and we're sensitive to any types of disruption that we're seeing there. So I wouldn't say that things have materially changed from earlier this summer. Krista Friesen: Okay. Great. And then I also just wanted to confirm on the guidance front. Did you say that at this point in time, the guidance for the remainder of the year includes all tariffs that are in effect? Brian Dewsnup: Yes. That's -- everything we know as of right now, yes. And the November -- the early November tariffs, we don't think they'll have a significant effect in 2025. We think that will be more of a 2026 issue that we'll need to deal with. Operator: And the next question will come from Daryl Young with Stifel. Daryl Young: With regards to the replacement of the batteries that needs to be done, which personnel, I guess, are going to be doing that? Is it New Flyer people that you're going to have to pull from your current facilities? And is that going to result in a bunch of overtime and added costs and disruption to your existing supply chains or really no impact there? Paul Soubry: Really good question, and we spent a lot of time. So when we started the thinking of a recall, we had kind of 3 options. One was pull the buses back to the factory, not really practical. You also have border dynamics and so forth. Number two was to set up a third party or engage third parties maybe on the East Coast or the West Coast. And then the third option, which is the one we selected is to run those buses on a battery exchange type program in a service center. So we have service centers in New Jersey, in Montreal, Chicago, Dallas, San Francisco, Los Angeles. So what we will do is effectively because they're battery electric buses, we will have trucks, if you will, driving a battery electric bus into the service center. We will dedicate a bay or 2. We've done a heat map of all the location of all the battery buses that will need to recall. There's a high propensity of the population was in Southern California and in Northern California. We will dedicate 2 or 3 bays or whatever is appropriate at each of those service centers and run them through an exchange program. Each bus in terms of taking off the batteries, putting on new batteries, there's some cabling and some small equipment that needs to be changed and then there's software upgrades and then testing. It's not massive. Each -- we think we'll be able to do a number of buses a week at each service center. None of the people from the factory will be involved. So there will be no impact on the manufacturing operations. We may need to add a couple of extra people in each of those service centers depend on each of their individual needs. The service center will forego a little bit of third-party work that they do today to be able to assign the space and the people to do this program. So as Brian alluded to, at this point, the scheduling, the preliminary scheduling says somewhere between 18 and 24 months to be able to complete the entire campaign. The very first replacement will be done in Winnipeg at our new product development center, where we'll have all the engineers and new product development people, the supply people validating the bills materials and so forth. That will start in probably January. And then in earnest, we'll start the recall most likely right after the first quarter. So we've got to make sure the supply is right, the people are skilled and trained and then we work with the customers to allow them to get the vehicles to us. Just some color as well, Daryl, as you probably heard in the notes, we have disposed -- disposed. We have distributed software on all of those battery electric buses. We're well into that process right now to be able to allow the operators to use the buses. Yes, there's a slight degradation in the pace of charge and there's a slight reduction in the total battery capacity. But again, just the safety and caution, we've deployed that and are well into that process now. Daryl Young: Got it. Okay. And then when you flip to the sole battery supplier in 2026 for your new orders, and I know you mentioned you've been working with them since 2023, I think. Is the batteries they're going to be supplying, is that a new technology? Or is that the same old proven one that they've been building and you're going to add it to the buses and there's no design spec changes or anything like that, that need to come through? And do they have the capacity to kind of hit the ground running in terms of volume? Paul Soubry: So the cells themselves are an LG cell. They are packaged by a company called American Battery Systems that's located in Michigan. The cell -- these LG cells are cylindrical cells as opposed to the ones that are currently on there, which are pouch cells. Those batteries are in use in many applications, including vehicles, trucks, buses around the world and by some of our competitors today. So there is not a new chemistry or a new application or type cert or anything associated with those batteries. Now we have validated with that supplier that can handle both our normal production requirements, which we have for 2026, and the slots sold as well as the surge capacity to deliver the pace at which we need these recall batteries. As you can imagine, we're going to be taking off almost 700 buses worth of batteries. So we're also actively working on the recycling of those batteries, the appropriate tear down, the disassembly and working with providers to do the right thing from both an environmental, but also from a cost and a safety perspective. So we're pretty comfortable with this, which then leads into our engineering teams have already started looking for yet another battery type that would be an alternate to what we have. So what we want to be able to have is always 2 sources of batteries. Should anything like this ever come up again, we will have multiple sources. Stephen King: Yes. So -- sorry, Daryl, yes, as Paul mentioned, we largely view the replacement of batteries as plug-and-play to make it simple of the new supplier versus the XALT battery. And I just want to reiterate, as we've discussed on the call and numerous times, we continue to discuss costs associated with the recall with XALT, and we have that term sheet in place, and we're looking to get that definitive agreement in the fourth quarter. So I just really want to reiterate that as people are thinking about costs and the costs associated with this campaign. Operator: And the next question comes from Abe Landa with Bank of America. Abraham Landa: So from my understanding and going back to the battery recall question, that $230 million that you took essentially is your -- what you currently expect, your portion of the battery replacement plus the warranty cost. And correct me if that's wrong. Paul Soubry: I guess maybe -- it is. Let me just clarify that. It is the total cost of the recall plus with XALT leaving the business, it is our estimate of future warranty exposure associated with any installed buses that are not associated with the recall. So what is being negotiated and what is reflected in our term sheet is the portion or the recovery from XALT as a supplier. Abraham Landa: Okay. So that $230 million is like a gross cost, let's call it. Paul Soubry: Correct. Abraham Landa: And if you reach some sort of agreement with XALT, it could decrease from here? Paul Soubry: Absolutely. We would expect it to dramatically decrease. Abraham Landa: Now of that $230 million, I guess, can you maybe -- like what's the cadence? I mean I could do divide it by 8 quarters, and you get -- or 6 quarters, you can do, call it, $30 million to $40 million per quarter. But I guess is it going to be more front-end loaded? I guess, how does the cash layout of that, let's say, on a gross amount before any sort of recovery look like into '26 and beyond. Brian Dewsnup: So the gross number comprises 2 pieces, as Paul mentioned, it's the campaign money to go out and literally take the batteries off and put the new batteries on vehicles. That's the bulk of that accrual. And we would expect that to commence in the first half of 2026, and it will take 18 to 24 months. So round figures, that would be half of the cash flow would be in 2026 and the other half in 2027. And then the balance from a warranty standpoint would be spread, I would say, fairly evenly over the next 4 years. So the cash impact would have that kind of a profile. And obviously, as we talk about any sort of settlement, that would be highly dependent upon the terms and conditions of that settlement. Paul Soubry: And to all our listeners, we're not trying to be purposely acute or evasive. We have a term sheet. It is still not binding. We're in deep negotiations with XALT. And so it's imprudent to give any indication. We're comfortable at what the term sheet reflects in terms of the economics. The minute we get that done, we will issue a press release to clarify to the market our portion, if any, of that recall. Abraham Landa: And have you provided a split between of that $230 million, the warranty portion and the replacement portion? Brian Dewsnup: We haven't provided that. But like I said, the majority of the accrual would be the battery replacement. Abraham Landa: Okay. And then maybe going back to this is all -- that was all super helpful color. And then just going to the tariff question. Obviously, quite a few ones out there, Section 232, the 10% imported buses. I guess if we kind of think about 2026, what would be the unmitigated tariff impact if you want to give a quarterly number or annualized number before any sort of price negotiation with customers? Brian Dewsnup: Yes. So we're -- it's a little bit too early to comment on that. So I think we can give a little bit more color on that as we move forward. We're still digesting all the implications of the November 1 changes because it brought some new stuff, and it also did away with some other stuff. So we're still kind of working through that math. And we'll be more prepared to comment on kind of the high-level nature of that as we get closer to the end of the year and certainly as we talk about the full year results. Paul Soubry: Just a comment on '25. The vast, vast majority of units that we'll sell in '25 are already physically in the United States. So the real tariff dynamic that Brian just alluded to is the country tariffs, the tariffs on our suppliers as they input parts in, what we bring into Canada as opposed to what goes straight to a U.S. supplier. And now, of course, the Section 232, 10% on buses and coaches. And your question is a good one in terms of the unmitigated. We also have an awful lot of mitigation opportunities, which might mean migration of more of our work or of our supply chain physically to the United States. Abraham Landa: Okay. And my last question is, like I've read a lot of articles, maybe there's just newspapers or local kind of warning about local transit budgets, service cuts. But I guess I kind of want to know what you're hearing. I guess, when you speak to your transit customers, what are they saying regarding their budgets, their busing needs? Any sort of comments on timing or changing of timing of bus deliveries? Just that would be some helpful color. Paul Soubry: Well, it's a good one. And of course, it's not a simple answer because we have multiple business units. So let's just kind of dissect each of them very quickly for color. So Alexander Dennis, of course, sells a small amount of buses in North America. The schedule is sold out in our mind for the vast majority of '26. There's a few slots we still have to fill, but there hasn't been any changes, reductions, cancellations, anything associated with that. It will see an increase in volume in the U.K. and internationally. So we're pretty excited about after a pretty rough year for Alexander about them next year. The ARBOC business, just like when we entered into 2025, has almost all of their slots sold out for next year on the cutaways and a very healthy portion as we reintroduce the medium-class business -- medium-class buses into the United States. New Flyer, the vast majority of the schedule is sold for 2026. And if you go back to our -- you look at our backlog, both -- well, the firm portion as well as some expected auctions to conversion. We've seen some customers change an order from a zero emission to a hybrid or a diesel or natural gas. We've seen some people push out. We have not seen the option conversion drop as we showed you in the charts. We also have not seen a drop-off in any of the RFPs hitting the street or the bid universe. And so in our deck on slide -- I think it was Slide 21, we showed both a very healthy portion of active submitted and received bids, but also the continued expected buy over the next 5 years. So we haven't seen that drop off. The other area of our business is MCI. And of course, MCI is roughly 65% or 70% private customers and 35% public customers. There are only, I don't know, 7, 9 real operators in the public domain, and that's blocky in terms of they buy in certain years, they don't buy in other years. They'll buy at high volumes or recur mode. There is some risk on the MCI side associated with filling all the 2026 slots, although it's not a big, big portion of our overall business. The private market has recovered fairly well. in terms of the private operators and the overall market demand continues to be, let's call it, in recovery mode. These new Section 232 tariffs of 10% apply to us just like they apply to all of our competitors, whether it's another competitor that's in Canada or international competitors. So an extra 10% tariff, we all try and pass on to some of those private operators, it could have an impact on that demand. But when you roll all that stuff up and look at our business going into 2026 from a market perspective, from the portion of our business that is sold or secured slots, we're still, in our views, in very much an operational and execution-focused mode as opposed to about worrying where we're going to get business from. Stephen King: Yes, the only thing I'll add there, obviously, been encouraged by comments from the administration around getting America building again and investments in Surface Transportation Act. We saw the 2025 allocation for the Infrastructure Investment Jobs Act was the same as 2024, and there is another year of that funding act that goes until September 2026. And also, the FTA is still active and still actively funding projects that have been approved even during this kind of current shutdown. So our customers are still getting funding for their capital projects that have been previously approved. So all that to say to Paul's point, still feeling very confident in the government funding environment in the United States. Abraham Landa: So it sounds like the majority of your buses for public use or the build slots are essentially filled for next year? So no current change. Paul Soubry: Absolutely. Operator: And the next question will come from Cameron Doerksen with National Bank Capital. Cameron Doerksen: I just want to come back, I guess, to the bus recall and battery issue. It sounds like you've got, I guess, productive talks and some sort of agreement with XALT. I guess maybe you can sort of give us your assessment of the risk around this potentially leading to some sort of lengthy legal dispute. I guess, how do you protect yourself over the long-term if the owner of XALT, given that they're shutting the business down, decides to put that business in bankruptcy and somehow get out of the liability that they have. I'm just wondering, how you sort of assess those risks and how you can protect yourself? Paul Soubry: Well, Cam, look, there's always the risk of something turning sideways. But I have been personally and actively involved along with David White, our EVP of Supply, directly with XALT and with the owners of XALT. The owner of XALT is a very, very large global international privately held business that has a very strong reputation for responsible customer support, responsible products and so on and so forth. We signed a term sheet, which would be a normal process. I would suggest it was a very constructive and healthy negotiation. We independently hired technical experts to try and assess the cause, the root causes, the ability to operate them safely during the process of that stuff. I would characterize the negotiation as constructive, as healthy, the outlook being very positive. The economics that are in our term sheet are acceptable to us. We just got to convert that into an agreement. We believe very definitively in our technical position and assessment of the cells and the cause of -- and risk associated with the short circuits. We have done our work from a legal perspective and have worked with outside external counsel to defend and prepare our position if and when we ever had to get there, which I don't believe we will do. So -- and we've had unbelievably strong support from the Board, a, to do the right thing for the customer; and b, to prepare all avenues associated with both our negotiation and litigation if it got to that. Cameron Doerksen: Okay. No, that's helpful. Just second question, I guess, on the investment in American Seating, the JV with GILLIG. Anything you can sort of disclose as to how much capital you might have to put into that business? I think you sort of indicated that maybe there's some investment required for them. And I guess what's the intention kind of long-term. Is this, I guess, a supply that you want to have long-term in-house? Or is this something that at some point in the future, you don't think you need to necessarily have? Paul Soubry: So look, and we've talked to you and all the other analysts about how hard is this? Why don't we just change suppliers or why don't you just put pressure on. This has been a year-long or deal or nightmare for us and for GILLIG for that matter and some of the other customers of American Seating. We finally came to a scenario and given the status of their debt and the debt holders' decision and desire to get out where we could acquire the debt and then proceed with that. So job one is stability. We have changed the leadership team. We have put a turnaround firm in place to fix the business. We are actively recruiting for long-term employees to run the place and executives to operate the business. We have a joint Board of 2 from GILLIG and 2 from us. And so it's all about stabilization of operations. The investment is not material in our overall business. The pain we suffered over the last year has been ridiculous relative to just one supplier. The amount of seats that are behind is still a notable number. It got better, notably better as we got through the summer of this year and then started to return, which is why we jumped at the opportunity to take control. Seating is not a strategic element of a supply chain that we want for the long-term. And we'll deal with that in due course once this place is stable. And quite frankly, if we can have 3 suppliers in the U.S. competing and buying for that business, the quality of what we all get, the pricing effectiveness and so forth is critical. Typically, our strategy for in-sourcing, and Cam, you've been to our plants is where we own or control the drawings associated critical parts on the bus, the frame, the structure, certain electro components, fiberglass, those kind of things. We've in-sourced that. And about 10 -- more than that, about 15% of our cost of sales, we control. This is, I would say, a targeted strategic investment to ensure surety of supply for the next couple of years, and then we'll decide whether this is a long-term. It's awkward. We're doing it in a joint venture with a competitor. I will tell you they are standup people. We work cooperatively. We've put all the controls in place from an antitrust perspective. I'm comfortable we'll get this place back on track, and then we'll deal with this future as we move through '26. Stephen King: And Cameron, obviously, as Paul mentioned just there, a little different than our usual acquisitions where it's a joint venture. So you'll see it on our Q4 results as an investment in the joint venture on the balance sheet. So we'll have a bit more detail with Q4 results in March on the accounting treatment. Cameron Doerksen: Okay. No, that's super helpful. Operator: And the next question comes from Jonathan Goldman with Scotiabank. Jonathan Goldman: If we think about just the battery replacement in isolation for a layman, who doesn't know much about the industry, if you strip out the cost of the actual battery itself and all the materials, what would be the approximate cost per battery for labor, freight and overhead to change out a battery? Paul Soubry: Good question, Jonathan. It's nominal. I'm going to give you an estimate that's context, right? We're going to ship a bus from one location on a flatbed to our facility, a grad or 2. We're going to ship it back grad or 2. We're going to put 30, 40 hours of labor into each to take the old battery packs off, put the new ones on. So that part of it is not the major part of it. The vast majority is the actual battery pack replacement itself. Jonathan Goldman: That's really helpful color. I appreciate that. In the quarter itself, the sequential decline rather in transit bus ASPs, is that mostly just a mix issue? Or is there something else going on there? And then how should we think about the trajectory of ASP for Q4 and into '26? Paul Soubry: So the ASP, first of all, your intuition on that one is exactly right, mix. What we bid on that window, what we deliver in any quarter has a massive impact on the average selling price. What we put into our backlog is the bid price. So -- and between bidding, going through the final build materials reconciliation, any changes the customer makes, any additional electronics and so forth they put on there could be a material -- not material, but a notable change from what the average selling price into the backlog is compared to what the actual average selling price is when it is delivered. The other dynamic that happens, and as you can imagine, almost all of the stuff that goes into the backlog are multiyear contracts. And so we put it into the backlog at current year selling price. As those options convert, we have purchase price indices that get applied to those in the out years. So it will depend on any changes to make to the bill of materials, but also what the PPI is in those out years. And that's what drives up the ASP between point of installation into the backlog compared to what happens when we actually delivered the unit. Jonathan Goldman: Okay. That's good color. And then thinking about the repricing, time of manufacture, would that include outside of the PPI, any increases on account of tariffs or I guess, like force majeure type of events? Paul Soubry: No. Think of tariffs, if you and I were building a house, almost like an engineering change order. So we are going back to the customers. Now every customer is different, every contract is different. For the most part, here's your bus for $500,000. Here is an added charge for the tariff. And of course, the math associated with the tariff. For a while, we were able to use an average tariff application per unit. Now given some of the changes in the regs and the counts, most customers want a specific tariff calc based on what's actually in their bus. So that is an add bill or an engineering change order type dynamic as opposed to an embedded part of the PPI or any other part of the pricing. Jonathan Goldman: Okay. That makes a lot of sense. And I guess last one for me, and I guess Cam asked this earlier about the capital investment required in American Seating. But from an OpEx perspective, what level of OpEx would be required on your part to support American Seating into next year? Paul Soubry: None. I mean, at the end of the day, this is an investment we've made. We have bought the debt. We are helping with investing in the business to operate the cash flow. They are still in 2 facilities. There will be a couple of million dollar spend to rationalize those facilities into one. It is not a notable amount. And of course, the operating costs will be managed by the business itself. Operator: I would now like to turn the call back over to Steven. Stephen King: Thanks, Michelle. So we have one question from our webcast. So I'll just read it aloud, and it references similar to what we had this morning in other cases. Is the warranty provision a worst-case scenario? And does finalizing the agreement with the XALT lead to a scenario where the provisions will be reduced materially? Brian Dewsnup: Yes. So I'll take that question. So the -- what we booked is the liability side, which is our best guess today at what all the costs will be to retrofit all the batteries and support the warranty obligations on those batteries. So that's what's sitting in our financial statements right now. Stephen King: And the second part, Brian, the finalizing the agreement with XALT lead to a situation where the provisions will be reduced. Paul Soubry: Yes. So we are both motivated us at XALT to complete this agreement before the end of the year. And so we have meetings every day and every week in this negotiation. As part of us assuming some warranty obligations going forward, there's diligence on certain people and equipment and IP and software and so forth that is actively going on. So the ultimate agreement and the economics associated with it would -- if it goes the way the term sheet would be a significant reduction in the provision. And so again, we'll press release that as soon as we know. Stephen King: All right. Okay. Well, that was it. That was all of our questions. So thanks, everyone, for attending today and for listening in. As always, please don't hesitate to reach out to us with any further questions and all of the information you need is on our website, including today's presentation. Thanks so much, and have a great weekend. Operator: This does conclude today's conference call. Thank you for participating, and 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 Atmus Filtration Technologies' Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Todd Chirillo, Executive Director of Investor Relations. Please go ahead. Todd Chirillo: Thank you, Eric. Good morning, everyone, and welcome to the Atmus Filtration Technologies' Third Quarter 2025 Earnings Call. On the call today, we have Steph Disher, Chief Executive Officer; and Jack Kienzler, Chief Financial Officer. Certain information presented today will be forward-looking and involve risks and uncertainties that could materially affect expected results. Please refer to the slides on our website for the disclosure of the risks that could affect our results and for a reconciliation of any non-GAAP measures referred to on our call. For additional information, please see our SEC filings and the Investor Relations pages available on our website at atmus.com. Now I'll turn the call over to Steph. Stephanie Disher: Thank you, Todd, and good morning, everyone. On the call today, I will provide an update on our third quarter results, our progress executing on our 4-pillar growth strategy and the outlook for the remainder of 2025. Jack will then provide further details on our financial results. During the third quarter, we completed our full operational separation from our former parent, Cummins. The separation has been a multiyear journey and marks a significant milestone for our company. I want to recognize this outstanding accomplishment, which is the result of the collective effort of all Atmusonians. We are now focused on unlocking the growth potential of Atmus. Completing the separation enables us to redeploy resources, time and energy to focus on growth. We have a clear vision and strategy and a highly capable organization who are energized to realize our full potential. Now let's turn to our capital allocation strategy. We continue to deploy capital to create long-term shareholder value. We further accelerated our share repurchase program in the third quarter, repurchasing $30 million of stock, bringing our year-to-date total to $61 million. Since the announcement of our share repurchase program last year, we have repurchased a total of $81 million of stock. We also increased our quarterly dividend by 10% last quarter, reinforcing our commitment to consistent long-term capital return to shareholders. We remain committed to investing for organic growth and executing our inorganic industrial filtration strategy. We will continue to keep you updated on our M&A activity. The framing of M&A investment choices continues to be guided by our strategy, long-term value creation and the balance of growth and shareholder returns. We expect share repurchases to remain an important component of our capital allocation strategy and anticipate our full year repurchases will be in a range of approximately 1.5% to 3% of our current market capitalization. I would like to now take a moment to share some insights on the strong culture we are building at Atmus. We have established what we call the Atmus Way. The Atmus Way incorporates our purpose, our values and our strategy. It also includes what we call mindset shifts, which reflects specific areas where we want to intentionally shift the culture of our company. One example I would like to share today is our commitment to safety. We set a vision to be the safest company. In October, we achieved 2 years without a serious injury in our business. This is a result of disciplined focus on risk reduction and the engagement of employees at all levels of our organization. This is just one example of the Atmus culture in action. It reflects what we stand for and it demonstrates what we can do when we set a bold vision and work together to bring change. Let's now turn to our 4-pillar growth strategy and the progress we have made during the third quarter. Our first pillar is to grow share in first-fit. As a fully independent company, we are expanding our first-fit customer reach to leading regional OEMs across a broad range of applications with dedicated sales and technical resources. We are winning with these customers by providing our industry-leading filtration products that deliver superior protection for our customers' equipment. Additionally, we continue to win with the winners by growing our long-term partnerships with global OEMs. Our second pillar is focused on accelerating profitable growth in the aftermarket. We are expanding our market presence in independent and retail channels with new distributors. This allows us to provide broader channel coverage of our industry-leading Fleetguard products and deliver to our customers when and where they need the product. We are also partnered with leading global OEMs who are expanding their own aftermarket businesses and growing market share. We work collaboratively with these industry leaders, allowing us to expand our business while simultaneously fueling growth for our partners. Furthermore, we are growing our brand awareness with our We Protect campaign launched earlier this year. This campaign highlights who Atmus is and the dedicated employees committed to creating a better future for our customers, communities and planet. Our third pillar is focused on transforming our supply chain. As a fully operationally independent company, we have completely transitioned to the global Atmus distribution network. This allows us to directly control our customer experience. Additionally, our network is designed to optimize and grow our aftermarket business. We continue to increase the on-shelf availability of products to ensure we have the right products for our customers when and where they need them. Our fourth pillar is to expand into industrial filtration markets. Our strategy is unchanged and remains focused on growth into industrial filtration, primarily through inorganic acquisitions. We are broadly looking at 3 verticals: industrial air; industrial liquids, excluding water; and industrial water. We have seen increased activity in the M&A markets, and we continue to review a robust pipeline of opportunities for inorganic expansion. We remain focused on executing a disciplined approach to develop opportunities which deliver long-term shareholder value. Now let's discuss our third quarter financial results. Our team delivered another strong quarter. Sales were $448 million compared to $404 million during the same period last year, an increase of 10.9%. Significant outperformance drove higher sales despite continued challenging conditions in most of our global markets. We also benefited from increased pricing and favorable foreign exchange. Adjusted EBITDA was $92 million or 20.4% compared to $79 million or 19.6% in the prior period. Adjusted earnings per share was $0.69 in the third quarter of 2025, and adjusted free cash flow was $72 million. Now let's turn to our market outlook for 2025. Starting with market guidance for aftermarket. We expect freight activity to generally continue at current levels and be flattish year-over-year. Our team has done a great job executing our growth strategy, especially in the face of elongated challenges in global markets. We are increasing our expected outperformance and now project share gains to add 3% of revenue growth. Overall pricing is expected to provide approximately 3% revenue growth. Pricing is inclusive of both base pricing actions to offset certain input costs and tariff pricing. This reflects known tariffs as of November 1 and assumes the USMCA exemption for our products will continue. The U.S. dollar continues to weaken from the strength we saw early in the year. We anticipate the full year impact of a strong U.S. dollar to be an approximate 0.5% revenue headwind. Let's now turn to our first-fit markets. In the U.S., the industry was recently provided with some guidance on Section 232 tariffs for medium and heavy-duty trucks. We will continue to monitor ongoing developments and adapt accordingly. We are still awaiting clarity on the upcoming 2027 emissions requirements. This continues to drive uncertainty in the market. Our expectations for both the heavy and medium-duty markets in the U.S. is to be down 20% to 25%. We expect demand for trucks in India to grow, which could be further bolstered by government infrastructure spending. In China, the markets we serve have continued to grow through the third quarter. Our exposure in China is weighted towards first-fit on-highway applications, and we remain cautious in our outlook. Overall, we have raised our expectations for total company revenue to be in a range of $1.72 billion to $1.745 billion, an increase of 3% to 4.5% compared to the prior year. Our team continues to quickly adapt to challenging market conditions to deliver strong operational performance. We expect this performance to continue, and we are raising our expectations for adjusted EBITDA margin to be in a range of 19.5% to 20%. Lastly, adjusted EPS is expected to be in a range of $2.50 to $2.65. Now I will turn the call over to Jack, who will discuss our financial results in more detail. Jack Kienzler: Thank you, Steph, and good morning, everyone. Our team delivered another quarter of strong financial performance despite continuing uncertain market conditions. Sales were $448 million compared to $404 million during the same period last year, an increase of 10.9%. The increase in sales was primarily driven by higher volumes of 6%, pricing of 4% and favorable foreign exchange of 1%. Gross margin for the third quarter was $129 million compared to $111 million in the third quarter of 2024. The increase was primarily due to the benefits of higher pricing and volumes, partially offset by higher logistics costs. Selling, administrative and research expenses for the third quarter were $56 million, flat to the same period in the prior year. Joint venture income was $8 million in the third quarter, in line with our 2024 performance. This resulted in adjusted EBITDA in the third quarter of $92 million or 20.4% compared to $79 million or 19.6% in the prior period. Adjusted EBITDA for the quarter excludes $4 million of onetime stand-alone costs. Adjusted earnings per share was $0.69 in the third quarter of 2025 compared to $0.61 last year. Adjusted free cash flow was $72 million this quarter compared to $65 million in the prior year. Free cash flow has been adjusted by $3 million for capital expenditures related to our separation from Cummins. As Steph mentioned earlier in the call, we have completed our separation activities from Cummins in the third quarter. We do not anticipate incurring any additional onetime costs associated with separation activities in the fourth quarter. The effective tax rate for the third quarter of 2025 was 23.6% compared to 18.4% last year. The higher effective tax rate was driven by both the change in the mix of earnings amongst tax jurisdictions along with changes in recently enacted U.S. tax legislation. Now let's turn to our balance sheet and the operational flexibility it provides us to execute on our growth and capital allocation strategy. We ended the quarter with $218 million of cash on hand. Combined with the full availability of our $400 million revolving credit facility, we have $618 million of available liquidity. Our strong liquidity provides us with operational flexibility in the current dynamic market to effectively manage our business and execute on our growth opportunities. Our cash position and continued strong performance in 2025 has resulted in a net debt to adjusted EBITDA ratio of 1.0x for the trailing 12 months ended September 30. In closing, I want to thank the global Atmus team for their continued dedication and flexibility to deliver another strong performance in the quarter. Now we will take your questions. Operator: [Operator Instructions] Your first question comes from the line of Rob Mason with Baird. Robert Mason: Nice work on the third quarter for sure. I wanted to see if you could dig in just a little bit deeper. It was stronger than your typical seasonality might suggest. And there was the thought maybe there was some pull forward coming out of the second quarter, whether you think that was actually the case. And then you took the share gain perspective or number up for the full year. I'm just curious how those are layering in. Is there any lumpiness around the share gains that may have come through in the third quarter? Stephanie Disher: Rob, thanks for the comments. Firstly, a strong quarter, really pleased with the overall performance. And if I just start to break down really the top line is where it's all happening. So I'll talk about that in terms of our revenue performance. As Jack spoke to volumes of 6%, pricing of 4% and foreign exchange of 1%. Pricing was around where we expected, probably slightly better, but volume is where I'll spend my time. So if I break down that 6% performance for you, broadly, I would put it into what we would call share gains of 8% and market headwinds of around 2%. The market, obviously, we saw first-fit sharply decline, particularly in North America. And we saw actually an impact of about down 27% sequentially in heavy-duty and medium-duty truck markets. And we continue to see flattish conditions in aftermarket. So all told, that's sort of adding up to a 2% headwind. So if I then take the share gains and try to give you some visibility into what's happening there, we have changed -- revised our full year guidance upwards from 2% in share gain to 3%, really driven by our conviction and the outstanding performance of the team to deliver better than what we intended on our growth strategy. And that's arising from things like additional content in first-fit applications, increases in share in the aftermarket, particularly in North America. So all told, that's about 3% sort of share gains. The big thing I want to point out in the third quarter that is a dimension of timing, as I would describe it, and a major driver of volume growth is related to the Stellantis Model Year '25 Ram product, which was launched earlier this year. We have -- we are on that product, both on the engine and we support the aftermarket. And during the quarter, we saw additional stocking for that new product launch on both the first-fit through our sales to Cummins and in the aftermarket delivery with Stellantis. And so we do not expect that to repeat in future quarters. Obviously, we'll continue to support that product, but the stocking up for the product launch was what we saw higher than expected in the third quarter. Robert Mason: I see. That's helpful, Steph. Maybe I'll just keep the line of questioning around the share gains. You also talked about winning some programs, it sounds like on regional OEMs on the first-fit side. Could you provide a little color in terms of those are contributing yet? And do those -- are those buys to on-highway or off-highway? Stephanie Disher: Yes, it's a great question. And I always try to think about how can I give you some color around this while obviously maintaining the commercial sensitivity. We have been very deliberate in our growth focus to build our business development capability. We've been doing that for several years now is the way I would describe it. We've built the sales force, the business development team. We've increased our bid rate. And we had identified these regional players as really a target for us that we had not pursued previously. And it's broad-based. I would say it's both across on-highway and off-highway. And I'd think about that equally right now. And we're starting to see the benefits of that. We're winning the business. We're getting the confirmation of those wins, and we're starting to see those benefits come through in our results. And I expect that to continue as part of our growth strategy within our core business. Operator: Your next question comes from the line of Joe O'Dea with Wells Fargo. Joseph O'Dea: Just a clarification on the details you gave around the volume growth. Just any sizing of the impact that Stellantis had within the quarter that you don't expect to repeat? And then just bigger picture as you think about aftermarket and sort of end market pacing kind of flattish in aftermarket, for how much longer do you think something like that can persist just as we think about wear on parts and some of the replacement that presumably is being pushed out here? Stephanie Disher: Thanks for the questions. Let me just start with your question on Stellantis. Look, difficult to quantify this specifically. And I think how I would have you think about it is there's certainly -- the 3% I talk about in share gains in the quarter are really attributable to clear wins that we can identify, that we can see them coming through, slight outperformance, as I described, and therefore, gives us confidence to really put that share gain into the -- increase that share gain from 2% to 3% in our full year guide. As it relates to the timing of the new product development, there's a win for us in that product development. There's content increase and then there's timing, right? So we -- in the public domain, I think we've seen that it's in the third quarter year-over-year, it was a 44% increase in that Ram volumes in the quarter. And so it was a significant increase for this product. And we think our full year guide -- we believe our full year guide really reflects how we see the year is going to go with the 3% market share reflected. On the aftermarket side, if I -- yes, on the aftermarket side, if I just take that question, I think we've been talking about 3 years of freight recession now. And we even have been asking ourselves is are the freight indicators still the right indicators for our business, given that length of time, right? And so I think that's a difficult set of questions. The outlook at the moment from the industry and those that we're talking to really suggest that we can't see that turning inside the first half of 2026 yet. There's no real signs that suggest that it has turned, if you like. So we expect it to persist through quarter 4 and at this stage, to stay at those levels through the first half of '26 is how we're thinking about it right now. Joseph O'Dea: And then I just wanted to touch on the full operational control and having sort of reached that transition now and how you're thinking about the nearest-term opportunities that presents for you? Stephanie Disher: Yes. We spoke about this in our opening remarks. And I'm most excited about this allowing us to focus our full organizational resources, energy and effort towards growth. When you undertake a separation of the size and scale that we have, I think there's over 300 projects. We've been doing it for 3 years now, 7 distribution centers, over 280, I think it is IT projects. That just takes a lot of organizational bandwidth. And so to have that completed for us to be standing on our own platform, really controlling our own destiny in terms of being able to use the processes and systems to enable our growth strategy is very exciting, And so I -- really, it is focused around our growth strategy and accelerating our progress on that, which is what -- and I talked about the 4-pillar growth strategy, which is what I'm most excited about. Jack might just talk to the separation specifically, where we're at on that and bring some more color to that piece. Jack Kienzler: Yes. Thanks, Steph, and thanks, Joe, for the question. First off, I would just say really proud of the entire Atmus team for their unwavering commitment to bring the separation to a close. As Steph highlighted, multiple projects, a multiyear journey from beginning to end. And the team really delivered, which I think further underpins the reliability we've been able to establish across many fronts as a business. As we noted, the TSAs have concluded effective end of the third quarter. And therefore, we no longer intend to add back separation costs in Q4 and beyond. The one thing I would highlight is that we are still incurring some elevated costs driven by hyper care, if you will, primarily in the IT space until we reach full stabilization. We expect those to be incurred here in the fourth quarter. And that, in part, is leading to some of our margin outlook as we think about the implied Q4 guide here. Again, highlighting some of those inefficiencies to help you understand why that may be showing up as a little bit of a pullback in the fourth quarter, still feel really strongly about the full year outlook here, both across the top line and the bottom line in really challenging market conditions. And again, I can't thank the team enough for what they've been able to deliver. Operator: Your next question comes from the line of Tami Zakaria with JPMorgan. Tami Zakaria: Excellent quarter. My first question is with Section 232, the tariff-related regulations now out for trucks, did you take any intra-quarter pricing? And if so, how should we think about the rollover effect of that over the next few quarters? And then in that case, are you also still planning to do a typical beginning of the year price increase that you usually do? Stephanie Disher: Thanks, Tami. So we do have some clarity from Section 232, but I would say there's still a lot of unknowns that we're waiting for. And we still expect that will take some time to be able to fully understand the implications and to be able to calculate it, frankly. And so that's just the first thing I would highlight. Right now, we are anticipating that our USMCA exemption still applies in the context of Section 232. And then there are a number of other mechanisms playing out that we will continue to work through to understand as clarity comes and work in partnership with our customers. We've said from the outset that our intent on tariffs is to be price/cost neutral, and we'll do that through a variety of mechanisms. Obviously, we'll look to avail ourselves of every possible reduction that we can make, exemptions or resourcing product or foreign -- we put a foreign trade zone into our distribution center in the U.S. this quarter, for example. So we're certainly availing ourselves of all of those. And in our guide this year, full year pricing is set at 3%. So we think that guide fully includes the pricing for the year. Not issuing guidance for 2026 at this point, but we would expect that we would continue with the pricing actions in January and so forth that we've seen in the past as our practice. But it continues to be an evolving landscape with tariffs, and our team have really done a tremendous job in partnership with our customers to navigate that landscape. Tami Zakaria: Understood. That's very helpful. And my second question is, there's been a lot of encouraging comments and data points in the industry around the acceleration in capacity expansion for large engines to provide backup power to data centers. How are you positioning yourself to capitalize on that besides, of course, your exposure through your large customer, Cummins? Are you actively working to win share with some of those other players that have announced capacity expansions for large engines in the U.S. and also Europe. So any comments on that? Stephanie Disher: Yes, absolutely. Certainly a very favorable trend in data centers that we do expect to continue for several years here, and that's how we're thinking about it to start with. We have a very strong position and partnership with Cummins. Our filters are on those gen sets. And so we certainly have the opportunity to continue to grow as our partners grow. And we are targeting new business development, as I talked about in both aftermarket and first-fit applications with customers that we haven't operated with so much in the past, right? And so we're investing to grow with those new customers. In terms of -- I just would highlight in terms of the aftermarket, we don't see a significant aftermarket benefit related to those gen sets. They are usually installed for backup power, and so it doesn't quite have the same profile as some of our other applications. But certainly, we are seeking to partner with new customers and continue to support our existing customers that will benefit from that growth. Operator: Your next question comes from the line of Andrew Obin with Bank of America. David Ridley-Lane: Yes. This is David Ridley-Lane on for Andrew. I'll ask a bit of an interesting one for you here. First Brands declared bankruptcy in late September. They own the FRAM and the Luber-finer brands filtration subsidiaries there. If this is a disorderly process, could Atmus be a beneficiary? And are you already sort of reaching out to maybe the retailers about taking over some space on the shelves? Stephanie Disher: Thanks for the question, David. Certainly, we are aware of that. And look, broadly speaking, I would say we're absolutely looking to expand our aftermarket coverage. That's how I'd have you think about that. We're doing it through a number of channels, and we're being really successful. We are winning and gaining share. So the first path that we see an opportunity to do that is with our existing partners. And we are growing with our existing partners as they grow their share in OEMs, for example. And then we are intentionally increasing our coverage through new aftermarket channels, both through independent and through retail channels. And so that will give us greater access and coverage across aftermarket. We see the opportunity really in expanding our coverage to be able to avail ourselves of getting our product to more customers. And that would be the way that we would potentially be the beneficiary of gaining greater share from some of the examples and the changes in the marketplace that you just described. David Ridley-Lane: Got it. And then maybe one for Jack. Look, a lot of the tariffs were announced kind of suddenly. You had, I'm sure, 6 months of fun. As you look over the next 6 months, is all of these levers that you're pulling, supply chain optimization, et cetera, could you be saving a couple of million dollars or more from those efforts next 6 months relative to the last 6 months. Jack Kienzler: Yes. I think -- first of all, David, thanks for the question. I think, as you know, it's certainly been a big resource strain on ourselves and likely many of our peers in broader industries to navigate what is an ever-changing environment. And so I think everyone is looking for some clarity to ease the ability to plan for the future. Look, I would just kind of harken back to what Steph said before, which is our principle as we deal with this broader environment, and that is to, first and foremost, to remain price/cost neutral. We are trying to do that in a way which mitigates the impacts for our customers in every way that we can, things like availing ourselves of exemptions, looking at our broader supply chain to identify ways to mitigate costs and therefore, mitigate the need to take any pricing actions. And we fully expect to continue to do that for as long as it takes to reach a point of clarity here. Operator: Your next question comes from the line of Bobby Brooks with Northland Capital Markets. Robert Brooks: So I was just hoping to dive a little bit deeper. The 11% year-over-year revenue growth, fantastic. That's the best rate that you've seen since going public by like 600 bps. I know you listed the pricing and volume dynamics, but just kind of curious to hear from the perspective of how much do you think was driven by the better availability of your products via now your whole distribution footprint being wholly owned? Or maybe any other internally controlled pieces that you'd point out that helped drive the growth aside from pricing? Stephanie Disher: Yes. Bobby, thanks. Great question. And there certainly was some benefits of increased availability in the quarter. We continue to improve our availability across the global network, and we still see some runway to further improve that in at least fourth quarter and beyond. And so I would say I don't know if I had to -- it'd be about 1% maybe of that is maybe the availability improvement, if I had to give you a number. The broader benefits of us improving our availability are even more significant in my view. This is about how we build reliability as a company. We've continued to try to do that with investors and shareholders and we do it with our customers. And so really, what availability is about, it certainly is about share gain and getting the product where your customers need it. But it is about building that reliability with our customers, our current customers and our new customers, and that will create a flywheel effect of growth for our business. Robert Brooks: Super helpful color. And then just turning to maybe expansion outside of your current end markets. Just curious if we could get an update of any progress there? I know you've done some organic launches into kind of industrial filtration. Just curious to hear any color on that. Stephanie Disher: So our strategy remains unchanged. We are expanding into industrial filtration markets is our strategy. We're pursuing 3 primary market focus areas. And we do see our primary path to that through acquisitions. And our team have been doing a fantastic job. We have a great team working on this, and they are reviewing regularly a robust pipeline of targets. And obviously, as and when I have an outcome to share, I will certainly be sharing that. So I'm pleased with the muscle building for growth that we are doing as a team. And I'm also pleased with the disciplined approach we're taking to creating long-term shareholder value. On the organic side, we have certainly launched products that can be utilized in applications in industrial filtration markets. We are learning from those launches, and we are learning from working through new channels. I would say that is a small -- very small portion of our revenue, and it will -- it has the potential to accelerate on the back of us making an acquisition is how I would have you think about it. Operator: There are no further questions at this time. I would now like to turn the call back over to Todd Chirillo for closing remarks. Please go ahead. Todd Chirillo: That concludes our teleconference for the day. Thank you all for participating and for your continued interest. Have a great day. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.
Operator: Hello, and welcome to the Chartwell Third Quarter 2025 Results Conference Call. My name is Regina, and I will be your conference operator today. [Operator Instructions] I'd now like to turn the conference over to Vlad Volodarski, CEO. Please go ahead. Vlad Volodarski: Thank you, Regina. Good morning, and thank you for joining us today. There is a slide presentation to accompany this conference call available on our website at chartwell.com under the Investor Relations tab. Joining me are Karen Sullivan, President and Chief Operating Officer; Jeffrey Brown, Chief Financial Officer; and Jonathan Boulakia, Chief Investment Officer and Chief Legal Officer. Before we begin, I direct you to the cautionary statements on Slide 2 because during this call, we will make statements containing forward-looking information and non-GAAP and other financial measures. Our MD&A and other securities filings contain information about the assumptions, risks and uncertainties inherent in such forward-looking statements and details of such non-GAAP and other financial measures. More specifically, I direct you to the disclosures in our Q3 2025 MD&A under the heading, Risks and Uncertainties and Forward-Looking Information for a discussion of risks and uncertainties. These documents can be found on our website or on the SEDAR+ website. Turning to Slide 3. Q3 2025 marked our ninth consecutive quarter of double-digit growth in same-property adjusted NOI and FFO per unit. These outstanding results reflect our team's unwavering focus on delivering exceptional resident experiences, driving operational efficiencies and expanding our portfolio with high-quality assets in strong markets. I am extremely proud of their accomplishments and confident in their continued successes. Looking ahead, we expect continued growth in occupancy and cash flows in 2026 and beyond, supported by robust demand and limited new supply in our markets. More importantly, this growth will be fueled by our innovative operational sales and marketing strategies. We remain committed to enhancing our portfolio through strategic acquisitions, building a future growth pipeline via development partnerships and divesting noncore assets. We're also committed to continuous improvements in how we support our residences teams, regularly reviewing our processes, implementing new technologies and automation, including a responsible use of artificial intelligence tools. We are looking forward to sharing with you more details on our 3-year strategy, Chartwell 2028, at the upcoming Investor Day next week. Today, my partners will provide you with more color on various aspects of our business. Karen will do an operating update, Jeff will dive deeper on our Q3 financial results, and Jonathan will discuss our portfolio optimization and growth activities. Karen, over to you. Karen Sullivan: Thanks, Vlad. Moving on to Slide 4. We had another strong quarter of leasing activity with a positive net permanent move-in to permanent move-out of plus 104 units with an increase in both leases and permanent move-ins compared to Q3 2024 and continued growth in occupancy in all four provinces. We held our fourth and final 2025 open house event in September with over 1,400 new prospects visiting our homes, creating a strong pipeline to support continued growth in Q4. We continue to implement property-specific marketing strategies, including focusing on each home's unique selling feature that makes them stand out in their local community. During the quarter, our marketing contact database grew by another 10,000 people with the total reaching over 175,000. We garnered a significant amount of earned media attention in Q3 based on positive local community stories and Chartwell's Wish of a Lifetime national fundraising events held this past summer. The collective efforts of our homes helped raise over $160,000, which will allow us to continue to grant wishes to seniors across the country. With an increasing number of our homes reaching 100% occupancy, we also recently introduced a waitlist strategy to keep prospects interested while they wait for a suite or a specific type of suite to become available. Turning to Slide 5. We reduced our staffing agency costs by 66% in Q3 2025 compared to Q3 2024 through our continued focus on recruitment and retention activities. I'm also very proud to say that we reached our goal of 67% very satisfied residents, according to our most recent survey results, which are conducted by Sensight, a U.S.-based company that specializes in seniors housing. This means that over 2/3 of our residents have -- gave us a score of 5 out of 5 on their overall satisfaction with their home as well as the likelihood that they will recommend their Chartwell home to others. Our combined satisfied and very satisfied score is 88%. Sensight administers surveys annually to over 77,000 residents in -- sorry, 881 homes across 21 companies. The average score in 2025 of very satisfied residents in these residences was 51% compared to our score of 67%. Finally, I want to share examples of our ongoing efforts to develop property-specific strategies in two of our Toronto homes. First, Chartwell Grenadier, which is a large 257-unit residence in Toronto's High Park neighborhood, is in the final stages of a renovation project for their 73-unit assisted-living and memory care tower. The occupancy in these units has now reached 96%. We have plans to continue to renovate the rest of the building in 2026 and 2027, to increase overall occupancy and offer a variety of service levels to meet the evolving needs of residents in this busy urban community. Chartwell Lansing, a smaller 90-unit home in North York, started the year at 75% occupancy and in September reached 100%. We have also made investments in interior upgrades to the common areas in this property, and the management team continues to focus on providing services for residents in this multicultural Toronto neighborhood. I will now turn it over to Jeff to take you through our financial results. Jeffrey Brown: Thank you, Karen. As shown on Slide 6, in Q3 2025, net loss was $5.2 million compared to net income of $23.6 million in Q3 2024. FFO grew to $73.1 million in Q3 2025, an increase of 30.8% compared to Q3 2024. Our reported FFO does not include $1.7 million or [ $0.005 ] per unit of income guarantees related to recently acquired properties. Q3 2025 FFO growth benefited from higher adjusted NOI of $22.1 million, higher adjusted interest income of $1.5 million and higher other lease revenue of $0.8 million, partially offset by higher adjusted finance costs of $3 million, lower management fees of $1.9 million, lower other income of $1.4 million and higher G&A expenses of $0.9 million. In Q3 2025, our same-property occupancy increased 470 basis points to 93.1%, and our same-property adjusted NOI increased $10.2 million or 15.8%. Slide 7 summarizes our same-property operating results for each platform. All of our platforms posted occupancy gains in Q3 2025 compared to Q3 2024, and all are now operating above 90% occupancy, which positively impacted our results. Our Western Canada platform same-property adjusted NOI increased $2.7 million or 13%, our Ontario platform same-property adjusted NOI increased $5.3 million or 14.8% and our Quebec platform same-property adjusted NOI increased $2.2 million or 28%. Turning to Slide 8. At November 6, 2025, liquidity amounted to approximately $508 million, which included $113 million of cash and cash equivalents and $395 million of borrowing capacity on our credit facilities. During the 9 months ended September 30, 2025, we raised $480.5 million of equity through our ATM program at an average price of $17.86, which helped support our transaction activity. And we continue to improve our leverage metrics with interest coverage ratio growing to 3.2x, and our net debt-to-adjusted EBITDA ratio declined to 6.9x. For the remainder of 2025, our debt maturities include $151.1 million of mortgages with a weighted average interest rate of 4.39%. As of November 6, 2025, we estimate the 10-year CMHC-insured mortgage rate to be approximately 3.89% and the 5-year unsecured debenture rate to be approximately 3.87%. I will now turn the call to Jonathan to discuss our recent acquisitions and portfolio optimization activities. Jonathan Boulakia: Thank you, Jeff. Turning to Slide 9. We continue to execute on our portfolio strategy of enhancing our asset base to generate increased quality NOI. On October 1, 2025, we acquired a 100% interest in the 449-suite Les Tours Angrignon in Montreal, Quebec for $88.5 million. The three-tower complex, rebranded Chartwell Les Tours Angrignon, offers a mix of independent and assisted-living accommodations. The purchase price was partially settled through the assumption of the CMHC-insured mortgage of $68.7 million, with the remainder of the purchase price subject to normal working capital and other adjustments paid in cash. On November 1, 2025, we acquired a 100% interest in the 376-suite Residence L'Aubier in Levis, Quebec from Batimo for a total purchase price of $128.2 million. Located in proximity to numerous local amenities, the residence boasts state-of-the-art indoor and outdoor amenities for its residents. It opened in June 2024, enjoyed a rapid lease-up and is currently 82% occupied. Chartwell has managed operations at this residence since its opening. The purchase price was settled in cash and the repayment of a $10 million loan extended by Chartwell to Batimo. A portion of the purchase price is being held back to support vendor NOI guarantee obligations to Chartwell. On November 3, 2025, we acquired a 100% interest in Residence Panorama in Laval, Quebec for a purchase price of $76 million. Residence Panorama, now rebranded Chartwell Panorama, includes 206 IL and 32 AL suites as well as 49 individually-owned condominium suites in a 31-story tower overlooking the Riviere-des-Prairies. Built in 2018, the residence offers exceptional views, state-of-the-art amenities and well-designed spacious suites. The residence is currently 98% occupied. We expect to acquire Residence Azalis located in Repentigny, Quebec before year-end. Residence Azalis, to be renamed Chartwell Azalis, includes 304 IL and 30 AL suites in a 30-story tower, overlooking the St. Lawrence River. Built in 2021, the residence offers exceptional views, state-of-the-art amenities and well-designed spacious suites. The residence is currently 97% occupied. The purchase price of $111 million, before closing costs and working capital adjustments, will be settled in cash. In addition, the previously announced acquisition of a portfolio of six senior housing communities in Ontario is expected to close once third-party approvals are in place, likely in Q1 2026. To date, in 2025, we have completed over $1 billion of acquisitions with further committed investments of $700 million for completion in 2025 and early 2026 on the heels of approximately $1 billion of acquisitions in 2024. We are also actively engaged in discussions with local and national developers across the country to restart our development program and create a meaningful pipeline of state-of-the-art assets to bring into our portfolio. We will pursue such developments in a prudent manner with a preference for off-balance sheet development, similar to our arrangement in Quebec. Further to this initiative, Chartwell announced the development of the 111-suite Chartwell Kingsview Retirement Residence in Calgary with an advance of $4.5 million of the total committed $6.5 million mezzanine financing to local developers. Chartwell will be the operations manager of the project and will have a call option to acquire the residence on stabilization. The project is in an affluent residential area of Calgary in proximity to various neighborhood amenities and will feature self-contained IL apartments and an attractive amenity package. As I've noted, we have invested significant financial and management capital pursuing acquisitions in line with our strategy and have initiated new development projects to support a strong pipeline of future property growth. We have also identified properties within our portfolio that no longer fit our core strategic focus due to their location, size, age and our service offering. These noncore properties represent approximately 5,700 suites. We intend to pursue dispositions of some or all of these properties as market conditions allow, with proceeds expected to be used to support future development and acquisition activity that's in line with Chartwell's current strategy. I'll turn the call back to Vlad to wrap it up. Vlad Volodarski: Thank you, Jonathan. Slide 10 highlights the strong fundamentals driving our industry. We believe we are at the front end of what is going to be a multiyear period of growth in retirement living in Canada. Demand for our services should continue to grow for decades driven by the senior population growth. Forecasts show that to maintain supply-demand balance, the sector would need to build 200,000 suites in the next 10 years, which is almost 3x the number of suites built in the previous 10 years. With high construction costs and aging inventory, supply shortages are likely to persist, supporting higher occupancies, rental and services rates and profitability of the existing operators. As one of the largest participants in the senior living sector, Chartwell stands to benefit from these dynamics. Turning to Slide 11. We are not just waiting for the rising tides to lift our boat with others, we are taking decisive steps to pursue operating excellence, future-proof and grow our portfolio and prudently manage unitholders' capital. Some of the examples you heard today from Karen, Jeff and Jonathan, there are many others that we hope to share with you over time. We are looking forward to sharing our Chartwell 2028 strategy, financial objectives and risk management guidelines as well as the details of our key operating investment capital and risk management initiatives at our upcoming Investor Day on Thursday, November 13, 2025, at 1:00 p.m., which will take place at our beautiful Chartwell Hub. At this event, you will have an opportunity to hear from several Chartwell leaders, participate in a Q&A session and interact with Chartwell directors -- executives and directors over a beverage of your choice. If you have not done so, please register for the event. Details are on our website at investors.chartwell.com under Press & Market Information tab. I will now close our prepared remarks with a story from one of our residences as pictured on Slide 12. At Chartwell Heritage Valley, one small act of kindness grew into something extraordinary. A resident visiting his wife in memory care asked if he could paint a few walls, wanting to help and contribute. That simple gesture sparked a wave of engagement throughout the residents. Soon, residents were volunteering across the community, helping with bingo, newsletters and events. The team created a Resident Volunteer of the Month program, and from there, two resident-led clubs were created, a choir and a drama club. Their first original play, Old MacDonald's Farm, written and performed by the residents, brought laughter, pride and connection. So much so that they took the event on the road to another Chartwell home. Moments like these remind us what Chartwell is truly about, people finding purpose, joy and belonging to a community. Thank you for your attention this morning. We would now be pleased to answer your questions. Operator: [Operator Instructions] Our first question will come from the line of Lorne Kalmar with Desjardins. Lorne Kalmar: I'm just looking at the drama club rehearsal picture here, and it looks awesome. On -- just maybe on the rent growth side of things. Now you're going to get to -- slated to get to 95%. I think you're still kind of high 3s on the rent growth side, when do you see that starting to pick up? And sort of what do you see the cadence of the rent growth looking like over the next couple of years? Vlad Volodarski: Thanks, Lorne. So items that impacted a bit the rental rate growth this quarter, in particular, was the annualization of the incentives that were put in place over the last couple of years or last year in particular and this year to help with the occupancy growth as we continue to have more and more homes reaching that 95% occupancy. Our expectation is that these incentives will be pulled out. And in fact, when we look at the new incentives granted this year, they've actually already started coming down compared to last year, and we expect that trend to continue. In terms of the kind of more longer-term rental rate growth, our expectation is that in the environment where there's demand growing and supply is not, we will have an opportunity to increase market rents at a faster pace. We will certainly limit the increases to the existing residents at a more historical level, which is inflation plus a little bit, to compensate for the increase in the labor cost that we're experiencing across the sector, but market rate, we expect them to grow faster. Lorne Kalmar: Okay. And can you maybe just give us a little bit more color in terms of what the incentives are that are kind of rolling off and where you see them going, I guess, next year? Vlad Volodarski: So today, the overall incentives are about 5% of revenue. And so as we continue to remove those incentives in the homes that are achieving higher occupancy levels, that overall number will start coming down, and that will contribute to the overall rental rate growth over time. Lorne Kalmar: Okay. Perfect. That's very helpful. And then maybe just one last one for me. Obviously, you guys had some pretty meteoric earnings growth. Has the Board talked about a potential distribution bump here? Vlad Volodarski: The -- our intent is to begin distribution increases and then maintain those increases over the year, similar to what we've been doing pre-pandemic. If you recall, I think we started our distribution increases back in 2014, and we continued growing them every year all the way up to 2020. And then during the pandemic, we chose to maintain the level of distributions. We feel like we are getting to a point where our cash flow fully covers distributions and capital investments that we need to make in our properties, and our expectation is that we will start growing distribution increases. I can't tell you exactly the timing of it just yet, but that's certainly the intent. Operator: Our next question will come from the line of Jonathan Kelcher with TD Cowen. Jonathan Kelcher: First question, just on the acquisition, you guys obviously very active this year, and you're just recharging the ATM now. How would you say the pipeline looks over the next few quarters? Jonathan Boulakia: We're actively working on that pipeline. As I mentioned, we have two kind of pipelines going. One is on the development side where across the country, we're active -- in active discussions with local and national developers, so that we can address that pipeline for maybe when the real estate cycle isn't as robust on the acquisition side. And on the acquisition side, we are seeing a number of deals, and we think we have a decent pipeline going both on the 1s and 2s type deals and also on the portfolio side. Jonathan Kelcher: Okay. And by across the country, you mean in your existing geographies, correct? Or you are looking at new stuff? Jonathan Boulakia: Correct. Jonathan Kelcher: Okay. And then secondly, you talked a little bit about renovations, given the Grenadier as an example. How do you pick homes for that? And what type of returns do you target on those investments? Vlad Volodarski: I'll take that one. So there's different levels of renovations and the ways we look at them. In some cases, we renovate properties that have been operating for a period of time and now due for renovations. And our approach to that is instead of doing sort of a little bit here, a little bit there, to renovate the whole property at the same time, sometimes it can take more than 1 year just because of the size of the undertaking, and we are trying to do it in a way that minimizes as much as possible the disruption to the existing operations and the residents. So that would be one approach. The other approach would be when we holistically look at the properties that may not need to be fully renovated just yet and looking at the potential of repositioning those properties in the marketplace. So Grenadier would be a good example of that. Over the years, we've been investing in this property. It looks wonderful already. We just feel that given its location and the potential, that property is being now under significant review for significant renovation and repositioning. Renovation of the assisted-living neighborhood that Karen talked about is completed, and there will be potentially or likely other phases of renovations for these properties, which will take quite a few years. And we will be targeting pretty good returns on these through the increase in market rates over time. And those renovations also will make the operations of the buildings more efficient, so there may be some opportunities on the expense savings over time as well. Jonathan Kelcher: Okay. So do you sort of -- it sounds like the first bucket is sort of almost a maintenance CapEx, just given the property's age, and the second one is more of a push NOI on an existing basis. Is that a good way to think about it? Vlad Volodarski: Not necessarily because when the property is completely renovated, even just because it was due to be renovated, there are still opportunities to drive higher market rate increases over time because it becomes just so much more attractive to the potential customers. It's just the timing of the execution of these projects coincided with the timing, effectively the existing sort of aesthetics getting to the end of their useful life. In some cases, we would renovate buildings even before that is the case. Operator: Our next question will come from the line of Himanshu Gupta with Scotiabank. Himanshu Gupta: On your same property occupancy, I mean, it looks like you have reached that 95% target for December. What is the next goalpost from here? I mean how do you keep the sales team hungry or motivated from there? Vlad Volodarski: Yes, it's a great question. So just to remind you, our turnover is about 30% across portfolio. So they have their work cut out for them even without the occupancy growth, there is quite a bit of units to be leased every year. Anyway, the conversations that we're having with our teams in the field and our sales teams corporately that supports them, is that the target for each individual property should be 100% occupancy with a healthy waitlist. Now we are under no illusion that this possible to be achieved across 160, 170 residences across the country. So I wouldn't want you to start putting that in your models. But certainly, everybody is motivated to drive to that number. And so we've -- and again, we'll talk about it at the Investor Day even more, but we're putting changes in place, both in the compensation side of things and the training side of things, Karen mentioned about waitlist, management strategies. So there are a number of strategies that are being put in place to help people to continue to focus on replacing units that are turning over every year and continue to grow occupancy as much as possible. Himanshu Gupta: Got it. And just to follow up there. Do you have a sense what is the occupancy for your immediate competition in your same-property portfolio? I mean, what I'm getting at is that is there still opportunity to take the market share from your competitor from here? Or do you think they are also at very similar levels or kind of... Vlad Volodarski: It's very hard to answer that question, Himanshu, because it's so local and case specific. With the current environment where there is -- demand is growing, and supply has not been, I think there's enough for everybody to run high occupancy. What we're trying to do with our portfolio through all these portfolio optimization and growth initiatives is to position it in such a way that we can continue to maintain market-leading occupancies in everywhere where we operate. And so that would be our target. Himanshu Gupta: Okay. Fair enough. Switching gears to same-property expenses here. I think it was kind of up like 4% on a year-over-year basis in Q3. Agency staffing is obviously down. I mean, good progress there. How should we think about same-property expenses into next year, like a similar 4% range or more like 3% to 4%? Jeffrey Brown: Himanshu, we think, we do have still some occupancy-related increases in our DOE this year. So we'll have some of that next year as we have the sort of annualization growth of 95%, but less so. So we think we should be able to have a lower growth level in DOE next year. Vlad Volodarski: I would mention on that, Himanshu, there continues to be some pressure on compensation costs for our employees pretty much in all of our markets. The intervention by the government during the pandemic years continues to impact or sort of lagging effect of that continues to impact wage rates across the country. So our expectation is the 2026 compensation cost will be higher than what we've got used to historically, where historically, these costs increased by 2% to 3% a year. Now we've seen several years of 4% or 5% increases, and we're probably going to see at least another year of that given the dynamics in the labor market. Himanshu Gupta: Got it. Fair enough. Last question is on the recent acquisitions. I look at Panorama and Azalis, I think both in Quebec, fully stabilized occupancy. So what kind of NOI growth do you expect on these acquisitions? Or like what kind of IRRs did you underwrite for like these stabilized acquisitions here? Vlad Volodarski: We think that these properties improve the overall quality of our portfolio. And even though they do not have a lot of room to run on occupancy growth, our ability to increase market rates over time, we think is going to be better in these homes than in some of the existing homes that we operate that are older in the similar markets, and we certainly feel and see some accretion to our cost of capital from the IRR perspective on a 10-year basis from these acquisitions. Otherwise, we would not be doing them. Himanshu Gupta: Yes. No, fair enough. And is it like more of a value angle here? Like I see all these two, three acquisitions are around $300,000 per suite or per unit. I mean, what's your estimate of replacement cost for these units? Is that the biggest rationale to go for these acquisitions? Vlad Volodarski: Yes. They're still done at significant discount to replacement costs. Jonathan mentioned that we started two development projects in Montreal -- in Quebec -- well, yes, both of them are in Montreal, Greater Montreal area, where we're building additions to the existing residences. And even though you are not building a lot of common areas, these are just unit additions. So the construction is a bit more efficient than on a greenfield development, the cost of these additions are significantly higher than $300,000 a door. Operator: Our next question will come from the line of Giuliano Thornhill with National Bank Capital Markets. Giuliano Thornhill: I'm just wondering on the waitlist that you mentioned at the beginning, kind of like how long is the waitlist there and what markets that's in? And what's kind of the gap to in-place to market rent that you're seeing for those properties? Vlad Volodarski: So again, it varies location by location. There may be more properties that have waitlist for a certain number of -- for certain type of units, they may not be having 100% occupancy everywhere, but people waiting for specific types of units, and there are some properties that have waitlist for all kinds of units. A lot of these properties located in, for example, in British Columbia, that market has been underbuilt for a period of time. And so many of our homes in that market have robust waitlists. And in those homes, market rates go up by at least high single digits, more often than not in low double digits. So that's to give you a sense of the gap between the in-place rents and market rents. Giuliano Thornhill: Okay. And is there any like cadence for the number of homes that you could provide or -- that are kind of in that -- in, I guess, fully occupied waitlist area? Vlad Volodarski: Well, in the same-property portfolio, it's close to 10 homes that are now at 100% occupancy, and there's probably another 30 homes that are between 95% and 100% occupancy. Giuliano Thornhill: Okay. And then just turning to the disposition candidates. I think last call, you kind of provided a rough estimate of 3,500. Now it's gone up to -- 3,500 to now 5,700. I'm just wondering what's the delta attributed to there? Vlad Volodarski: We continue to review our portfolio and sort of the types and the qualities of properties that we own and reevaluate our approach to determine what we consider to be noncore is also driven by the acquisition opportunity, both completed and what we're seeing out there that are potential. And so as a result of these ongoing exercises, we've increased the size of this noncore portfolio. Now it will take some time to sell these properties. It's not going to be -- unlikely to be sold all in one time. And so also, I would mention that these properties are performing properties. They're not struggling in any sense of the word. The reason that they ended up being as part of noncore portfolio is just they do not fit necessarily in our view and aspirations of what we want Chartwell portfolio to look like in, say, a couple of years' time from now. Giuliano Thornhill: Okay. So it's kind of a mix of the repositioning and whichever ones do you want to, I guess, optimize your same-property portfolio? Vlad Volodarski: The 5,700 suites that Jonathan mentioned would be eventually sold. That's noncore portfolio that we identified that we unlikely to reposition and remain in the Chartwell portfolio over the long period of time. Giuliano Thornhill: Is there a lot of properties in that bucket, which have some conversion potential into like apartments or something else? Vlad Volodarski: No. I think the hard work that we had to do when we repositioned some properties for alternative use or sold them for maybe a little lower valuations, all that work has been done. By now, we do not have even -- I cannot think of one property that's left that would be in that kind of bucket. This noncore property portfolio are well-performing properties, They just don't fit our view of Chartwell portfolio going forward because mainly of their size, their locations, their vintage, their capital requirements, things like that. Giuliano Thornhill: Okay. And then just kind of last question on that is just was there any kind of time line you can provide on a Ballycliffe quite yet? Vlad Volodarski: There's no update on Ballycliffe at this point of time. The building is open, the residents are moved in into their new environment and it's operating, and we continue to evaluate our options. It's certainly not something that we intend to hold for a long period of time. But right now, there's no impact on that. Operator: Our next question will come from the line of Pammi Bir with RBC Capital Markets. Pammi Bir: Just on the development side, you are pursuing some new projects. But are you starting to see perhaps more developers kick-start some new developments and maybe which markets are more active than others? Jonathan Boulakia: Sorry, you're asking whether we're seeing more? Pammi Bir: Yes. Yes. Are you seeing more development? Jonathan Boulakia: Yes. And I think as our asset class is becoming more and more attractive to people and people are looking for alternative uses for the land that they are looking to develop, that is becoming more of a trend. So we are getting approached frequently by local developers and more national institutional developers who are figuring out master plans in communities. And so we have a number of those that we're looking at and it's becoming more and more active. Pammi Bir: I guess if you step back and just think about the broader market, and new projects starting by others as well. In terms of deliveries, how do you -- at what point do you start to expect them to pick up? Is that perhaps more 2028? '27? Or -- just trying to get a sense of the cadence. Jonathan Boulakia: We expect to see a pickup in starts in 2026. So probably a pickup in deliveries, yes, you're probably right, '28, '29. Some of these master planned communities might take a bit longer, but '28 and thereafter. Pammi Bir: And I just wanted to reconcile some of the comments around rent growth. I think if you're putting up, let's say, overall, an average of roughly 4%, I think, this year, just given the momentum that we've all seen across occupancy in the broader market, does that look something more like 5% on a blended overall average for the portfolio in '26? Or is it still kind of hovering in that, call it, 3% to 4% range? Vlad Volodarski: Yes. For '26, it's -- we'll target something higher than 4%, somewhere probably between 4% and 5% on a blended basis, depending on turnover, it depends on a lot of other things. Also remember, part of what's included in these numbers is some government-funded beds that we have in Alberta, for example, and they would drive down overall rent increases because the government increases are not as high as what we're passing on a private basis. Pammi Bir: Got it. Okay. And then just last one for me. The leverage has obviously come down pretty nicely. The ATM has been quite effective. But as you think about the next year or 2, I think you've previously cited 7.5x debt-to-EBITDA as sort of your target, is that the right figure? I mean, is there perhaps any consideration of taking that lower just to really sort of solidify the balance sheet and insulate it from any sort of future shocks even more? Or is that sort of the level that you're comfortable with? Jeffrey Brown: Yes. Pammi, we did end the quarter at 6.9x. So that was more timing based on some of the acquisitions closing in October and November. So we are still targeting 7.5x, and it's the number we do review, but still think it's the right leverage level for the company. It does provide some good balance sheet flexibility for us for the future. Operator: Our next question will come from the line of Tal Woolley with CIBC. Tal Woolley: Just wanted to start on talking a little bit about turnover. I think, Vlad, you mentioned earlier on the call that 3 years is still typically around the average stay. I'm just wondering if you expect that to shift at all going forward? Just now that the LTC system is sort of full again, there's maybe not quite as many options. And so do you expect to see turnover increase? And then also wondering if you can sort of provide a -- what is an average rent lift you would typically see on turnover? Vlad Volodarski: On the first question, Tal, I think turnover changes will be a function of renewal of our portfolio. If we focus on more independent type of residents. So for example, the turnover in Quebec portfolio for us is about 25% and turnover in the rest of the country is between 35% and 40%. And so as we focus more on independent residents, some of the acquisitions that you saw us announcing in Ontario and BC are in that independent space then turnover will probably come down a little bit. But again, the portfolio size is such that some additions of these homes may not necessarily change that dynamic significantly. In terms of the rent gap between in-place and market, it is very building-specific. So I can't tell you what the gap is other than that our expectation is that with the declining incentives that we're required to provide to continue to maintain and drive occupancy and the properties achieving high occupancy levels more broadly, our expectation that we will be able to increase market rates significantly higher than what we would do in terms of increases to our existing residents. Tal Woolley: Okay. And then in your noncore portfolio sales, who are the typical buyers do you expect to see at the table when you put these on the market? Vlad Volodarski: I guess we'll have to see. We haven't had things in the market recently, but there are a number of private equity groups that are focused on this asset class now, interested in a more value-add play. And to the extent that they come to the table, I think those will be the more natural purchasers of these assets. Tal Woolley: Okay. And when you segment your portfolio, the repositioning portfolio, when I look forward, I appreciate it's sort of like the -- it's the least same-property like of the group -- of the segments. But should we be expecting that occupancy to materially improve? Or is that going to be a bucket that's sort of constantly changing going forward? Vlad Volodarski: Well, our expectation is that the occupancy will continue to improve in all properties in our portfolio, whether they are noncore or core. The there is no reason why it shouldn't be the case. Dynamics are similar across the board in pretty much every market where the demand is growing and supply is not. So every home should operate at high occupancy levels. The bucket itself or that portfolio composition will change. I mean we will change that on January 1, 2026, like we always do, where some of the properties that were acquired in the last couple of years will move into the same-property portfolio when they have full 12 months comparative. And some of the properties will move to a different bucket. So hold on for that, on January 1st or before, we will let you know what the composition of same-property portfolio, growth portfolio and repositioning portfolio would look like going forward. Tal Woolley: Okay. And then just lastly, I think in your MD&A, you sort of referenced that effectively like your 10-year CMHC-insured borrowing costs are pretty much the same as 5-year unsecured right now. Are you tempted to use the unsecured market more going forward? I know it's -- administratively, it's a lot easier to work with. Just curious about financing options on the debt side. Jeffrey Brown: Yes, Tal. I mean there are different tenors. So they're not exactly apples-to-apples, but we have been more active in the debenture market over the last 18 months. And so as we look and have a need for debt financing, we do look at both of those options and are picking the lower cost of the two. Operator: [Operator Instructions] And our next question will come from the line of Tom Callaghan with BMO Capital Markets. Tom Callaghan: Maybe just going back to Pammi's line of questioning on the development side. Obviously, you guys have had lots of ongoing discussion with different developers and looking at these yourselves. But just curious, looking to get a sense, cost-wise, what are you seeing? Are you starting to see some deflation trickle in on the cost side of things? And if so, is there a way to think about that deflation, say, if you were looking at that same project 12 months ago? Jonathan Boulakia: We are seeing some deflation on costs. It really depends on where, like in which jurisdiction and what buckets, but certainly on some materials and some trades, we see more availability on the trade side, and that results in some deflation on costs. And these developments, frankly, also become more feasible as rate catches up, which it has done in the last couple of years, and that's helping also with the equation. Tom Callaghan: Okay. Okay. And then on the project there that you announced with the partner in Calgary, Kingsview, I think, is there a cost per suite that we could kind of think of for that type of development? Jonathan Boulakia: Well, this development is off balance sheet for us. So we would be buying it at fair market value at the back end. Cost per suite, I'd have to get back to you on it. Tom Callaghan: Okay. No, no, yes. I understand it's off balance sheet, just more trying to get a broader sense or picture of costs for new development. Maybe switching gears just housekeeping one for me. I think earlier in the year, you had mentioned some potential for CMHC up financing proceeds. Is that still to come? And if so, how much should we be thinking about there? Jeffrey Brown: You're asking about what's left to do this year in terms of CMHC? Tom Callaghan: Yes. I think, Jeff, you mentioned maybe potentially some up-financing opportunity on CMHC like incremental... Jeffrey Brown: We still have some financings to close for the balance of the year. And sort of as we look out over the next 12 months, just close to $300 million of total CMHC financings, but the bulk of that would be refinancings of conventional mortgages on some properties. It's -- probably less than half of that is incremental new financing. Tom Callaghan: Okay. Okay. So less than half of $300 million. Jeffrey Brown: Yes. Operator: And that will conclude our question-and-answer session. And I will now turn the call back over to Vlad for any closing comments. Vlad Volodarski: Thanks, everybody, for joining us today. Just another reminder, if you have not already done so to register for our Investor Day event taking place at Chartwell Hub on November 13 at 1:00 p.m. We're looking forward to seeing you then. In the meantime, if you have any further questions, please do not hesitate to give any one of us a call. Goodbye. Operator: This will conclude our call today. Thank you all for joining. You may now disconnect.
Operator: Good morning, and thank you for standing by. My name is Ludy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Silvercorp's Second Quarter Fiscal 2026 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Lon Shaver, President of Silvercorp. Please go ahead. Lon Shaver: Thank you, Ludy. On behalf of Silvercorp, I'd like to welcome everyone to this call to discuss our second quarter fiscal 2026 financial results. They were released yesterday after the market closed and a copy of our news release, MD&A and financial statements are available on our website and SEDAR+. Before we get going, please note that certain statements on today's call will contain forward-looking information within the meaning of securities laws. And also please review the cautionary statements in our news release as well as the risk factors described in our most recent regulatory filings. So let's kick off the call with our financial results. We delivered more solid performance in Q2 highlighted by our revenues of $83 million, which was up 23% from last year and marks the second highest quarter ever. Additionally, cash flow from operating activities was $39 million, and that was up 69% from last year. This performance was mainly driven by a 28% and 37% rise in the realized selling prices for silver and gold compared to last year. Also notably, the amount of gold sold in the quarter was up 64% compared to last year. Silver remains our most significant revenue contributor at approximately 67% of net Q2 revenue, followed by lead at 16% and gold at 7%. Moving down the income statement. We reported net income of negative $11.5 million for the quarter or negative $0.05 per share. This is down from positive $17.8 million or $0.09 a share in Q2 of fiscal 2025. However, this quarter had a significant $53 million noncash charge on the fair value of derivative liabilities, which was partially offset by a $22 million gain on investments. Removing noncash and onetime items such as this, our adjusted net income for the quarter was $22.6 million or $0.10 a share versus $17.7 million or $0.09 a share in the comparative quarter. Note that the average shares outstanding used to calculate EPS this quarter was 218.6 million compared to 206.5 million in the same period last year. On the capital spending side, we invested nearly $16 million at our operations in China and $11 million in Ecuador during the quarter. We generated $11 million in free cash flow for the quarter, which supported our strong closing cash position of $382 million. This cash position does not include our investments in associates and other companies, which had a total market value of $180 million on September 30. And after quarter end, we participated in New Pacific Metals equity financing and acquired an additional 3 million common shares for roughly $7.8 million. Also, subsequent to quarter end, in October, we made the first draw on our $175.5 million Wheaton Precious Metals streaming facility for the El Domo project. We drew down the first $43.9 million tranche, which will be used to fund our ongoing construction at El Domo. Now to just quickly recap our operating results. As we reported last month, in Q2, we produced approximately 1.7 million ounces of silver, just over 2,000 ounces of gold, 14 million pounds of lead and 6 million pounds of zinc. Silver production was essentially flat, but gold production was up 76%. So silver equivalent production, considering just the silver and gold was up 5%. Lead production was up 8% and zinc production was down 3%. Production at Ying was impacted by the temporary closure of certain mining areas, which have since reopened. We expect to mine approximately 346,000 tonnes of ore in this current quarter Q3 compared to the 265,000 tonnes mined in Q2. At the GC mine, production in Q2 was interrupted for about 10 days by Typhoon Ragasa. Year-to-date, we have produced 3.5 million ounces of silver, 4,135 ounces of gold, 30 million pounds of lead and 11 million pounds of zinc, which represents increases relative to last year of 3%, 78% and 4%, respectively, in silver, gold and lead production and an 11% decrease in zinc production. On the cost side, Q2 production costs averaged $83 per tonne at Ying which was down 11% from last year. The improvement reflects greater use of shrinkage stoping over the more labor-intensive cut-and-fill resuing method along with higher ore throughput. Year-to-date production costs also averaged $83 per tonne, which was below the Ying annual guidance of between $87 to $88 per tonne. Ying's cash cost per ounce of silver net of byproduct credits was $0.97 in Q2 compared to $0.62 in the prior year quarter. The increase was driven by a $4 million increase in production costs due to 26% more ore being processed, while silver production grew by only 1% as shrinkage mining tends to have higher dilution rates. This was partially offset by a $3 million increase in byproduct credits. Q2 all-in sustaining cost per ounce net of byproduct credits was $11.75 at Ying, up 30% from the prior year quarter due to a $1.4 million increase in mineral rights royalties following its implementation in China in Q3 of fiscal 2025. A $2.6 million increase in sustaining CapEx and those previously mentioned factors that impacted cash costs. Overall, for the operations, consolidated mining operating income came at $40.8 million in Q2, with Ying contributing $38 million of that or over 93% of the total. Turning to our growth projects. At Ying, we invested $6 million in the quarter for ramp and tunnel development to enhance underground access and increased material handling capabilities. This work goes hand-in-hand with our efforts to expand mining capacity across the 4 licenses at Ying. Recall that last year, the SGX mine permit was renewed for another 11 years with capacity increase to 500,000 tonnes per year. The HPG permit was also renewed and expanded to 120,000 tonnes and the DCG permit was increased to 100,000 tonnes. We're now in the process of applying to increase the TLP LM permit to 600,000 tonnes per year with approval expected later this quarter. Once all approvals are in place, Ying's total permitted annual mining capacity will rise to 1.32 million tonnes from approximately 1 million tonnes currently. At Kuanping, that's the satellite project north of Ying, mine construction continued with 831 meters of [ ramp ] development and 613 meters of exploration tunnelling completed in this quarter. Kuanping has a mining permit to produce 200,000 tonnes per year, which at a full contribution, would bring our total mining capacity at Ying up to 1.52 million tonnes per year. Switching to Ecuador. Construction at the El Domo project is moving ahead steadily. In Q2, around 1.29 million cubic meters of material work cut for site preparation. Roads and channels, and that was a roughly 250% increase over the previous quarter. A 481-bed construction camp has been completed and work on the tailings storage facility began in September. For the 6 months ended September 30, approximately 1.66 million cubic meters of material were cut or removed, and $14.6 million of expenditures were capitalized. Contracts for 4 sections of the external power line have been awarded to qualified Ecuadorian contractors, pending review by the state power distributor, CNEL. Additionally, orders for equipment with a total value of $22.2 million have been placed. Overall, since January of this year, approximately $18.9 million has been spent on capital expenditures and prepayments for equipment purchases related to El Domo. At the Condor Gold project, we kicked off the [ PEA ] for an underground gold operation and expect to complete this study before the end of the year. As a reminder, at Condor, our plan is to construct 2 exploration tunnels into the deposits, which will allow us to conduct underground detailed drilling. In order to do this, we required environmental license and water permits. The studies to support these applications have been ongoing over the year. And during the quarter, we submitted our application for the water permits. The application is now pending final approval. We have submitted our application for the environmental license, and it is under review by the relevant authorities. And with those updates, I'd like to open the call for questions. Operator: [Operator Instructions] With that, our first question comes from the line of Joseph Reagor with ROTH Capital Partners. Joseph Reagor: I guess first thing on El Domo, the guide for CapEx compared to what you spent year-to-date, is it a matter of -- there's a big lift coming here soon or some long lead items that you guys have to pay for? Or is it -- are things maybe tracking a little slower than anticipated as far as capital spending goes? Lon Shaver: I was probably tracking a little slower initially. We began construction this year focusing on earthworks, and it was clearly a wetter year than Ecuador has experienced in past rainy seasons. But I think we've ramped up significantly here in recent months as indicated by the results that we published this quarter. And going forward, we should be able to provide an update on our construction progress this quarter, particularly as we are looking to execute the contract for bid package #2 in due course. And that's obviously the contract associated with stripping of the open pit and actually mining of the deposit. And we'll be in the position here shortly to share results from the metallurgical testing program that we've undertaken this year. So we expect to have an update prior to year-end where we can bring all these items forward and provide any updates. Joseph Reagor: Okay. And also on El Domo with the Wheaton drawdown, I think initially, when you guys made the acquisition, there was some thought that there was a potential to maybe buy that stream out or not use it in some way, but now you've drawn down on it. Does that just reflect that there was no way to really negotiate out of it given gold and silver prices have moved so positively since it was signed? Lon Shaver: Well, I think your last comment really indicates what we'd be dealing with to renegotiate. There was contractually an opportunity to adjust the stream at the time of the acquisition. It didn't make sense at the time, and it still doesn't make sense based off of those numbers. What might be available to negotiate with Wheaton, I can't comment on. You'd have to speak to them as well in terms of what their expectations are based on the contract that they entered into with Adventus. Joseph Reagor: Okay. Fair enough. And then just on guidance, it sounds like you guys are expecting a pretty strong catch-up quarter at Ying in Q3 and that, that will get you back in line with guidance, whereas if you were operating at normal rates, you'd kind of be tracking a little below after the Q2, let's call it, issue for lack of a better word. Lon Shaver: Yes. I mean, clearly, Ying is a mine in transition as we look to increase mechanization, we've certainly been demonstrating other than the temporary setback in this last quarter, the ability to generate tonnes. So that has been ramping up nicely. Also, we've been able to deliver more tonnes and produce more gold. So that is a bit of a shift in the profile. But whether we're able to make up for what was missed in so far this year, a little early to tell. I think it will depend on our ability to run at those expanded rates, great profile going forward and also Q4, just -- last year, we had some excess tonnes and we had a brand-new mill with excess capacity to work through those. So it kind of remains to be seen what we can push through in Q4 to get away from what has seasonally been a slower quarter. So still a bit early to tell. But as you point out, we're in a bit of a catch-up mode here. Operator: [Operator Instructions] And we have no further questions at this time. I would like to turn it back to Lon Shaver for closing remarks. Lon Shaver: Okay. Well, great. Thanks, operator, and thanks, everyone, for joining us today. If anyone does have any further questions after the call, please feel free to reach out by calling or e-mailing us. We look forward to hearing from you, and we look forward to catching up to discuss the results of our third quarter. Thanks, everyone, and have a great day. Operator: And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.